The Daily Shot And Data - March 18, 2016

The US dollar has experienced 2 consecutive days of 1% declines - something we haven't seen in years. The declining dollar now drives risk assets such as equities, commodities and emerging market currencies and is in effect a form of monetary easing.

Source: Investing.com

Dollar-yen dipped below 111, a support level the currency pair is probing for the third time.

Source: Investing.com

The renewed yen strength isn't working out well for Japanese shares. The BoJ must be quite upset with the Fed, who in effect has entered the "currency wars".

Source: Google

The 10yr JGB yield hit a new low as the strengthening yen should result in more disinflationary pressures for Japan and potentially an accelerated QE.

The demand for yield in Japan has resulted in cross-currency basis approaching record lows (demand to convert dollar fixed income assets into yen).

Source: @MatsGlettenberg

In the Eurozone, the inflation figures were adjusted higher, with the core CPI at 0.8% (vs. 0.7% expected). This was enough to send the euro higher.

Once again, this must be a real pain for the ECB as the euro had its third sharp rally in the past few days. The ECB too might be annoyed with the Fed.

Source: barchart

In other Eurozone developments, the ECB may soon face a shortage of bonds to buy. This shortage may end up pushing yields even deeper into negative territory, making fewer bonds eligible for purchases - a vicious cycle.

Source: Goldman Sachs, h/t Josh

Turning to China, the nation's housing market surprised to the upside. House prices increased 3.6% vs. 2.5% expected.

Moreover, China property price gains are starting to broaden to Tier-2 cities. Material price increases in Tier-3 and 4 will take some time because of the massive unsold inventories.

Source: Nomura, @Callum_Thomas

The recent strength in China's housing can be seen in the stabilization of the country's cement prices.

Source: SunSir.com

Here are some observations about other emerging economies.

1. Brazilian markets surged on new hopes that Rousseff will be removed from office. Lula being sworn in as Rousseff's chief of staff in order to shield him from prosecution isn't helping with the social unrest.

2. Colombia's imports decline more than during the Great Recession on weak peso.

Source: barchart

3. Egypt's central bank raised interest rates by 150 basis points which was more than expected. This is an attempt to reduce the pressure on the currency after a big devaluation recently.

4. South Africa's central bank also raised the benchmark rate to 7% to strengthen the rand and halt the recent increases in inflation.

These nations are using the current lull in the Fed's hiking cycle to stabilize their currencies.

5. Russian industrial production stabilized, surprising to the upside. Could the worst of the Russian recession be over?

Source: barchart

Driven by stronger energy prices, a weaker dollar, and to some extent the industrial production report, the ruble continues to rally.

Source: Investing.com

6. Here is how the government debt-to-GDP ratio changed recently for a number of emerging economies.

Source: @IIF

We now turn to the commodities markets where the rally has broadened.

1. This is the Continuous Commodity Index finally recovering.

Source: barchart

2. The WTI crude oil futures rose above $40/bbl.

Source: barchart

As discussed before the WTI curve has been flattening (contango declining).

Source: ERC Equipoise

As a result of the above, crude oil storage futures fell further.

Source: barchart

By the way, according to the WSJ, the analysis of how much oil is in storage globally shows "missing barrels". Could there actually be less in storage than we think?

Source: @pdacosta, h/t Josh

3. Metals moved higher as well. Here is iron ore (bouncing back), copper, and palladium - just some of the examples.

Source: barchart

4. Your breakfast may become more expensive soon. Hogs, coffee, cocoa, and sugar are all higher. For those who prefer lox to bacon, the price of salmon is on the rise as well.

Source: barchart

Source: @JavierBlas2, @EmikoTerazono, @FT

5. Lumber futures rose again. The weaker dollar and possibly the renewed demand from China are driving lumber prices higher.

Source: barchart

Switching to US economic news, here are some trends.

1, The M1 money supply growth continues to fall. This hasn't spilled over into M2 (the broad money supply) -yet.

2. Here is the US Beveridge curve, which is using an alternative unemployment measure (Hornstein-Kudlyak-Lange). It still shows the dislocation, caused to some extent by the skills mismatch.

Source: @SoberLook

3. Another way to demonstrate the skills mismatch is by looking at the hires-to-openings ratio - which has been declining.

4. The Philly Fed Manufacturing Index unexpectedly recovers. New orders and current shipments are both up.

Now some observations on the US equity markets.

1. Retail investors still seem to be sitting in cash - missing the rally.

2. This year, high dividend shares have significantly outperformed. The FOMC gave them an additional boost.

Source: Ycharts.com

3. Politicians and the Valeant situation did quite a job on biotech shares.

Source: Ycharts.com

4. The Dow and the S&P500 are now up for the year. Transport shares are outperforming.

Source: Ycharts.com

Finally, back to Valeant as the share price continues to collapse.

Source: google

The firm's adjusted earnings have been significantly higher than the reported figures - with the gap growing over the past few years. It will be interesting to see if the SEC decides to take action in order to avoid such situations going forward.