The Daily Shot And Data - May 10, 2016

Greetings,

We begin with the latest yen decline caused by several intervention hints from Japanese officials. The improved risk appetite and the big net long yen exposure of speculative accounts added to the yen selloff (dollar rally shown below).

Source: Investing.com

The strengthening US dollar (above) caused a sharp correction in metals and mining shares. Here is the chart over the past 5 days - down 14.5%.

Source: Ycharts.com

Morgan Stanley, however, sees this dollar-yen rally as being short-lived, capped by the lower real yield differential between the US and Japan. Note that while the absolute rate differential between US and Japanese bond yields is quite large, when adjusted for the respective inflation rates, the spread is much tighter.

Source: Morgan Stanley, h/t Jake

Below are several other observations related to Japan.

1. The BoJ balance sheet continues to expand in a linear fashion.

2. The BoJ's inflation forecasts have been consistently optimistic. Here are the projections over time.

Source: Citi

3. Japanese longer-dated mortgage rates are hitting new lows. Presumably, this is an indication of improved monetary transmission (negative policy/bond rates impacting household and corporate lending rates).

Source: ‏@MktOutperform

We now turn to China where (as discussed earlier) stimulus has been conducted via policy banks (notably the Agricultural Development Bank of China). The PBoC has no need to expand its balance sheet because (unlike in the West) it can force banks, especially state-controlled institutions to do so.

Source: @business

Here are several other developments in China.

1. Steel prices in Shanghai continue to fall.

Source: barchart

2. Speculative activity, particularly in steel and iron ore, has been tremendous. This trading is evidenced by the unusually short holding periods (chart below) for some commodities. With Beijing imposing restrictions (and with the US dollar a bit stronger), the selloff ensued (above).

Source: @ek_obrien

3. Is China PPI deflation about to end? If the smaller PPI declines are driven by the recent pop in industrial commodities, the current reversal should push China's PPI lower again.

4. China's stock markets took quite a beating over the past couple of days.

Source: barchart

5. The nation's share of the global supply chain continues to decline as production costs rise (wages, etc.)

Source: Nomura, h/t @EMgist

6. Is China's long-awaited rebalancing finally here? Many remain skeptical. For example, Beijing is currently pursuing more investment (as well as credit expansion) in order to boost growth. The nation's economy is "addicted" to investment and removing the "drug" will be economically painful.

Source: BofAML

We now go to other emerging economies.

1. The constitutional crisis in Brazil continues. Here are a couple of headlines in chronological order.

Source: the Guardian

Source: Reuters

As a result, we had some action in Brazil's currency; the real sold off sharply on the first headline but recovered later.

Source: barchart

2. The Philippines has a new president, Hardliner Rodrigo Duterte. He is expected to be tough on crime but the uncertainty around his approach to other policies makes investors nervous, pushing the Philippine stock market lower (second chart below).

Source: BBC

Source: Google

3. South Africa's unemployment rate hits the highest level in over a decade. Debt downgrade to junk is increasingly likely.

The Globe and Mail: - South Africa’s biggest labour federation, COSATU, said the latest jobless numbers are “alarming and disheartening.” It said the increase in unemployment was “massive” and demanded immediate action “to avert a looming catastrophe.” It called for a summit with the government and big business to tackle the crisis.

Switching to the Eurozone, German factory orders show a strong improvement - beating consensus. Exports are picking up as well.

Source: @MxSba

Next, we have a quick summary of the situation in Greece.

Source: Goldman Sachs

The debate over debt relief for Greece is heating up. The concern for the Eurogroup is fairness, with nations such as Slovenia, who also struggled with debt for years but did not ask for three bailouts followed by debt relief. Why then should Slovenia's taxpayer take a haircut on its government's loan to Greece?

Source: ‏@fastFT

Greek bonds rally ahead of the Eurogroup meeting.

Source: ‏@fastFT

Revisiting the uncertainty from a year ago, it's worth asking who owns Greek debt?

Source: ‏ ‏@jsblokland

Turning to the UK, the nation's GDP growth could decline further based on the latest UK GDP tracker from Merrill Lynch .

Source: BofAML

Is some of the above economic weakness based on the Brexit uncertainty?

Source: @NickatFP, Credit Suisse

Is Switzerland climbing out of its most severe (in recent history) deflation?

On a global level here is the total nonfinancial debt as a percentage of the GDP for major economies.

Source: Citi

Also, here are the yield curves for some of the nations with negative rates.

Source: ‏@jsblokland

We have a few observations on the energy markets.

1. Global oil supply growth finally moves to zero.

Source: Citi

2. Are the US crude production declines accelerating?

Source: Citi

3. On the other hand, oil output of Iran and Iraq is at the highest level in 40 years.

Source: @JavierBlas2

4. The Canadian oil production takes a huge hit due to the devastating wildfire in Alberta.

Source: Cornerstone Analytics

Below are a couple of updates on other commodity markets

1. US cattle futures are rallying due to increased demand for beef in the cash markets.

Source: barchart

2. Lumber futures take off again.

Source: barchart

In US equity markets, LendingClub fired the CEO amid an external probe into loan portfolios. On the surface, it doesn't look like a big deal, but the market shaved off over a third of the equity value in one day. Is there a concern about the business model?

Source: Google

Finally, US private equity hold periods continue to climb. Below are the hold times broken down by exit type.

Source: @PitchBook

Turning to Food for Thought, we have 5 items this morning:

1. This chart from the WSJ suggests that those who got laid off during recessions continue to struggle going forward. Part of the issue has to do with the housing market. During the bubble era, people attached to the market got overpaid (from mortgage brokers to construction workers). They lost their jobs, never regaining those credit-inflated wages.