The Daily Shot And Data - October 31, 2016

The United States

1. Let's start the week with the US where the Q3 GDP growth beat consensus.

The surprise came from exports, which represented an unusually high proportion of the quarterly economic expansion.

Source: @carlquintanilla, @HPSInsight, @MattMcDHPS

Moreover, a big portion of US exports growth came from soybeans sales to China - an event that is unlikely to be repeated going forward. The chart below shows the spike in US soy exports.

Source: CNBC; Read full article

2. Another strong contributor to the Q3 GDP growth was private inventory build. This component is also unlikely to be repeated because inventory levels are already elevated.

Source: Goldman Sachs, @joshdigga

The GDP report therefore does not seem to indicate that US growth is accelerating.

3. Bank credit expansion has been brisk over the past few years, resulting in US broad money supply growing significantly faster than the nominal GDP. Therefore, the nation's velocity of money continues to hit new lows.

4. US consumer sentiment has softened more than expected, probably as a result of the presidential elections (See story).

5. Speaking of US presidential elections, Hillary Clinton's odds of victory in the betting markets dropped about 7% on the news of James Comey's letter to Congress.

The resulting political uncertainty sent the dollar and US stock indices lower.

6. Separately, the term premium in the Treasury market, while remaining in negative territory, has been on the rise recently.

The Eurozone

Economic data from the euro area continues to suggest that the ECB is unlikely to introduce any material additional stimulus. As discussed before, the focus instead will be on the details of the QE taper.

1. While French inflation increases have stalled,

... German and Spanish CPI beat expectations.

It's also worth noting that the corporate "selling price expectations" index jumped to the highest level since 2012, suggesting firming wholesale prices.

2. Sentiment indicators across the currency bloc beat consensus. Here is the economic confidence index, followed by business confidence and service sector sentiment.

3. The ECB's job of buying bonds has become easier as a result of the bond selloff (discussed Friday). With higher yields, more securities now qualify for QE.

Source: Bloomberg.com; Read full article

4. Separately, while the net speculative euro exposure has declined (accounts are shorter), "asset managers" have been going long the euro.

Source: Goldman Sachs, @joshdigga

The United Kingdom

1. The UK's broad money supply growth has been on the rise recently as credit expansion remains robust. Should the BoE view this trend as potentially inflationary?

Source: Goldman Sachs, @joshdigga

2. S&P left the UK on negative rating outlook as a result of "institutional and economic uncertainty surrounding Brexit negotiations."

Europe

1. In other European developments, Sweden's retail sales surprised to the downside. Perhaps Riksbank's dovish comments were justified.

Separately, Swedish banks have dramatically outperformed their European peers despite the nation's extended period of negative rates. This chart would suggest that negative rates are not always detrimental to a nation's banking sector performance.

Source: Deutsche Bank, @joshdigga

2. Switzerland seems to be pulling out of its economic malaise caused by the Swiss franc's strength over the past couple of years. The index of leading economic indicators was much better than expected.

3. Iceland's currency has been roaring back over the past couple of years, partially recovering from the massive devaluation in 2008. The chart shows the krona's appreciation against the euro.

Emerging Markets

1. The Brazilian real came under pressure late last week on renewed risk-off sentiment.

Brazil's inflation continues to drift lower.

2. The Mexican peso got hammered as a result of the Clinton/FBI news from the US.

3. The Russian ruble speculative net long exposure rose further last week. The long-ruble trade remains crowded.

4. Social discontent in Venezuela continues to increase, much of it focused on Maduro. It's time for a change.

Source: Goldman Sachs, @joshdigga

Asia

1. South Korean bond yields keep moving higher in response to the global bond rout.

2. After the CPI report that showed a modest improvement (discussed Friday), Japan's "core core" CPI managed to disappoint. This measure excludes energy while adjusting for the consumption tax hike. The trend does not look too promising.

3. Japanese shares are having a great couple of weeks on a softer yen. The Clinton/FBI news weakening the dollar, however, put an end to the rally.

Energy

Analysts remain skeptical about oil producers' (OPEC and non-OPEC) ability to agree on any material production cuts.

Source: @WSJ; Read full article

As a result of the above story, US crude oil opened lower in Sunday trading.

Separately, Baker Hughes earnings report/comments seem to indicate that US oil production activities may have bottomed. Here is the company's share price.

Commodites

1. The recovery in coal and iron ore prices, which continued on Friday, has been impressive.

(DCE = DaLian Commodity Exchange)

Source: Bloomberg.com; Read full article

2. China's aluminum and zinc rally remains in place.

(SHFE = Shanghai Futures Exchange).

Even China's copper prices rose on Friday.

3. Coffee futures in New York continued their climb on weaker crop expectations in Brazil.

4. Gold jumped on the Clinton/FBI news, retreating shortly after.

Bitcoin

Bitcoin rose above $700 in thin trading on Saturday continuing the biggest rally since June. Some analysts are suggesting that the weakening renminbi had increased demand for the cryptocurrency.

Equities

In the equity markets, pharmaceuticals continue to underperform, reaching the worst year-to-date level relative the S&P500. The industry remains under pressure.

The US pharma malaise is also impacting some international firms. Denmark's Novo Nordisk got hammered on Friday, with problems blamed on the harsh US environment in this sector.

Source: The Street; h/t @CraigKarmin; Read full article
As a result of the above, Denmark's blue-chip stock market index gave up 5% on the day.

Funding Markets

1. US financial commercial paper outstanding continues to hit new multi-year lows as prime money markets' assets under management (AUM) shrink.

Source: ICI

2. The regulatory-driven money market fund squeeze is also impacting municipal finance. Short-term muni funding rates have risen sharply as tax-free money market funds' AUM contracted. This trend is another example of "unintended consequences" of recent regulation.

Source: Barron's, h/t @MattGarrett3; Read full article

Food for Thought

1. Speaking of regulation, let's begin the Food for Thought^™ section with the rising number of restrictions and corporate criminal penalties in the US.

Source: @NickTimiraos, @Tmp_Research; Read full article

2. The next chart shows Germany's refugee processing problem. The gap between applications and decisions continues to rise.