The Daily Shot And Data — Thursday, Nov. 17

By Staff of SoberLook.com

Thursday, November 17, 2016 2:30 AM EDT

The United States

1. Let's begin with the latest US PPI report which surprised to the downside. Some economists have suggested that this slowdown is temporary and should be picking up steam as import prices stabilize. In the long run, if the US raises tariffs, we should see a significant jump in wholesale prices.

2. US mortgage applications for home purchase continue to decline.

Refinancing activity is falling off as well as mortgage rates jump.

3. Nonetheless, US homebuilder optimism remains elevated. Is this driven by the new housing demand or by all the cannabis legalization around the country?

4. The US industrial production and capacity utilization were a disappointment. US industrial output remains below last year's level.

5. The latest report on wage growth from the Atlanta Fed has solidified the case for a rate hike next month.

Source: @AtlantaFed

Wage growth has been particularly strong in the service sector, rising just above 4% per year.

Moreover, wage growth for US women has improved sharply (note that the chart compares wage growth, not actual pay).

Source: @AtlantaFed

6. Foreigners have been dumping Treasuries, with last month's sales reaching a new record.

Source: JPMorgan, ‏@tracyalloway

7. The 5yr real rate implied by inflation-linked Treasuries moved into positive territory on Wednesday (after being below zero for much of the year). Monetary conditions are tightening even before the Fed's hike.

Source: @boes_

8. The US dollar keeps grinding higher. The dollar real effective exchange rate (REER) is at the highest level in years (second chart below).

Source: @boes_

China

1. The renminbi keeps drifting lower with the markets and the media starting to take notice.

2. China's residents are now even more desperate to move their money out of yuan accounts, putting funds into equities, commodities, and of course real estate.

Source: IIF, @jsblokland; Further reading

3. One of the biggest beneficiaries of this massive demand to shift capital abroad has been Bitcoin, which just spiked again.

Emerging Markets

1. Markets have stabilized across most emerging economies. Here is the Mexican 10yr government bond yield (which remains above 7%).

2. India's bonds continue their unprecedented rally (driven by the infusion of liquidity into the banking system) with the 10yr yield falling below 6.5%.

3. Several emerging markets, however, remain under pressure.

• The Turkish lira hit another record low.

• The Philippine peso is at multi-year lows, approaching 50 pesos to one dollar.

• Thai government bond yields are still rising.

• As discussed previously, Latvia's bonds remain under pressure as a result of Trump's victory (and potentially stronger ties between the US and Russia). Here is an example (bond price shown).

Source: @russian_market

Europe

1. Poland's markets are seeing some volatility, with the zloty experiencing a sharp decline against the euro (below).

Polish bond yields have risen to the highest level in years.

Part of the reason is the rollback of some of the nation's austerity measures. The government has lowered the retirement age without the means to pay for the program. Rating agencies are not going to be too kind.

Source: The Washington Post; Read full article

2. The euro continues to fall. Will we see par before the end of the year?

Source: @MxSba

One of the drivers for the euro's weakness is the Treasury - Bund 10yr yield spread hitting a new record.

Source: @lisaabramowicz1

3. Portugal's bond yields are on the rise again, even as DBRS has left the debt rating unchanged.

4. Eurozone's interbank lending activity continues to shrink.

Source: @auaurelija

The United Kingdom

1. The UK's unemployment rate hit the lowest level in years. However, economists warn that the nation's labor markets will be facing some headwinds going forward as Brexit related uncertainty takes hold. For example, it seems that the labor force participation rate has weakened recently - which is part of the reason for lower unemployment (similar to the US).

2. More of British households now expect the BoE to hike rates in the next 12 months.

Source: @MarkitEconomics; Read full article

Australia

Australia's unemployment rate is also declining.

However, the nation's labor force participation has dropped off sharply.

And Australia's wage growth just hit a multi-decade low - now materially below that of the US. It will be interesting to see what happens to real estate prices now.

Japan

Japan's 10yr JGB yield moved above zero - a level where the BoJ is targeting to cap the rate. This trend should trigger more buying from the central bank.

Source: Bloomberg

Yields have risen especially quickly in the intermediate maturities - here is the 5yr JGB yield. The second chart below shows the yield curve shift over the past week.

Separately, the cross-currency basis has widened sharply since the elections, making it more expensive for Japanese firms to fund dollar assets.

Global Developments

1. Global inflation expectations have risen to the highest level in over a decade.

Source: BofAML, ‏@vexmark

2. It looks as though tariff rates around the world have bottomed. The protectionist movement has been on the rise over the past few years.

Source: Deutsche Bank, @bySamRo

Energy

1. The latest reports show a larger than expected buildup in US crude oil inventories. More on this later.

2. While all this "negotiating" is going on around cutting production, OPEC's oil output just hit a record high.

h/t @vexmark

Here is the output from Iran and Iraq.

Source: Bloomberg, @vexmark; Further reading

3. And to make our OPEC friends really happy, there seems to be much more oil in the Permian than originally thought.

Source: @merrillmatter, @JKempEnergy; Read full article

4. There has been quite a bit of options trading going on ahead of the OPEC production "cut" announcement.

Source: @JavierBlas2, @bwingfield; Read full article

5. Separately, the "peak oil demand" won't be here anytime soon, as petroleum usage in several industries is expected to grow.

Source: @IEABirol; Read full article

Commodities

Sugar futures are under pressure, with speculative accounts (betting on El Nino hurting production) holding near record-level net long positions. Capitulation is coming.

Source: @WSJ; Read full article

Credit

Agricultural lending has been on a decline in the US as farmers' cash proceeds fall. Remember those "bacon deflation" (lean hog prices) charts?

Source: @AmerBanker; Read full article

Equities

1. US shipping stocks have risen sharply since Trump's victory. Is this the expectation of all that new coal shipping? Not with all the cheap natural gas out there.

By the way, the Baltic Dry (cargo) shipping price index has also been rising.

2. Here is one explanation for the tech selloff after Trump's victory. Since many large tech firms already have low effective tax rates, they won't benefit much from lower corporate taxes - making them less attractive on a relative basis.

Source: Evercore ISI, @chrisdieterich

By the way, tech firms finally bounced after the initial underperformance.

3. What's up with the rally in retail shares?

4. Yesterday we discussed the Goldman Financial Conditions Index showing some tightening in the US. Here is a chart comparing that same index (inverted) with the S&P 500. Something's got to give.

Source: @TheStalwart

Food for Thought

1. Where are all the Hillary Clinton voters? It looks like a rural/urban divide.

Source: NY Times, @paul1kirby; Read full article

2. Apparently, all the new mobile device apps are causing more fatal car crashes.

Source: @FactTank, @nytimes, @Tmp_Research; Read full article

3. The latest legal cannabis map of the US.

Source: Governing.com

4. Many people sign up to make money in the gig economy, but few actually do.

Source: @paul1kirby

5. International enrollment in US colleges is on the rise. It would help if the US also had a sensible immigration legislation to take advantage of this trend.