Greetings,

Let's begin with the Eurozone where the broad bond rally has reached a feverish pitch as yields continue to collapse. 

1. The Irish 10y yield dropped below 40bp, a new low.

2. The French 5y bond yield moved deeper into negative territory. 

2. Below is the Italian 10y bond yield - approaching 1%. The second chart shows a new low for Spain's 10y government bond yield - firmly below 1%.

3. Moreover, the Spanish government yield curve is rapidly flattening. The second chart below shows the shift over one week.

Source: h/t @markets

Source: Bloomberg Terminal; Function: "GC" 4.

Government paper in the Eurozone is progressively issued at deeper negative yields. Here we have the German 10y Bund and the Italian 1y bill auction prices.

---

1. In other euro area's economic developments, Portugal's unemployment rate declined sharply last quarter.

2. French industrial production disappointed by a material margin.

3. Germans are fretting over rising direct investments from China.

Source: @FT, @joshdigga 

Norway's inflation surged, suggesting that the central bank's easing may be over. The nation's core CPI rose to the highest level in years. Both measures were materially above consensus.

Sweden's industrial production unexpectedly contracted. This release adds to a slew of data pointing to a slowdown.

1. Switching to the UK, the 10y gilts yield hit a new low again, approaching 50bp.

2. Despite Carney's wish to avoid negative rates, the market sent short-term gilts into negative territory.

Source: @BV 1.

Turning to emerging markets, the MSCI Emerging Markets Currency Index continues to rally.

2. Related to the above, the Taiwan dollar, helped by improving exports and fund inflows, hit a 12-month high (vs. USD). The chart shows how many Taiwan dollars one US dollar buys.

Source: barchart.com

3. As discussed yesterday, the South African rand continues to strengthen - approaching 13 to the dollar.

Source: barchart.com​ 4. Singapore's GDP print was a significant miss versus expectations.

Note: These dates, unfortunately, are not helpful. Each bar represents a quarter. 5. Brazil's inflation is gradually easing, although not as quickly as expected. Increasing food costs resulted in a higher-than-expected CPI figure.

6. Rapid yield compression is taking place across emerging Asia: below we have India, China, and Indonesia 10y government bond yields.

The kiwi dollar jumped sharply after the RBNZ cut rates by 25bp (to record low). The market was pricing in about a 20% chance of a 50bp cut, and some were hoping for an even greater easing. Therefore, this was a disappointment.

Source: Bloomberg LP

Bloomberg points out that Japan's tightening labor markets (discussed here last month) are driven by demographics (aging population), not Abenomics.

Source: ‏@business

1. Back in the United States, the June US job openings number was higher than expected. This suggests that the labor market continues to improve.

The chart below shows US job openings vs. hires - the skills gap persists.

Source: @NickatFP

The US Beveridge curve, showing job openings vs. the underemployment, is another way to see this skills mismatch.

Source: BLS

2. The US Treasury auctioned off the 10yr note at the lowest yield since 2012. The auction had a record percentage of indirect bidders - see the MarketWatch quote below. Are the global FX reserves beginning to rise, increasing demand for treasuries from central banks?

Source: MarketWatch

3. Interest margin decline over the years has been pressuring US bank profits. That's why many banks are hoping for the Fed to hike more aggressively. They can still pay zero on deposits but lend at a higher rate. 

Source: h/t @joshdigga, @FT 1.

In the funding markets, the chart below shows the USD 3-month LIBOR-OIS spread. This measure is essentially the LIBOR term premium. As discussed before, the dollar funding demand from foreign banks is driving this spread higher, with the supply constrained by the looming US money market fund regulations.

2. The same factors are driving this steepening in US commercial paper yield curve over the past month.

Source: Bloomberg Terminal; Function: "GC"

3. Related to the above, the demand for US dollar financing from Japanese banks is widening the USD/JPY cross-currency basis (discussed yesterday). Japanese banks borrow yen, convert it into dollars and hedge the dollars back into yen with a cross-currency swap. But that hedge is becoming increasingly expensive.

In credit markets, US HY bond spread is near a 1-year low. The only reason the spread hasn't dropped even lower is due to the energy names in the index.

According to Bloomberg, US corporate credit volumes have been rising. It would be interesting to see leveraged loan volume as well.

Source: @lisaabramowicz1

1. Next, we look at the energy markets where US gasoline inventories declined more than expected for the second week in a row.

2. US crude oil production (lower-48) hit a 2-year low.

3. One would think that the above data is rather bullish for the fuel market. Nevertheless, US gasoline prices (and oil) declined sharply. September gasoline fell below $1.30/gal. Why?

Source: barchart.com

4. The market focused on the US crude oil inventories which rose at the time of the year they should be declining.

5. Moreover, the markets got spooked by the latest OPEC report showing Saudi oil output setting a new record. The global oil market remains well supplied.

---

Separately, here is US natural gas over the past week. And yet the weather is expected to be quite hot over the next couple of weeks.

Source: barchart.com

Finally, in the equity markets, we see a massive year-to-date outperformance by high-dividend shares.

Source: Ycharts.com From our sponsor: 
 

Turning to Food for Thought, we have 5 items today:

1. Betting markets are showing a rising imbalance in the US presidential election odds.

Source: @PredictWise

Moreover, there is a big shift in the probabilities of which party controlls the US Senate after November.

Source: @PredictWise

2. On a lighter note, cashew prices globally have risen sharply on tight supplies.

Source: @FT

3. 42% of US workers say they never or hardly ever use the internet for work-related tasks.

Source: @JmBadalamenti, @pewinternet

4. The number of marriages in China has peaked in 2013.

Source: Fitch, ‏@joshdigga 

Related to the above, according to World Economic Forum, "China’s working-age population will fall 23% by 2050".

Source:  ‏@wef  

5. Top destinations for highly educated emigrants from India and the trend over the last decade.

Source: ‏@JmBadalamenti, @paul1kirby