The Daily Shot And Data - February 16, 2016
Greetings,
This morning we start with China who is getting investors' attention again after the New Year's holidays. Here is the latest.
1. Yesterday the yuan jumped 1.35% - the biggest one-day increase in over a decade. Supposedly this is a post-holiday catch-up. It could also be a way to stabilize the much anticipated post-holiday market open.
Source: barchart
The PBoC currency policy continues to be murky and inconsistent, providing little guidance for investors. Exchange rate liberalization remains a distant dream.
Source: @pdacosta, WSJ
2. China's official imports from Hong Kong spiked recently.
Source: @S_Rabinovitch
This immediately raised some eyebrows ...
Source: Bloomberg
Generating fake or bloated import receipts allows some businesses to move money out of mainland China and skirt capital controls. This tells us that outflows from China continue.
3. China's new loans spike to record levels as the nation goes on a seasonal credit binge.
Source: @enlundm
Some of this was due to firms switching liabilities out of dollars into yuan in order to cut their currency risk. But speculative property demand also contributed.
This latest phase of growth is being driven by credit. This chart shows the M2 money supply per GDP - a good relative indicator of bank credit in the system.
Source: @Schuldensuehner, @BloombergBrief
Of course investors are also watching carefully the deterioration of private credit quality at China's banks.
Source: Bloomberg TV
Note that if one includes total local government debt, China's credit growth is accelerating, not slowing. Beijing's goal seems to be maintaining growth at any cost.
Source: @CapEconChina
4. By the way, the latest bank Coco fears in Europe seem to have spilled over to China.
Source: @pdacosta
5. All this nice stimulus seems to be propping up raw materials prices. Iron ore prices jump as China returns from the holiday.
Source: barchart
As a result of the above - with some risk-on sentiment thrown in - mining shares are rallying.
Source: Reuters
6. According to Bloomberg, Chinese shares in Hong Kong are quite cheap now (with Mobius apparently looking for bargains there).
Source: @frostyhk
Now let's go to the Eurozone where Draghi continues to talk stimulus. We've had quite a selloff in the euro over the past 3 days as we approach the ECB "bazooka" day (the ECB is widely expected to exapand the QE program and lower rates).
Source: barchart
Draghi spent quite a bit of time on his press conference discussing how much healthier the Eurozone banking system is vs. a few years ago. For the most part he is right. While bank CDS spreads have spiked, the Eurozone money markets stress indicators are quite small relative to the past two financial credit risk periods.
Source: @Fmirw
There is however one concern regarding European banks that keeps some investors jittery - energy exposure.
Source: @vexmark, @business, h/t Jake
Also the current period of elevated risk aversion seems to be more concentrated in the corporate rather than sovereign sector. Some of this is likely due to the QE program generating demand for sovereign bonds.
Source: @Fmirw
In emerging markets we see Venezuela on the brink as bond yields rise and CDS trades near default levels.
Source: @jsblokland
Another nation that seems to be facing what looks like insurmountable challenges is Ukraine.The Ukrainian hryvnia continues to decline.
Source: Investing.com
We now turn to the energy markets where some upcoming "secret" meeting between the Saudis and the Russians has firmed up oil prices.
"Patience my Russian friend, patience - US shale producers are about to begin defaulting in droves".
Source: Reuters
It's hard to imagine this meeting will accomplish anything as both nations try to grab market share. The markets remain hopeful however.
Source: barchart
Here are several other developments:
1. The demand for oil options remains highly elevated. This is the VIX-equivalent oil vol index.
Source: Investing.com
2. Speculative accounts are increasing long-oil positions.
Source: @vexmark
3. The US government now projects crude oil supply/demand to balance out in the 2nd half of 2017. Right.
Source: @MarathonWealth
4. Where did the growth in crude oil supply come from last year?
Source: @MarathonWealth
5. Here is the breakdown of US shale production growth.
Source: @MarathonWealth
6. At current prices, most US production is losing money or running very tight margins.
Source: @MarathonWealth
7. US oil well completions dwindle as capital dries up.
Source: @MarathonWealth
8. How does the collapse in crude prices impact various US states?
Source: @MarathonWealth
9. Outside of the oil markets, US natural gas fell below $2/mmbtu again.
Source: Investing.com
1. There has been a huge bounce in Japanese shares.
2. The CBOE SKEW index shows less demand for deep out-of-the-money puts. Profit taking?
Source: barchart
3. US stock market sentiment hit new lows. This is definitely as contrarian indicator.
Source: @RyanDetrick
4. According to some measures, US share valuations are close to historical averages.
Source: @FactSet
Now a couple of notes on commodity markets.
1. Spot gold is back below $1,200/oz.
2. Global wheat stockpiles hit a new record.
Source: @StuartLWallace, @business
In the United States some high-frequency indicators continue to point to softer economic activity and risks of a further slowdown.
1. The Freight Transportation Services Index declined on a year-over-year basis.
Source: JKempEnergy
2. Metals and scrap shipping by rail (carloads) fell as well.
Source: Yardeni Research
3. A decline in forward EPS estimates such as the one we are seeing now has been a good predictor of recessions.
Source: @Not_Jim_Cramer
4. Fed tightening often resulted in some ugly market events in the past.
Source: @StockTwits, h/t Jake
On a positive note, Americans are spending more on leisure products these days.
Source: @StockTwits h/t Jake
Finally, there seems to be quite a bit of private debt dry powder on the sidelines these days. We are hearing rumors that some distressed/special situations funds had jumped in too early and got burned. Now many are sitting out there like deer in the headlight - waiting for signs of stabilization before returning to the market. Ultimately this $180 billion of credit (shadow banking) will be entering the markets, compensating for some of the retreat by the nation's banks.
Source: @Preqin
1. Odds of being married at least once by age.
Source: @paul1kirby, @businessinsider
2. Most popular types of restaurants for Valentine's.
Source: @voxdotcom, @Eater
3. The "Internet of Things" is supposedly going to be here by 2020. Ready to start talking to your house?
Source: @wef, @StatistaCharts
4. Top degrees to boost your chances to be hired.
Source: @wef
5. Youth "binge drinking" percentages around the world.
Source: @VoxMaps
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