The Daily Shot And Data - January 13, 2016

By Walter Kurtz

Wednesday, January 13, 2016 5:18 PM EST

China remains at the center of the global market volatility. It's amazing that just a couple of years ago the yuan exchange rate or the Shanghai Composite were just an afterthought for most market participants. These days traders in the US take shifts watching China's markets overnight.

It's a bit like late 2011 when US trading started as Europe opened, with investors fixated on SocGen shares and Italian CDS spreads. Remember the Eurozone crisis?

Things are a bit calmer this morning in China. Here is the latest:

1. China's exports beat consensus. While the chart below shows a decline, this is actually a 2.3% YoY increase in yuan terms. Asian equity markets jumped from multi-year lows in response.

Source: Investing.com

2. The offshore yuan deposit rate (CNH-HIBOR) returned to a more sustainable level - although still a bit elevated. Yesterday the PBoC had limited how much RMB domestic banks can lend to foreign ones and conducted other operations in Hong King in order to sap liquidity out of the market to punish yuan short-sellers..

Source: @fastFT

3. Beijing got what it wanted as the onshore-offshore exchange rates are now on top of one another. The problem of course is that these types of violent interventions will push market participants out of the offshore RMB market. Imagine if you need to hedge your yuan exposure and the PBoC suddenly makes your hedge untenable. Instead of working toward the free-float of the yuan, China is in fact moving further away from that goal.

Turning to the energy markets, the other global hot spot, we have the following developments:

1. Crude oil futures continued to fall, approaching the dreaded $30/bbl. Over the past few months oil traded in a pattern of short-lived rallies followed by ever-deeper declines. Are we due for another bounce?

2. The American Petroleum Institute announced another larger than expected draw on US crude oil inventories. However the gasoline supplies jumped sharply again. While increases in gasoline supplies are normal for this time of the year, this jump was higher than expected.

Source: Investing.com

Already under pressure from weak crude oil prices, gasoline futures moved even lower in response to the API report. Is US wholesale gasoline headed for $1/gallon?

By the way, if you liked USO (crude oil ETF) at $30 (as many people apparently did), you will love it at $9.

Source: @A_Riley17, @BloombergBrief

The Bloomberg Commodity Index hit the to lowest since at least 1991 as copper continued to drift lower.

Source: @FerroTV

Source: barchart

The Baltic Dry Index (a shipping pricing indicator) is now nearly 50% below the Great Recession lows. There are too many ships and less iron ore demand.

Related to the energy situation above, the Russian ruble was under pressure again, at some point hitting RUB 77 to the dollar. Credit Suisse predicted that Moscow may intervene by resuming the FX reserve sales.

Source: @mhmck, @EliotHiggins

Staying with BRICs, here is a growth breakdown of the industrial sectors in Brazil. The auto manufacturing has been hit particularly hard as China and domestic demand slows and Mexico takes market share.

Source: CS, h/t Josh

India's industrial output unexpectedly fell - a troubling sign given that the nation's economy was one of the bright spots in Asia. Moreover, with the rupee trading near 67 to the dollar, inflation has picked up momentum. This means that the RBI is unlikely to lower rates further to stimulate growth.

Source: Investing.com

Now let's turn to the UK where manufacturing and industrial production missed forecasts.

Source: Investing.com

The British Pound plunged to the lowest level since 2010 on the industrial production report.

Source: barchart

Also in the UK we see market-based inflation expectations collapse. This should give the BoE quite a bit of room to wait it out.

In other developments across Europe we look at the breakdown of retail petrol costs. Guess what the largest component of this cost is ...

Source: Deutsche Bank; h/t Josh

Here is the tax percentage of retail petrol price by country.

Source: Deutsche Bank; h/t Josh

As discussed before, there have been a number of favorable economic developments in the Eurozone. Here are a couple of them.

1. German construction activity seem to be improving.

Source: Deutsche Bank; h/t Josh

2. Irish consumer sentiment hit a 10-year high in December.

Source: Investing.com

Markets now expect the ECB to cut rates again to -40bp. This is certainly possible, especially if inflation does not recover soon. However at this point the ECB may be in a "wait ad see" mood.

Source: Deutsche Bank; h/t Josh

Back in the United States we have quite a few items to cover. Here we go ...

1. The 5y5y forward inflation expectations remain near post-recession lows. Perfect timing to be raising rates.

2. Deutsche Bank suggests that wage inflation is kept under control (discussed earlier) by people reentering the workforce.

Source: DB

3. Barclays and Atlanta Fed Q4 US GDP trackers point to disappointing results.

Source: Atlanta Fed

4. A widening goods trade balance is one of the reasons for the GDP trackers moving lower (above).

Source: Barclays Research

5. US households' view of current conditions diverges significantly from their economic outlook.

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

1. According to DB, most jobs created during the recovery are higher-paying jobs.

Source: DB

2. Decline in the reading level of the State of the Union speeches.

Source: ‏@Not_Jim_Cramer

3. This is the Whitesboro, NY town logo. This is not a historical artifact - the town actually uses this logo today and has recently voted to keep it in place.