The Daily Shot And Data - March 31, 2016

By Walter Kurtz

Thursday, March 31, 2016 10:35 AM EDT

Greetings,

We begin with emerging markets which have been experiencing a worse recession than what we saw during 2008/09. Here is the breakdown by country.

Source: @FitchRatings, h/t Josh

Continuing with emerging markets, here are more updates.

1. Taiwan's economy has been sputtering as a result of the global demand slowdown (especially the PRC). The charts below show Taiwan's output gap and the housing market correction.

Source: HSBC, h/t Josh

Nevertheless, investors are jumping back into Taiwan. Here are the cumulative equity flows into EM Asia.

Source: Morgan Stanley

2. Saudi Arabia's FX reserves continue to decline.

Source: HSBC, h/t Josh

3. Chinese investors are flooding into the US. This is a great way to move one's money out of China to lower the risk of further RMB depreciation.

Source: @vexmark, @Bfly

4. Brazil's public sector deficit looks terrible, missing economists' expectations.

Source: Investing.com

5. Citi expects the Reserve Bank of India to cut rates, as the nation's inflation rate remains benign.

Source: Citi

6. EM currencies have rallied sharply as the Fed turns dovish. On the margins this should help US manufacturers.

Source: ‏@markets

7. FX reserves of emerging economies are still declining but at a slower pace now. Is this slowdown bullish for global equity markets?

Source: Deutsche Bank

Switching to Japan, it seems that banks are planning to start passing negative rates to their institutional clients - charging them for deposits. With short-term JGB's running negative yields, where can firms place their cash without taking a hit?

Source: Reuters

Japan's capital goods shipments trend seems to suggest weak CAPEX. Forecasts show that shipments should pick up in the coming months however.

Source: Credit Suisse

We now go to the Eurozone where yields continue to fall. Here is the average euro-denominated IG corporate bond yield.

Source: @FastFT

Ireland issues its first 100-year bond as it stages a remarkable comeback after having received an IMF bailout only a few years ago.

Source: Bloomberg

The nation's economy is booming, with retail sales growing at 11% per year. Amazing.

Italy's government issues debt at record low yields.

Belgium's inflation has risen sharply. However, economists caution that this is related to the unusual mix of the nation's goods basket rather than to the ECB's QE.

Greece, on the other hand, is struggling with deflation as the PPI (YoY) hits a record low.

Rate differentials with the US suggest that the euro should move lower. The first chart below shows the nominal 10yr bond spread. The second chart shows real 2yr rate differential.

Source: @Schuldensuehner

Source:@auaurelija

The last chart on the Eurozone shows declining sentiment in the currency bloc, which would suggest a slower GDP growth ahead.

Source: ‏@CapEconEurope

Elsewhere in Europe, we see Norway's unemployment rate rising to a decade high as the oil dislocation takes its toll.

European financials are still underperforming materially as some of the largest banks go through painful restructuring and negative rates cut into profitability.

Source: Ycharts.com

Now let's look at a number of developments back in the United States.

1. Fed's Evans brought up a point we've been discussing in the Daily Shot for quite some time. US policy divergence with other central banks makes rate hikes much more potent. That's because policy divergence results in a stronger dollar which tightens financial conditions much more than rate hikes alone. That's why Evans suggests that we need fewer rate hikes.

Source: @CNBC

2. Bond markets (and the equity markets) liked what they heard from Evans, as the 2yr treasury yield falls further.

3. The ADP employment report suggests that US labor markets remain robust, adding another 200k jobs in March.

Source: ADP

However based on the Fed's dovish tone, there is little chance that this "solid [ADP] report will have any policy implications".

Source: @barronsonline

4. Going forward, the Fed may a tough time using tight financial conditions as the reason for rate hike delays. The FOMC will have to rely on the "policy divergence" and the "global risks" argument.

Source: Deutsche Bank

5. US mortgage volume for house purchase is steadily rising as the housing market continues to improve.

It's important to note however that rising housing prices and rents are really hurting Americans with lower incomes.

Source: ‏@jeffsparshott

6. Some continue to argue that the US is headed for a recession because the decline in S&P earnings per share (EPS) only happens during recessions. Perhaps. Other indicators, however, do not support this thesis.

Source: Deutsche Bank

7. Fed's RRP (reverse repo) balances are rising again as we approach the end of Q1. It's time for window dressing, with companies parking cash at the Fed rather than in private holdings to make their quarter-end financials look better.

Source; @SoberLook

Now we have some observations on the energy markets.

1. Here are the latest charts on US crude oil production: the longer trend below and a comparison to the previous year in the second chart.

2. As discussed earlier this week, US gasoline demand remains elevated vs. last year.

Source: barchart

Here is a chart showing the usage of premium gasoline in the US.

Source: EIA

3. OPEC members are consistently cheating on their production quota.

Source: Morgan Stanley

4. Here is a great detailed crude oil cost curve with and without payments to the government (from Morgan Stanley).

Source: Morgan Stanley

5. Crude oil and equities correlation persists.

Source: ‏@AlasdairPal

In other commodity markets, copper inventories in Shanghai hit a new record. As discussed yesterday a large portion of this is not for "end users". This as well as other factors are pressuring copper futures.

Source: @vexmark, @markets

Source: barchart

The 2016 estimates for US grains crop yields suggest risks of oversupply.

Source: @business, h/t Jake

Now we take a look at some trends in the US credit markets (many thanks to our friends at Deutsche Bank).

1. High Yield issuance hits multi-year lows.

Source: Deutsche Bank

2. US corporate debt to GDP ratio suggests that we should be hitting the next default cycle.

Source: Deutsche Bank

3. Energy companies' debt-to-EBITDA leverage has spiked to record levels.

Source: Deutsche Bank

4. By the way, according to the IMF, the bulk of corporate leverage in the US has been used for financial risk taking (to improve return on equity) rather than economic (productive) risk taking.