The Daily Shot And Data - September 14, 2016

By Staff

Wednesday, September 14, 2016 4:43 AM EDT

Greetings,

Once again we begin with the global bond rout. While there is some debate about the reasons for this correction, we had seen this movie before in 2015. Of course, bond valuations were not as stretched back then and equities weren't correlated to bonds as they are now. As discussed yesterday, the value of long-term treasuries as a hedging tool for stock portfolios is now in question. Is the market, therefore, questioning the (negative) Treasury term premium?

Source: NY Fed

1. Here is the long bond yield over the past 4 days as investors cut durations. This past week saw a fairly sharp steepening in the yield curve.

2. As before, the sell-off is global in nature. Here is the Canadian 30yr government bond yield - these bonds are down for the 4th day in a row.

3. Bund futures take another leg down.

What's the over-under of the 10yr Bund yield being back below zero by year-end?

4. The Australian bond rally was great while it lasted.

5. This story tells of a potential event last week that marked the top on global bonds. For now.

Source: Bloomberg.com

Here we go again - the equity market selloff resumes.

Source: barchart.com

The latest Merrill Lynch client survey shows that investors view long-term rates as having the greatest impact on stock prices - which is what we are witnessing now. They are no longer as concerned about oil.

Source: BofAML, @NickatFP

Nonetheless, the 3% drop in WTI crude (below $45/bbl again) didn't help stock prices on Tuesday.

Source: ‏barchart.com

Why is oil under pressure again? The latest report from IEA suggests that the market will still be oversupplied in the first half of 2017. This report was a change in the Paris-based organization's forecast.

Source: @FT

Source: Bloomberg.com

1. In other equity market developments, the trading volume in volatility ETFs spikes. This has less to do with investors trying to buy protection and more with speculative accounts unwinding short vol trades. For those who are hearing about this for the first time, take a look at the comment on VIX futures in the 8/16 Daily Shot.

Source: ‏@sentimentrader, h/t @NickatFP

2. US tech shares outperform on strong results from Apple. Tech was the only major sector with less than a 1% declines on Tuesday.

Source: Ycharts.com

3. The WSJ points out that the "buy-the-dip’ mentality prevails". Big corrections were followed by a reasonably quick recovery. Will this rule hold?

Source: @WSJ, h/t @NickatFP

4. This chart from Greg Merrill shows the ratio of dividends from the "high-dividend" portfolio (SDY) to that from the S&P500 (SPY). SDY dividend payout is now less than 20% higher than SPY.

Source: @merrillmatter, @ycharts

5. The Merrill Lynch survey shows rising percentage of investors who view equities and bonds as overvalued.

Source: BofAML, @NickatFP

Now, a quick note on the funding markets. For those who thought that the rising LIBOR rate is just a banking/money market issue, think again.

Source: ICE

Source: Bloomberg.com

The US dollar rose on Tuesday, which sent jitters through emerging markets. From a technical perspective, the US dollar index (DXY) is now in a nasty looking wedge, with a risk of a sharp breakout.

Source: barchart.com

1. Turning to commodities, here we have the Australian dollar and iron ore futures on the DaLian Commodity Exchange. What's driving what?

Source: myfxbook.com

Source: barchart.com

2. Coking coal prices exploded. Below is an explanation for the rally.

Source: @CeciliaJamasmie

3. Platinum (and other precious metals) came under pressure as real rates rise. The second chart below shows the 10yr TIPS yield, which is effectively the 10yr "real rate".

4. Bacon deflation is back - we had a spectacular drop in hog futures on softer pork retail demand expectations.

Source: barchart.com

1. Taking a look at the US economy, we got some ugly data on small businesses from the NFIB. The charts below show hiring plans, sales expectations, and current earnings.

Source: NFIB

Source: NFIB, Further Reading

2. On the other hand, we have some upbeat data on US household income from the Census Bureau. More on this in the Food for Thought section.

Source: The White House

3. Analysts continue to point to slowing corporate tax receipts as a recession signal. However, the declining receipts represent the lagged dip in earnings from earlier this year. Some tax changes related to amortization also had an impact.

Source: @NickatFP

4. The bank of America credit card data suggests a decline in US retail sales.

Source: BofAML, @NickatFP

1. Turning to the Eurozone, the currency bloc employment rises to highest level since 2008.

Source EUROSTAT; Further Reading

2. The ZEW index on German economy came in well below forecasts.

Source: ZEW; Further Reading

3. Portugal's yields jump, although remain nowhere near the February highs.

Source: Investing.com

4. Euro equity risk premium appears to be pricing in a deceleration in the area's real GDP growth.

Source: Barclays, ‏@joshdigga

Elsewhere in Europe, Poland's core CPI remains firmly in the red.

1. Now on to Emerging markets where it looks like the new government in Argentina got inflation under control (for now). Green bars indicate the new reporting framework. That's an impressive achievement.

2. Tuesday we got a big disappointment in Brazil's retail sales. Below is a comment from Goldman Sachs.

Source: Goldman Sachs

3. Brazil's bond yields popped in response to the global fixed-income sell-off.

4. CDS markets are waking up a bit. Here is the Brazil and Mexico sovereign CDS.

5. The Mexican peso was down 2% on the day.

Source: myfxbook.com

6. The Philippine peso has been down 5 days in a row.

7. Even the Singapore dollar came under pressure.

8. Once again the market is betting on a renminbi devaluation as the forward-spot spread widens.

Source: @markets

9. On a positive note, BRIC composite PMIs rebound (not so much for Brazil).

Source: Natixis, ‏@joshdigga

10. Also, the Merrill Lynch survey shows investors continue to increase relative positioning in emerging markets (for now).

Source: BofAML, @NickatFP

1. In other global developments, Deutsche Bank points out that "monetary policy has not been extraordinarily accommodative in recent years despite near-zero policy rates" (because of disinflationary pressures).

Source: Deutsche Bank, ‏@joshdigga

2. Back to the Merrill Lynch investor survey, here is what participants saw as the biggest "tail risk".

Source: BofAML, @NickatFP

1. In today's Food for Thought section, we start with the new Census Bureau data on rising median income and falling poverty rates.

Source: Census Bureau, @joshdigga

The same data also shows recent improvements in income inequality.

Source: The White House; Chart shows % of median income (10th percentile is the poorest group)

2. The Syrian ceasefire appears to hold although we are yet to see aid delivered into the war-torn regions. History, however, suggests the truce could be fleeting.