The Daily Shot - 12/11/14
- From: "The Daily Shot" <thedailyshotletter@xxxxxxxxx>
- To: <thedailyshot@xxxxxxxxxxxxx>
- Date: Fri, 12 Dec 2014 01:37:11 -0500
The Daily Shot™
Greetings,
We start with Russia, where the central bank raised rates by 100bp in another
attempt to stem the ruble’s decline. The markets all but ignored the decision,
as capital flight out of the country continues.
Chart shows USD appreciating against RUB:
Source: Investing.com
_____
As I discussed yesterday, the second TLTRO take-up was at risk of falling below
ECB’s goals. Indeed the demand came in at €130 bn, putting the total take-up of
€212bn well below the €400 billion allowance. Now the only realistic way to get
the Eurosystem balance sheet back to 2012 levels is to undertake an all-out QE
that involves sovereign bond purchases. Analysts expect this to begin next
spring. It’s not at all clear to me how they will actually execute on that –
will the ECB want to own all that periphery debt?
Eurosystem consolidated balance sheet:
Source: ECB
Meanwhile economic data out of the Eurozone remains subpar, giving Draghi more
ammunition for QE. Here is the latest report on Italian industrial production.
Source: Investing.com
Further support for Draghi’s QE quest comes from deflationary pressures. The
oil price collapse is pushing inflation expectations lower globally. Here are
some breakeven trends – take a look at Germany.
Source: @M_McDonough
_____
With WTI crude now below $60/bbl, both Canadian dollar and the Mexican peso are
under pressure.
The peso’s decline has been particularly sharp.
But no worries. According to Credit Suisse “oil prices now appear undervalued”.
Perhaps. If you like oil at $60, you should really like it at $50.
_____
Crude oil implied volatility has spiked to levels not seen in years as traders
pay increasingly higher premium for protection against further declines.
CBOE Crude Oil Volatility Index (OVX)
_____
In the United States the Fed has been withdrawing liquidity going into year-end
via experimental monetary tools (reverse repo, term deposits). Excess reserves
(and therefore the monetary bases) continue to decline in recent weeks.
For those who still look at the Fed’s total balance sheet, don’t – it doesn’t
tell you much when you have these new forms of “asset sterilization”.
_____
With the Fed offering reverse repo and term deposits (while the Treasury is
selling more bills), there is plenty of money market options available. This is
pushing treasury bill rates higher.
_____
At the same time, as longer dated inflation expectations fall, the 30yr
treasury yield is declining. The treasury curve has flattened sharply in recent
weeks.
30yr - 2yr yield spread:
_____
In credit-land, outflows from leveraged loan funds continue for 22nd
consecutive week. As a result, senior loans remain under pressure.
Source: @lcdnews
HY bond spreads are now above the October “mini-crash” levels.
… and BDCs are really getting pounded. By the way, BDCs need to do a better job
in disclosing their energy exposure if they want to avoid mass-selling.
Traded US corporate credit: blue=loans, green=HY bonds, red=BDCs
_____
Now some good news for a change. Jan-2015 heating oil contract shed a third of
its value since the summer. This is particularly helpful for those of us who
live in the US Northeast.
Source: barchart
Combine that with lower gasoline prices, cheaper grain prices and better labor
market and you get stronger consumer sentiment in the US.
Source: Investing.com
_____
Now some food for thought – three items tonight:
1. The US government is losing flexibility, as an increasing portion of
spending falls into the “mandatory” bucket.
Source: @davidmwessel
2. Your cellphone – then and now.
Source: @conradhackett
3. My apologies if this offends some people, but here it is: Afghan Women in
1950 vs. 2013 -
Source: @HistoryInPics
_____
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