The Daily Shot - 12/17/14
- From: "The Daily Shot" <thedailyshotletter@xxxxxxxxx>
- To: <thedailyshot@xxxxxxxxxxxxx>
- Date: Thu, 18 Dec 2014 02:35:42 -0500
The Daily Shot™
Greetings,
We start with China, where housing prices continue to decline. However, the
rate of these declines seems to be slowing. A number of analysts have been
predicting earlier this year that once prices adjust a bit, demand will return.
Perhaps.
Meanwhile Beijing is once again allowing the yuan to depreciate (chart below
shows dollar appreciating against the yuan). If the dollar resumes its rally,
China may “welcome” some “decoupling”, as the dollar peg becomes a burden.
Source: Reuters
_____
Risk assets have stabilized a bit today as crude oil stopped falling and the
panic in Russia receded, albeit temporarily. The ruble rallied some 14% to
stabilize at 75 to the euro. Let’s see if it lasts.
The ruble’s tortured journey left behind as nasty looking inverted yield curve.
Source: SoberLook.com
_____
The massive oil price correction is expected to boost the global economy, but
the impact on producers will be profound. OPEC nations’ revenues is expected to
take a major hit.
Source: EIA
As an example, the chart below shows the Nigerian naira falling to record lows
against the dollar (USD appreciating). The 12m forward declines are even
sharper.
Source: @RobinWigg, FT
Meanwhile, the US crude oil output continues to rise, putting additional
pressure on these nations.
Source: EIA
_____
In the Eurozone, bets are being placed on the ECB finally capitulating and
executing on an all-out QE, as inflation remains dangerously close to zero.
Spanish longer dated yields hit a new low on these QE bets.
Spain’s debt is also helped by expectations of slowing fiscal deficit, as the
nation’s GDP growth outpaces its Eurozone peers.
Source: Scotiabank
_____
The UK long-term yields also continued to fall today – also on disinflationary
trends.
_____
In the United States many dismiss the market expectations of the Fed’s hike in
2015. This has become a “cry wolf” situation.
Source: @ReutersJamie, @sobata416
What makes some particularly skeptical is the risk of imported deflationary
pressures. We saw some of that today as the CPI declined by 0.3%, the biggest
drop in almost six years.
And in spite of oil prices stabilizing today, the CRB BLS Spot Commodity Index
keeps falling. Hard to imagine the Fed pulling the trigger on this. And if they
do chose to start with the liftoff next year, the pace of hikes is likely to be
extraordinarily gradual.
Source: barchart
_____
The US consumer is benefitting from some of these trends, as fuel prices and
mortgage rates decline.
However there is a problem. The rental crisis (shortages of affordable rental
units) in the US is hurting those who are unable or unwilling to purchase a
home. Rental costs are rising at 3.4% per year while wages are growing at 2%.
Those with lower incomes are being shut out of the rental market.
_____
In credit-land we saw some recovery today, as equity markets rallied. Here are
three trends to watch.
1. The new generation of CLOs has significantly more oil & gas exposure. It
will be interesting to see what happens if downgrades in the sector pick up.
Source: @tracyalloway
2. Leveraged loan fund assets have declined significantly from the peak. Are we
done with outflows?
Source: @lcdnews
3. Dealer inventories of corporate bonds remain at suppressed levels. Banks
are permitted to make illiquid loans but can’t hold corporate bonds – often to
the same companies. All because it’s called “prop trading”. That’s why
liquidity in corporate credit remains low and could worsen further. And that’s
making the financial system safer?
Source: @SBarlow_ROB, @ericbeebo
_____
Switching to a completely different market, Bitcoin remains under pressure and
is likely to move lower on stronger dollar. The trend doesn’t look great.
_____
Now some food for thought – 3 items.
1. BLT sandwich and components – prices over time
Source: @M_McDonough
2. Fewer Cuban-Americans favor the embargo against Cuba.
3. Temporary oil tax to build revenue and stem deflationary pressures? My
preference would be to increase the Strategic Petroleum Reserve at these prices.
Source: @RobinWigg
_____
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