The Daily Shot - 12/30/14

From: "The Daily Shot" <thedailyshotletter@xxxxxxxxx>
To: <thedailyshot@xxxxxxxxxxxxx>
Date: Wed, 31 Dec 2014 01:02:21 -0500
The Daily Shot™

 

 

Greetings, 

 

Let’s start with the Eurozone where Greece remains a major concern. While the 
left-wing “anti-bailout” party Syriza’s lead over the competition has narrowed 
somewhat, the movement remains powerful. After all, the latest Greek recession 
has been deeper than the Great Depression in the US, building significant 
resentment toward the EMU and the “troika’s” conditions for the bailout.

 



Source: the Economist

 

Greek yields have spiked in response to the upcoming snap elections, 
particularly for the shorter maturity paper.

 



 

In fact the whole yield curve has become highly inverted. 

 



  _____  

 

At the same time more evidence for deflationary pressures in the Eurozone 
continues to emerge. Italian producer price index has been declining since 2013.

 

Italy PPI:

 

Source: Investing.com

 

And Spanish CPI has moved deeper into the red.

 



 

Longer-dated Spanish and Italian government bond yields hit new lows as a 
result. If the ECB doesn’t follow through with a major QE program, this is 
going to get ugly.

 



 



Source: Investing.com

  _____  

 

There has also been some positive news out of the euro area - for a change. 
This is something I’ve been talking about for a while:  the end of Eurozone’s 
bank deleveraging. The best evidence for this is the improvement in broad money 
supply growth – particularly after the ECB’s bank stress-testing exercise.

 



 

Moreover, the declines in corporate loan balances are moderating,

 

Loans to non-financial corporations YoY:



 

… while loan growth to households seems to be stabilizing.

 

Loans to households YoY:



Source: ECB

 

Now let’s hope that the Greek situation does not derail these modest 
improvements in the area’s credit conditions. It won’t take much to do so.

  _____  

 

Crude oil prices continue to fall, with the Feb-15 Brent futures hitting 
another multi-year low. 

 



Source: barchart

 

I am watching closely the economy of Texas for early signs of this dislocation 
impacting growth in energy-dependent regions of the US. 4 out of 5 communities 
with the highest gains in employment are in Texas – much of this driven by 
energy-related growth. 

 



Source: WSJ, @NickTimiraos  

 

And Texas has experienced the highest improvements in personal income.

 



Source: WSJ, @NickTimiraos  

 

A great deal of these gains in the state’s economy will be reversed going 
forward. The question is how quickly. The Dallas Fed business survey will be 
important to watch going forward for signs of deterioration.



 

I suspect the correction could turn out to be quite severe as capex spending is 
curtailed.

 



Source: @Eurofaultlines  

  _____  

 

Staying with the topic of energy, South Korea’s oil-related exports have been 
surprisingly high. I am curious how trade balances will be impacted going 
forward. 

 



Source: @Uldis_Zelmenis

  _____  

 

As discussed earlier, the rise in US dollar has the potential to do some 
damage, particularly in emerging markets. One of the issues is the dollar 
denominated corporate debt.

 

WSJ:  - The soaring U.S. dollar is squeezing companies in emerging markets from 
Brazil to Thailand that now face higher costs on roughly $1 trillion in bonds 
sold to investors before the greenback’s surge.

 



Source: WSJ

 

If the dollar rally continues, this is not going to end well.

  _____  

 

Here is an interesting fact: without the US, global equities are down for the 
year. And the performance gap between the US and non-US stock indices seems to 
be widening.

 



Source: @M_McDonough

  _____  

 

New and existing home prices in the US have diverged.  The reason goes back to 
developers focusing on more high-end/luxury homes where the tight mortgage 
markets don’t pose as much of a risk. For now this divergence is likely to 
persist.



Source: @NAR_Research  

  _____  

 

Finally, some food for thought: What’s up with the record number of auto 
recalls in 2014?

 



Source: @nytimes  

  _____  

 

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The Daily Shot - 12/30/14

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