The Daily Shot - 12/7/14
- From: "The Daily Shot" <thedailyshotletter@xxxxxxxxx>
- To: <thedailyshot@xxxxxxxxxxxxx>
- Date: Mon, 8 Dec 2014 01:08:36 -0500
The Daily Shot™
Greetings,
We start with some news from China, where export growth has declined more than
expected.
At the same time imports unexpectedly fell sharply (down 6.7%) as growth
slowed. This weak domestic demand sent China’s trade surplus to new highs.
Source: Investing.com
Weaker demand at home has not yet resulted in PBoC pushing interbank lending
rates lower, as SHIBOR rates have actually been on the rise recently. Will PBoC
be forced to take further action or is Beijing prepared to face slower growth
and falling property prices?
1-week SHIBOR
Source: ChinaMoney
_____
In more disappointing economic news out of Asia, Japan’s latest GDP measure
came in below expectations (-0.5% vs. -0.1% expected QoQ).
The yen continues to deteriorate, moving above 121 to the dollar last week, as
the BoJ’s 2% inflation target remains elusive.
Some are hoping that lower energy prices (even in the face of this yen
weakness) could help stimulate growth. Perhaps. Japan’s so-called “Leading
Economic Index” is not showing much improvement at the moment.
Source: Investing.com
_____
In the Eurozone, 10-yr Italian government bond yield fell below 2% in
anticipation of ECB’s QE. As I discussed before, if the ECB doesn’t go through
with a substantial sovereign bond buying program, Italian and other “periphery”
bonds will take a severe hit.
Source: Investing.com
_____
Ukraine sovereign CDS-implied probability of default spiked recently, driven by
political uncertainty and Russian economic decline. Some form of debt
restructuring could be possible in the nearterm.
(assuming 40% recovery)
Source: Deutsche Bank
_____
The Bank of Russia was able to stabilize the ruble last week by buying $700
million worth of rubles on Monday and $1.9 billion Wednesday. Let’s see how
long that lasts.
_____
Emerging markets’ underperformance in 2014 has been quite substantial, with
much of it on the back of strengthening US dollar and declining commodity
prices.
Source: StockCharts
And with the strong employment report out of the US last week, the dollar moved
even higher. Pressure on emerging markets continues.
Source: barchart
_____
When Japan's CPI is adjusted for the consumption tax hike, Canada's CPI tops
that of other major economies. Food (particularly meat) as well as shelter
price increases account for much of it.
Source: BMO
Weaker Canadian dollar is also contributing.
Going forward we are unlikely to see Canadian inflation trend continue, as the
economy is expected to cool on the back of weaker energy investment.
_____
Speaking of energy, on Sunday evening WTI crude oil futures resumed their
slide, falling below $65 again.
Source: Investing.com
With the media still talking “weakening global demand”, it’s important to point
out that this is a supply (and “dumping”) issue. In fact, global demand growth
trend continues.
And in the US, gasoline demand actually rose way above trend, stimulated by
lower prices.
Source: Howard Weil
_____
Staying with the energy theme, analysts have aggressively adjusted revenue
growth for the sector.
Source: @themoneygame (Business Insider)
This is now priced into the equity markets, as the sector underperformance has
been spectacular.
Source: StockCharts
_____
For a number of reasons, including regulatory liquidity ratio requirements,
US-based banks now hold record amounts of treasury and agency securities. It
will be interesting to see if higher funding costs due to the Fed’s eventual
rate hike will force banks to shed some of this inventory. It may be a while
before we need to worry about that however.
In the meantime loan growth in the US banking system accelerated to 7.5% per
year last week. This is in sharp contrast to the Eurozone, where total loan
balances are still declining. Autos, business and commercial real estate loans
are driving credit expansion in the US.
_____
Now some food for thought. Here is the percentage of defined benefits vs.
defined contributions in the pension world. In the long-term this is a negative
for hedge funds and PE funds – most alternatives can’t go into 401K plans.
Source: @awealthofcs, @NickatFP
_____
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