The Daily Shot - 12/9/14

From: "The Daily Shot" <thedailyshotletter@xxxxxxxxx>
To: <thedailyshot@xxxxxxxxxxxxx>
Date: Wed, 10 Dec 2014 01:40:58 -0500
The Daily Shot™

 

Greetings,

 

Once again we start with China where the authorities have restricted lower 
quality bonds from being used in repo transactions. The goal here is to limit 
the amount of leverage in the bond market. Corporate bonds sold off and the 
currency weakened on this forced deleveraging.

 

Chart shows USD rising against CNY:



Source: Investing.com

 

It’s not clear if Beijing realizes how tight the monetary conditions are 
becoming in China. In addition to tighter credit (from the directive above), 
the CPI is now running at 1.4% YoY, pushing real rates higher (negating the 
recent cut by the PBoC).

 



 

Bloomberg’s GDP tracker is pointing to around 7% growth rate  - which is quite 
realistic at this point. I wouldn’t be surprised to see even a lower print on 
China’s GDP.

 



Source: @M_McDonough  

 

  _____  


Crude oil remains under pressure. In after-hours trading WTI futures fell below 
$63/bbl, with Brent not too far behind.

 



 

As a result the Mexican peso continues to slide and …

 

Chart shows USD rising against MXN



 

… Venezuela’s 2-yr government bond yield is approaching 45% (no, it’s not a 
typo). 

 



Source: Investing.com

  _____  

 

The ECB officials are preparing for deflation to hit the Eurozone. 

 



Source: Bloomberg

 

At the same time we are seeing some uncertainty returning to Greece, where a 
far-left party Syriza is leading in the polls. The party is anti-austerity and 
anti Troika oversight. Remember “Grexit”? Well, it’s back. The stock market saw 
a massive correction (13%) as a result.

 



Source: Reuters

 

The two factors above have sent German long-term yields to new lows.

 



Source: Investing.com

  _____  

 

Looking at global growth estimates for 2015, India comes out on top. The 
combination of lower energy costs and potentially lower interest rates should 
boost growth. Some of the credit should go to the central bank head Raghuram 
Rajan who restored confidence in the rupee and guided the nation through some 
turbulent times during the “taper-tantrum”.

 



Source: @csapac

  _____  

 

In the United States inflation expectations are collapsing. There is no chance 
the Fed will act at these levels.

 



  _____  

 

Leveraged finance markets continue to face headwinds on a combination of energy 
exposure and general risk-off sentiment. 

 

1. Leveraged loans may revisit the October “mini-crash” soon – on fund outflows 
and some portfolio deleveraging taking place now.

 



 

2. The average bond price (% of par) in the Credit Suisse HY Index is at the 
lowest level since 2011.

 



 

 

3. There is a rumor – though I haven’t been able to substantiate it – that a 
bunch of banks got stuck with hung energy loans. That could be one of the 
reasons for the spike in corporate loan balances over the past couple of weeks.

 



 

  _____  

 

The broad US municipal bond yield curve has normalized quite a bit from last 
year, but concerns over the long-term risks remain. Underfunded public pensions 
and a potential for muni “subordination” is making some investors uneasy. 

 



Source: @NickatFP

  _____  

 

The NFIB small business optimism index is following US consumer sentiment 
higher. This should be constructive for the labor markets.

 



Source: NFIB

  _____  

 

Now some food for thought. One person’s “antagonism” is another person’s “deep 
belief”.

 

 



Source: @BBGVisualData

  _____  

 

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The Daily Shot - 12/9/14

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