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From: "The Daily Shot" <thedailyshotletter@xxxxxxxxx>
To: <thedailyshot@xxxxxxxxxxxxx>
Date: Tue, 15 Jul 2014 23:00:14 -0400
Greetings,

 

Tonight let's start with China where we see stronger than expected economic
results across the board. Loan and money supply growth beat expectations. So
did the GDP, fixed asset investment, and industrial production. 

 



 

Even industrial commodities seem to have bottomed out.

 

Jan steel rebar futures on the Shanghai exchange:



 

Domestic stimulus and stronger US consumption have clearly helped. 

 

  _____  

 

Economic data out of Euroland however remains soft. German sentiment
continues to decline,



 

. and Italian CPI shows no signs of recovery. Long road ahead for the ECB. 

 



  _____  

 

The UK's property markets, plagued by housing shortages, are on fire -
growing by 10.5% for the year.  

 



 

A rate increase by the BOE is in order. The economists' fear of rate
normalization is unjustified - the UK will do just fine with slightly higher
rates.

  _____  

 

In the US, while official numbers are not yet reflecting the situation on
the ground, retail activity is picking up. ICSC-Goldman chain-store sales
are up 4.5% on the year (below) and Redbook index is up 4.1% from last year.

 



  _____  

 

The firmer US demand has resulted in import prices finally rising - after
being down on a year-over-year basis for months. This should be accretive to
the overall CPI number.

 



  _____  

The NY region is experiencing a surprising jump in manufacturing activity as
new orders pick up. Hopefully this can be sustained.

 



  _____  

 

Here is some food for thought. What happens in an environment - such as the
one we are in currently - that is characterized by prolonged periods of low
volatility? One of the effects of diminished price swings is the decline in
return expectations. As an example, the chart below shows the spread
demanded by investors in US high yield bonds vs. the volatility of total
returns in that market. 

 



 

Welcome to the world of Fed-engineered muted volatility that is resulting in
diminishing return expectations. Time to really get to know your leverage
provider.

  _____  

 

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