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Global Macro Currents

BySober Look
Published 09/16/2015, 04:24 AM
Updated 07/09/2023, 06:31 AM

Let's begin in the United States where economic data remains mixed. Here is the latest:

1. The Empire State Manufacturing Index (measuring NY-area manufacturing activity) is quite weak and materially below consensus.

Business Conditions
2. At the national level the inventories-to-sales ratio is still elevated. This means that US product isn't selling well.
Inventories Vs. Sales
Moreover, here is the same chart vs. the trade weighted US dollar index - it's not difficult to see the relationship. A rate hike in this environment will push the dollar higher and put even more pressure on sales.
Inventories And Sales vs. USD
3. US industrial production growth has stalled - also as a result of a strong dollar.
Industrial Production
4. Related to the above, here is the capacity utilization.
Capacity Utilization
5. The Atlanta Fed latest GDPNow forecast for Q3 US GDP growth remains at 1.5%. All these indicators should give the FOMC some "food for thought".
GDP Growth
Source: Atlanta Fed
The treasuries market came under pressure on Tuesday. The short end of the curve had a particularly sharp move as the 2-year yield broke through the 75bp resistance.
2-Year T-Bill Yield
Source: Investing.com
On a relative basis the recent increase in the 1-yr bill yield was especially large.
1-Year T-Bill Yield
Related to the above, the spread between the 2-year treasury and Bund yield is at the highest level since 2007.
US 2 Year Vs. German 2-Year Bund
Source: @Schuldensuehner
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Turning to Germany, we see mixed business sentiment data. The ZEW Current Conditions index beat expectations.
German ZEW Current Conditions
Source: ‏Investing.com
On the other hand future business expectations worsened on China-related jitters, pushing the overall ZEW index below consensus.
ZEW
The ECB hopes the latest bout of disinflation (see France's CPI below) in the Eurozone is transient. Nevertheless most economists now expect the QE program to be expanded.
French Inflation
QE Outlook
Source: @andretartar, @business
The euro area trade surplus hit a record recently.
EU Balance Of Trade
Much of this is driven by Germany, but other member states have contributed as well.
Belgium Balance Of Trade
Political risks continue to hound Spain as Catalonians push for independence. The Spain-Italy government bond spread has widened further -- in spite of Spain's economy growing faster than most nations in Europe. Spanish stocks are underperforming as well.
Spanish 10 Year Vs. Italian 10 Year
Source: @JoelLewin
European Stocks
Source: @fastFT
We see conflicting housing data from the UK as the Office of National Statistics index shows UK house prices appreciating at about the same rate as the US. That was considerably below consensus.
UK Housing
Source: Investing.com
The UK's inflation remains subdued. The BoE is comfortably on hold until 2016 - especially given the cooling housing price appreciation (above)..
UK Inflation
Source: Investing.com
Based on yesterday's discussion, some readers have asked why a strong franc is such a bad thing for Switzerland. Here is just one example.
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Executive Outlook
Source: ‏@business
Turning to emerging markets, Turkey's latest bond auction resulted in the nation's government paying the highest interest rate in 6 years. The chart below shows Turkish yields rising as the currency falls (one dollar buys increasingly more lira).
Turkish Yields
Source: ‏@fastFT
Brazil embraces austerity by announcing spending cuts and higher taxes. Moody's applauded the move, which should be a positive for the nation's debt valuations. Nevertheless the real still trades near record lows vs. the dollar.
USD/BRL
Source: barchart (chart shows number of reals one dollar buys)
For years China wanted to build its own rating agencies. It got them now -- but they are just a bit biased. Too much downgrading would just be "unpatriotic".
Credit Ratings
Source: @SandyHendry @business
China's stock market is now down about 7% on the year after being up some 60% in June. Incredible.
Chinese Stocks
Source: ‏@fastFT, @patrickmcgee
By the way, investors have really downgraded their expectations for China's growth.
Chinese Growth
Source: @jsblokland
Switching to the energy markets, can more efficiency be wrung out of US oil rigs or are we reaching limits? Efficiency growth seems to have stalled as the less efficient rigs have been taken offline.
Bakken Production
Source: ‏EIA
The Swiss-based commodities trader Glencore (LONDON:GLEN) is trying to recapitalize itself in order to survive the collapse in commodity prices.
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Wall Street Journal Clip
Source: WSJ
It's been particularly hurt by falling coal prices as the (China-driven) good times come to an end.
Coal
Source: index mundi
Here is the share price.
Glencore
Source: Google (NASDAQ:GOOGL)
By the way, coal is not going away any time soon. In fact coal production in the US has risen recently.
Energy Use
Source: @paul1kirby
Regional Coal Production
According to BAML, investors are out there buying shares of energy companies. Is this a bet on higher oil prices?
Energy Buys
Source: @NickatFP
Staying with the energy theme, HY defaults are about to jump as levered energy firms run out of cash. Yes, energy prices will go up but it will be too little too late.
High-Yield Defaults
Source: @markets
Hedge funds have been aggressively deleveraging in this latest selloff. It explains some of the unusually elevated volatility.
Hedge Fund Assets
Source: @LadyFOHF, BAML
Related to the above, speculative accounts hold an outsize net long position in VIX futures. These are all positive signs for the US equity market.
Volatility
Source: @Callum_Thomas, @JLyonsFundMgmt
Finally, before going to Food for Thought, here is another reason a rate hike in the US at this point could be a mistake. Global monetary policy out of sync with the US - and is becoming more out of sync.
Monetary Policy Perception
Source: @JohnKicklighter
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Turning to Food for Thought, we have 4 items this morning:

1. They tell us to avoid "Mount Stupid" (below). However a great deal of social media is built on it.

Mt. Stupid
Source: ‏@M_McDonough
2. Prevalence of obesity in men by country.
Obesity
Source: @MaxCRoser
3. Business start-ups for select countries. As discussed yesterday, business formation in the US has spiked recently (according to the Morgan Stanley (NYSE:MS) index), but it's not yet reflected in this chart.
Business Formation
Source: ‏ ‏@business
4. Labor costs vary dramatically across Europe.
Labor Costs
Source: ‏@Suntimes (Chicago Sun-Times)

5. This man says the more Donald Trump speaks, the more Trump piñatas he sells. There's going to be tons of business Wednesday evening.

Disclosure: Originally published at Saxo Bank TradingFloor.com

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