The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

By Anonymous

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Twitter: @SoberLook




The Daily Shot: 15-Oct-18
• Administrative Update
• The United States
• The United Kingdom
• The Eurozone
• Japan
• Australia
• China
• Emerging Markets
• Commodities
• Energy
• Equities
• Alternatives
• Credit
• Rates
• Global Developments
• Food for Thought

Administrative Update

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The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot


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The United States

1. Let's begin with the import price index which continues to moderate in response to this year's dollar rally.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

The increases in the costs of imported building materials have slowed.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

And prices of imported capital goods (machinery, equipment, etc.) are at the levels they were a year ago.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

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2. China's trade surplus with the US hit a new record as suppliers try to get ahead of the tariff hikes. That's why we see rising wholesale inventories in the US (see chart).

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

3. The U. Michigan Consumer Sentiment Index remains near multi-year highs.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

As the unemployment rate hits multi-decade lows, Americans are upbeat about the government's economic policy.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

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4. Below are a couple of charts on inflation.

The U. Michigan measure of long-term consumer inflation expectations is back to post-recession lows. This is one of the reasons the Fed is not expected to accelerate its rate increases despite tightening labor markets.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Inflation in prescription drugs has slowed as more generics make their way into the market.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: @RenMacLLC

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5. Next, we have a few updates on the labor markets.

Demographics will continue to be a drag on the employment-to-population ratio.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: Deutsche Bank Research

This chart shows the unemployment rate by duration.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: Deutsche Bank Research

We continue to see retail jobs shifting to e-commerce.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: WSJ.com, h/t Paul Menestrier; Read full article

Here is the impact on job growth from the manufacturing and energy sector recessions (which started after the dollar spiked and oil prices crashed in 2014).

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: Deutsche Bank Research

Middle-market CEOs remain very concerned about the quality of labor.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source:  Marcum LLP

What is the current sustainable rate of unemployment? Many economists estimate it to be around 4.5%.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: Goldman Sachs

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6. The probability of a recession over the next six months remains modest.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: Oxford Economics

7. Financial conditions have tightened recently. Will we see some downward pressure on the nation's manufacturing activity?

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: @TheTerminal

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: @AndreasSteno; Read full article


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The United Kingdom

1. With little progress in the UK-EU negotiations, investors are increasingly concerned about a "hard" Brexit. The pound's rally this month is fading quickly.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot
The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: AP; Read full article

2. The UK's stock market has been following other European bourses lower.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

3. Bloomberg's UK GDP tracker points to economic weakness in September.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: @economics; Read full article


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The Eurozone

1. Mario Draghi is signaling to Rome that the ECB won't come to the rescue if the budget talks with the EU fail. Of course, he may have no choice if Italy drags down the rest of the Eurozone.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: CNBC; Read full article

Investors remain jittery.

Italy - Germany bond spreads are grinding higher.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

The yield curve continues to flatten (inverted at the longer end).

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Debt ratings remain near junk levels.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: @jsblokland, @Schuldensuehner

Here is the government debt maturity profile. Rolling this debt over the next three years could become challenging as the ECB steps out of the market.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: @TheTerminal

So far, there are no signs of any meaningful contagion effects. Here is the correlation between Spanish and Italian yields.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: @fwred

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2. European stock markets remain under pressure.

Italy:

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Spain:

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Stoxx 50:

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

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3. The weakness in German imports shows softening demand.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: @economics; Read full article

4. Industrial production in the Eurozone appears to be stabilizing.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

5. Market-based inflation expectations are drifting lower.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot


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Japan

1. A stronger yen (chart below) and the global risk-off sentiment have erased the recent stock market rally (second chart).

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot
The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

2. Foreigners have been buying Japanese shares.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: Goldman Sachs

3. Japan increasingly welcomes foreign workers as the nation's working-age population shrinks.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: WSJ.com, h/t Paul Menestrier; Read full article


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Australia

1. Speculative accounts continue to press their bets against the Aussie (and the kiwi) dollar.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

2. Australia's stock market is tumbling.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

3. Australia's nonbank lenders are gradually taking a larger share of the mortgage market.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: ANZ Research


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China

1. The PBoC is gently nudging the RMB lower. Here is the official mid rate.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

2. Car sales have slowed.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: WSJ.com, h/t Paul Menestrier; Read full article

3. The nation's aging population is putting pressure on the pension system.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: Gavekal 


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Emerging Markets

1. Saudi Arabia's stock market tumbled amid the Khashoggi scandal.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot
The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: The Guardian; Read full article

Even the credit default swap spread was impacted a bit.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

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2. India's CPI was softer than expected again (which is why the RBI held rates steady).

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Food prices drove the recent weakness in the index.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: @ANZ_Research

Separately, India's industrial production growth remains robust.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

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3. Analysts expect Pakistan to get about $15 billion in bailout funds from the IMF.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: @IIF

4. Indonesia's government bond yields keep climbing.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

5. Mexico's industrial production was disappointing, with mining remaining a drag on growth.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot
The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: Goldman Sachs

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6. Dollar-denominated EM bonds (orange) held up better than US high-yield debt (white) in the recent selloff.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: @lisaabramowicz1

7. Analysts increasingly see EM assets bottoming out.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: @markets; Read full article


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Commodities

1. Coffee and sugar continue to recover on strength in the Brazilian real. Speculative accounts betting against these commodities got caught in a bit of a short squeeze going into the Brazilian elections.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

2. Iowa's soybean output hits a new record.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: @FarmPolicy, @usda_nass

3. Hedge funds are pressing their bets against gold.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: @Not_Jim_Cramer

Gold ETFs now drive gold prices, not the other way around.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: @StuartLWallace, @davidfickling; Read full article


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Energy

1. This chart shows the buildup in the Permian takeaway pipeline capacity to alleviate the recent transport bottlenecks.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: Longview Economics

2. On the other hand, Canadian oil producers increasingly struggle to get their crude oil to market.

The discount of Canadian crude to benchmark indices has blown out.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: WSJ.com, h/t Paul Menestrier; Read full article

And crude oil inventories in Alberta are climbing.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: @alex_macdonald

Rail shipments are expected to spike.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: Scotiabank Economics

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3. Speculative accounts are gradually cutting back their bets on crude oil.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot


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Equities

1. Markets remain jumpy in early morning trading amid renewed threats of tariffs from the White House.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: @bpolitics; Read full article

2. Bank stocks continue to underperform despite higher interest rates.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Separately, this chart shows trends in investment-banking revenue.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: WSJ.com, h/t Paul Menestrier; Read full article

3. Homebuilder stocks are a complete disaster. The second chart shows the TRI Pointe Group as an example.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

4. Small caps have widened their lag vs. the S&P 500.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

5. Tech stocks bounced on Friday (QQQ = the Nasdaq 100 index).

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Separately, Facebook is down 30% since July.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: @CNNBusiness; Read full article

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6. Here is the Smart Money Flow Index.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

7. Based on some indicators, US valuations look interesting again (P/E = price-to-earnings ratio; NTM = next twelve months).

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: UBS, @bySamRo

8. The Fear & Greed Index shows the market in "fear" territory.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: CNN Business; Read full article

9. Companies reporting thus far in this earnings season have been surprising to the upside.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: @FactSet; Read full article

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: Scotiabank Economics

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10. More firms are concerned about a stronger dollar, raw materials costs, higher wages, and tariffs. There is less concern about logistics bottlenecks.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: @FactSet; Read full article


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Alternatives

1. Hedge funds are not having a good year.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

2. This chart shows investors' hedge fund allocation plans across different strategies.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: @Preqin; Read full article

3. US VC investments continue to climb.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: WSJ.com, h/t Paul Menestrier; Read full article


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Credit

1. Investors have been dumping investment-grade bond ETFs.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: @lisaabramowicz1, @markets; Read full article

In fact, the whole fixed-income ETF universe has experienced significant outflows.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: @EricBalchunas

2. The percentage of investment-grade bonds trading below 90 cents on the dollar hit a multi-year high.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: @DriehausCapital

3. Middle-market sponsored loan volume tanked in the third quarter.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: @theleadleft, @LPCLoans; Read full article


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Rates

1. Growth in the US money supply continues to slow.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Part of the reason is the federal government's rapid-fire debt issuance. The Treasury deposits the proceeds of its sales with the Fed, thus reducing liquidity in the market.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

2. Cross-currency swap basis spreads (see description) continue to widen amid concerns over the year-end dollar liquidity.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

3. This chart shows who is long and short the two-year Treasury futures.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: @ljzaz


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Global Developments

1. Analysts expect further spikes in market volatility as the major central banks' total balance sheet begins contracting.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: The Daily Feather

2. This chart shows the divergence in financial conditions across regions.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: IIF

3. European banks, autos, emerging markets, and China's shares are all in bear-market territory.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: @reutersMikeD

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Food for Thought

1. Used motorcycles have been a drag on new bike sales.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: WSJ.com, h/t Paul Menestrier; Read full article

2. More companies are lobbying against tariffs.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: Deutsche Bank Research

3. PC shipments stabilize.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: WSJ.com, h/t Paul Menestrier; Read full article

4. Capital spending by the largest tech firms:

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: WSJ.com, h/t Paul Menestrier; Read full article

5. How do farmers deal with labor shortages?

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: WSJ.com, h/t Paul Menestrier; Read full article

6. Hurricanes are slower and deadlier.

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: WSJ.com, h/t Paul Menestrier; Read full article

7. Death rates among younger Americans:

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: CDC

8. Baseball injuries:

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: WSJ.com, h/t Paul Menestrier; Read full article

9. Congressional control odds for the 2018 midterms:

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: Danske Bank

10. School uniforms:

The Daily Shot: China’s Trade Surplus with the US Hits Record High - Daily Shot

Source: @onlmaps

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The Daily Shot provides objective and disinterested analysis and commentary regarding macroeconomic and market trends. Other than indirectly through country or sector specific exchange-traded or mutual funds, the author of the Daily Shot does not have any interest in or own any of the individual securities which may be mentioned. The Daily Shot does not provide investment advice or any recommendations regarding particular securities. Nothing in the Daily Shot should be relied upon in making an investment decision, nor considered to be a solicitation to offer or buy any securities.

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