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Greetings,

We begin with the latest global manufacturing reports from Markit. Given the flash PMI (Purchasing Managers’ Index) reports were released about a week ago, most of these results were not unexpected. However here are some highlights worth discussing.

1. Below is what JPMorgan had to say regarding the overall global manufacturing activity.
Source: Markit
2. The news wasn't entirely gloomy however. Manufacturing in several smaller economies such as Poland and Switzerland surprised to the upside.
3. The manufacturing report out of the UK on the other hand was highly disappointing.
Source: Markit
4. The report from the Eurozone shows softer manufacturing activity but large variations across the member states. German manufacturing growth is definitely slowing. 
5. Brazil continues to struggle, as the manufacturing sector sheds more jobs. The stagflation has been extraordinary - just take a look at the commentary below.
Source: Markit
6. Here is a summary for the EM regions from Capital Economics.
Source: @CapEconEmerging
7. The situation in the US is not encouraging, with Markit referring to "signs of distress" in the manufacturing sector.
Source: Markit
In spite of the gloomy Markit report (above), we had some positive news on US manufacturing. The ISM PMI report (Institute for Supply Management), while showing the the manufacturing sector is still contracting, was materially better than expected. Production, employment, and the backlog of orders improved.
It was also helpful to see manufacturers' customer inventories stabilize after being highly elevated.
The markets took this as a sign of stabilization for the United States - pretty much ignoring the Markit manufacturing report (traditionally the US ISM report carries significant weight vs. other PMI measures). Treasury yields rose and the S&P500 futures jumped 2.5%.
Source: barchart
As a side note, the ISM manufacturing employment sub-index has diverged sharply from the government's payroll figures. The ISM surveys don't seem to pick up the trend in job creation (or there is a problem with the government's figures).
Source: @jbjakobsen 
Another economic report that surprised to the upside was US construction spending. It increased 1.5% on a month-over-month basis (vs. 0.4% expected). Spending was the highest since 2007.
It's worth noting however that growth did not come from private residential spending, where the increases have been rather modest.
Instead, growth in construction spending was driven by road and highway projects which saw the largest 2-month increase in history. While it's unclear if this level of spending is sustainable, the new fiscal stimulus from local governments is helpful for the US economy (near-term).
US auto sales remain robust, especially trucks. Persistently low gasoline prices and cheap auto financing continue to provide support.
Strong auto sales are especially important given the recent slowdown in domestic auto production and a weakening demand for auto loans.
In other US news, the Texas service sector is struggling. It took some time for analysts to appreciate just how dependent Texas has been on energy production and investment. Property markets are likely to be impacted next.
The Johnson Redbook Index suggests that US retail sales remain soft. On the other hand, shares of retailers have outperformed sharply over the past week. What's going on here?
Source: Ycharts.com
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Turning to other economies, here is the latest.
 
Australian economy remains resilient, with the December GDP growth beating estimates - in spite of collapsing investment.
Source: BAML, h/t Josh
Here is the Australian dollar response to the GDP report. 
In Japan the equity markets jumped over 4% in response to the risk-on sentiment in the US. 

Also there seems to be some political backlash against negative interest rates in Japan as Haruhiko Kuroda is called before parliament far more than in previous years.
Source: @business
 Moody's lowered outlook on China's debt rating to "negative" from "stable". The greatest concern is the cost of fiscal stimulus (and potential bank bailouts) which will force Beijing to run higher deficits.
Moody's Investors Service has today changed the outlook to negative from stable on China's government credit ratings, while affirming the Aa3 long-term senior unsecured debt, issuer ratings, and (P)Aa3 senior unsecured shelf rating.

The key drivers of the outlook revision are:

1. The ongoing and prospective weakening of fiscal metrics, as reflected in rising government debt and in large and rising contingent liabilities on the government balance sheet.

2. A continuing fall in reserve buffers due to capital outflows, which highlight policy, currency and growth risks.

3. Uncertainty about the authorities' capacity to implement reforms -- given the scale of reform challenges -- to address imbalances in the economy.

At the same time, China's fiscal and foreign exchange reserve buffers remain sizeable, giving the authorities time to implement some reforms and gradually address imbalances in the economy. This underpins the decision to affirm China's Aa3 rating.
The unemployment rate in the Eurozone came in lower than forecast. The second chart below shows the latest unemployment by country (including the whole of EU).
Source: ‏@pdacosta

Also in the Eurozone the central bank balance sheet continues to expand. Will we see this accelerated shortly as Draghi prepares more stimulus?
Source: ‏ECB
Source: ‏Washington Post
The recent weakening of the British pound could result in a renewed export boom for the UK. In the chart below, "NEER" stands for nominal effective exchange rate. Currency devaluation has its benefits.
Source: @auaurelija
Argentina finally settles with the defaulted bond holdouts as the bonds rally. Will this allow Argentina to tap the international debt markets in the near future?
Source:  @Schuldensuehner
Venezuela continues to unravel as the currency hits new lows and inflation begins to look like the old Zimbabwe.
Source: @SoberLook
In commodities markets it seems that the worst of the selloff is behind us - for now.

1. Copper seems to have bottomed out.
Source: barchart
2. Here are the steel rebar futures in Shanghai. It's important to keep in mind that steel production in China is not all for domestic uses. China's steel exports hit another record recently.
Source: barchart
3. Mining shares have significantly outperformed this year.
Source: Ycharts.com
4. Is the worst over for crude oil?
Source: barchart
On one hand there has been a number of production outages to ease the overproduction. 
Source: @business
On the other hand US inventories rose more than expected last week - which may continue to pressure oil.
5. One commodity that is still declining in price is wheat, as the global oversupply weighs.
Source: barchart
Finally, here are some additional market updates.

1. US corporate HY is now up for the year. Amazing.
Source: Ycharts.com
2. This chart shows the danger of crowded trades.
Source: @business, h/t Ed Bozaan
3.  Pharma shares continue to underperform.
Source: Ycharts.com
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Turning to Food for Thought, we have 4 items this morning:

1. One reason for all the anger in the US during this election cycle is the wage stagnation for the middle class.
Source: ‏@vexmark, @business
2. Ukrainians made a better living while part of the USSR than they do now.
Source:  ‏@PIIE_com 
3. Which devices are most important to Americans (by age)?
Source: ‏@erikbryn, Business Insider
4. The average tenure of NFL players continues to decline.
Source: @NickatFP, @WSJ
Thanks to Josh, @NickatFP, @MattGarrett3, Jake Badalamenti, and Ycharts.com for helping with research for the Daily Shot.

We would also like to thank the Federal Reserve Bank of St. Louis for the incredible job they have done providing data and graphics to the public. Here is credit and legal notice related to FRED charts: FRED® Graphs ©Federal Reserve Bank of St. Louis. All rights reserved. All FRED® Graphs appear courtesy of Federal Reserve Bank of St. Louis. http://research.stlouisfed.org/fred2/
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