The Daily Shot


Once again we begin with several developments in China.

1. As China's manufacturing contracts economists had hoped that the services sector will compensate. The latest Markit/Caixin Services PMI however says otherwise. The index came in way below consensus. Here is a summary.
Source: Markit
2. The offshore renminbi fell to new multi-year lows as the onshore-offshore spread blows out to record levels. This looks like another round of large capital outflows and a hit to the FX reserves.
Source: barchart
Source: @TomOrlik
3. Remember the lifting of the share sale ban for large shareholders that spooked the market? Well, we got this headline today. Madness. Beijing remains clueless about how markets operate.
Source: Channel NewsAsia
4. By the way, according to some metrics China's shares are still the world's most expensive.
Source: @business

This increased uncertainty in China comes at a time when the overall private leverage remains elevated. This is one of the reasons global markets are so nervous.
Source: Morgan Stanley
A number of analysts fully expect the PBoC to ease again in the next few weeks. Will it be enough to cushion the slowdown?
Now let's turn to Korea where we started with this headline.
Source: IKWQC
Shortly after we had this ...
Source: BBC
The S&P500 futures tanked in response and the Korean won dropped (chart shows USD rising against KRW).
Source: barchart
Source: barchart
Shares of South Korean defense firm Victek spiked in response to the North Korean "earthquake" + announcement. 
Source: Google

By the way, North Korea is the only nation testing nuclear weapons in the 21st century. For now ...
Source: @NickatFP @kevinschaul, the Washington Post
Staying with the latest geopolitical developments, the Saudi Arabia - Iran spat has so far failed to keep oil prices elevated. The Feb WTI crude futures fell below $36/bbl again.
Source: barchart
The latest report from API showed a decent draw on US crude oil inventories. Will this be enough to stabilize oil prices?
The combination of oil-related budget deficit the Saudis are now running and the situation with Iran sent Saudi Arabia's CDS-implied default probability to new highs.
Source: @Schuldensuehner

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Now let's cover a number of developments in the currency markets (in addition to the situation with the renminbi).

1. Euro/yen took a tumble as the Eurozone inflation figures came in below expectations (more on that below).
2. The Argentine peso sold off the most since the currency was allowed to float.
Source: barchart
3. The ruble remains under pressure on weakness in oil.
4. The Canadian dollar hit fresh lows.
Turning to the Eurozone, the area inflation figures came in below expectations.

1. The core CPI had failed to stay above 1%, putting pressure on the euro.
2. Italian inflation was especially low, unexpectedly hitting 0.1% again. Most of this of course is energy, but operating this close to zero again would make most central bankers uneasy.

In other developments, both German and Spanish employment figures were better than expected.

As an aside, this chart makes Angela Merkel look great. Of course Gerhard Schröder set the stage for labor reforms.
Source: @SoberLook,
Norway's manufacturing sector remains in contraction mode while the krone is pummeled on weakness in crude oil. These are trying times for oil exporters.

Given the above, it's important to note that Norway operates the world's largest sovereign wealth fund (Government Pension Fund of Norway).
Source: barchart
Back in the United States let's review a number of trends.

1. Auto sales disappointed. Nevertheless, 2015 was a record year for vehicle sales in the US.
2. Slow growth in US healthcare costs contributed to weak core CPI. Is the trend reversing now?
Source: Deutsche Bank, h/t Josh
3. Slowing growth in US working-age population will cap GDP growth.
Source: JPMorgan
4. US consumer balance sheets remain fairly healthy.
Source: JPMorgan
Switching to fixed income markets, ...

1. ... here is the 2016 rate hike probability (# of times) - Dec 31 vs. now (implied by the Fed Funds futures). The situation in China (combined with weak economic data in the US) is taking the number of expected hikes lower.
Source: @SoberLook, CME
2. The CP - T-bill spread remains elevated. Will it decline as US Treasury issues more bills in 2016 (lowering average maturity of debt)?
3. Lower rated US junk bond yields hit new post-09 highs as defaults in resource sectors loom.
Touching on US equity markets, here is a nice historical overview of market pullbacks since the recession.

The chart below shows the long-term relationship between rate-equity correlation and rates. It tells us that in a disinflationary environment when rates are low, treasury yields move with equities. When inflation is high, rising yields have a negative impact on equities.
Source: JPMorgan

Twitter hints it will lift the 140-character limit? Will that turn it into Tumblr? Whatever the case, the shares continue to languish. 
Source: Google
Bitcoin miners are ramping up computing power after the latest bitcoin rally and ahead of halving of bitcoin's block reward. The so-called "Hash Rate", a measure of the processing power of the Bitcoin network, has spiked.
Source:  @sammantic 

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Turning to Food for Thought, we have 4 items this morning:

1. We start with the latest GOP nomination polls.
Source: ‏RCP
2. Continuing with US politics, here is why a single GOP candidate will have a tough time winning all three early caucus states.
Source: @NickTimiraos, WSJ
3. Here is a test. The US state tax revenue is shown in this chart below. Why did property tax revenue spike during the Great Recession? 
h/t Josh
4. Google's data center in 1998.
Source: @LindaRegber
Thanks to @NickatFP, @MattGarrett3, and for helping with research for the Daily Shot.
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