The Daily Shot: Beijing Flushing Out Leverage as Bond Yields Jump

via Lev Borodovsky


1. Chinese government bond yields continue to climb, with the 10yr approaching 4%.


Corporate debt is selling off as well. Below is the average yield on a “AAA” 5yr bond. Bejing is squeezing leveraged investments such as the massive wealth management product (WMP) market. WMPs have already been feeling the impact of higher rates. Refinancing risk for some weaker companies who need to roll their debt is also on the rise.


2. Lending activity was softer than expected last month. Analysts view this dip as temporary.


The overall debt levels in China, however, remain elevated.

Source: @PIMCO; Read full article


Source: @acemaxx, @ECB, @josephncohen; Read full article


3. The gap between the broad and the narrow money supply trajectories has widened further. Some view this divergence as liquidity that’s sloshing around in the financial system and not making it out into the broader economy.


4. The latest economic data from China shows further moderation in growth.

• Industrial production:


• Retail sales:


5. Growth in fixed-asset investment is also slowing. Here is the split between private and public activity (public fixed investment is the main component of the government stimulus).

Source: @fastFT; Read full article


6. The profitability of China’s steel mills jumps amid Beijing’s efforts to curtail overcapacity.

Source: @gadfly; Read full article


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Emerging Markets

1. In addition to China, several other EM local bond markets remain under pressure.

• South Africa:


• Turkey:


• Romania:


Here is the Romanian leu against the euro.


2. The JPMorgan EM Currency Index is drifting lower.


3. 2017 saw a record amount of sub-investment-grade EM government debt issued. This market is going to get interesting as the Fed keeps hiking rates.

Source: @Dealogic, @FT; Read full article


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Asia – Pacific

1. The Nikkei took a hit as speculative accounts were forced to unwind their bets (see chart). Is there more unwinding to come?


Separately, Japan’s output gap has closed. Will the nation see higher inflation as a result?

Source: CIBC, h/t Paul Menestrier


2. The Australian dollar has been drifting lower.


The nation’s business conditions have improved markedly, which should result in a boost to the labor market. Will the Aussie dollar reverse the downward trend?


3. Exports across Asia have accelerated recently, but many countries remain reliant on cyclical sectors.

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


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1. Canada’s exports have not been as broad as some economists had been hoping for. In fact, manufactured products exports have slowed.

Source: CIBC, h/t Paul Menestrier


Source: CIBC, h/t Paul Menestrier


2. Low interest rates have kept household debt service levels manageable.

Source: Scotibank, h/t Paul Menestrier


3. Rental housing demand has boosted apartment construction in Canada.

Source: Scotibank, h/t Paul Menestrier


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The United States

1. Here is the breakdown of the US labor-force participation rate decline since 2008. The “change due to behavior” includes trends such as higher college enrollment rates, etc.

Source: @AtlantaFed; Read full article


2. Growth in consumer credit on banks’ balance sheets is on the rise again.

• Total consumer loans:


• Credit card debt:


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The Eurozone

1. The selloff in Greek banks has accelerated, and credit continues to contract.



2. Portugal’s bond spreads to Germany are rapidly tightening.


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Global Developments

1. This chart shows a forecast for global growth over the next few years.

Source: BMI Research


2. Here is the consumer inflation in the US and the UK going back to 1850.

Source: Capital Economics


3. Declines in union memberships around the world are believed to be one of the reasons for lower inflation.

Source: Capital Economics


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Bitcoin has bounced off the lows but remains volatile.


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Energy Markets

1. Asia’s natural gas prices are approaching those in the US amid brisk LNG trade.

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


2. The Permian Basin horizontal well productivity continues to rise (see video on the lateral technology).

Source: @OxfordEnergy, @josephncohen; Read full article


3. The Canadian heavy crude oil discount is worsening beyond the pipeline transportation costs.

Source: @gadfly; Read full article


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Equity Markets

1. Homebuilder shares bounced as the GOP promises to keep the key deductions in the new tax plan.


DR Horton wasn’t impacted by the risks around the high-end (or expensive areas) housing deductions (that’s not the company’s focus).


Toll Brothers, however, was.


2. GE is shedding several businesses and cutting dividend in an attempt to boost growth.

Source: @WSJGraphics, @josephncohen, Paul Menestrier; Read full article


Investors dumped the already battered shares on the news.

Further reading


3. Retail stocks had bounced last week, but many firms remain under pressure.

• Here is Nordstrom.


• Sears is just melting away. It’s hard to see suppliers sticking by the firm when they see this chart.


4. Qualcomm turned down the first dance with Broadcom. The market thinks there is a higher bid coming.

Further reading


5. Biotechs widen their underperformance.


6. Asia is driving the latest IPO boom.

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


7. When it comes to earnings releases, equity risks remain asymmetric.

Source: @FactSet; Read full article


8. Finally, here is the stock market volatility going back to 1930.

Source: @FT, @jessefelder; Read full article


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1. LBO activity has picked up this year.

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


2. Investors pulled quite a bit of money out the SPDR high-yield bond ETF over the past few days.

Source: Bloomberg


3. High-rated muni bonds have performed quite well recently relative to Treasuries.

Source: Piper Jaffray


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US short-term rates continue to climb.


Here is the Treasury curve over the past month.


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Food for Thought

1. Americans with higher incomes believe that there are tons of jobs available in their area. Lower-income workers are less convinced.

Source: @pewresearch, @josephncohen; Read full article


2. International student enrollment in the US is down for the first time in a decade.

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


3. Cable news viewership.

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


4. President Trump’s Twitter activity.

Source: @bpolitics; Read full article


5. The betting markets’ probability of Roy Moore winning the special election in Alabama.

Source: PredictIt


6. The betting markets’ probability of the GOP retaining control of the House of Representatives in 2018.

Source: PredictIt


7. What do Americans think of NAFTA?

Source: @pewglobal, @josephncohen; Read full article


8. Statistics on volunteers in the US.

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


9. The timing of the cherry blossom (peak bloom) in Kyoto, Japan – since the year 800.

Source: @TheEconomist; Read full article


10. A record number of men now “marry up” educationally.

Source: @RichardvReeves; Read full article


11. The future of advertising.

Source: Marketoonist; Read full article