Recap : Chart Observations

Commentary:

The charts are painting a very interesting picture of emerging inflationary pressures… and asset prices are reacting.

First, after a being capped by a 3 year downtrend, oil prices are breaking higher:

The insurgency in Iraq has gotten most of the attention, but the production disruptions actually started over a year ago, driven by Lybian production shortfalls. The disruptions until recently have been offset by the rise in US production: (charts below from Citi’s Global Macro team)

Now, it would be one thing if this was occurring during a time of weak core inflationary pressures. But that is not the case. The chart below shows the average of the US & EU Core CPI in white, along with the 12m change (momentum) in orange below. As the chart shows, core inflation momentum is now close to flat, after spending almost 2 years in negative territory. The vertical lines mark the last several times momentum turned higher after being deeply negative. What I’m trying to say is, historical precedents suggests core inflation globally is likely to continue moving higher in the coming months:

US yields are reacting. The belly has retested the yield highs this week, although momentum seems to have slowed:

And also keep a close eye on the 2y point:

The strength in oil prices has also been supporting the commodity currencies. USDCAD has broken below interim support:

And AUDUSD looks quite strong, despite a spate of potentially worrisome headlines of late, including dovish RBA minutes, and missing commodity collateral at Chinese warehouses:

Also, the dichotomy between gold (orange) and real rates (white, inverted) appears to have realigned, although probably not in the way most expected:

Finally, here are some interesting charts from Citi’s credit team, presented without comment:

:

Notable:

  • Canada Retail Sales rose 1.1% MoM vs 0.6% exp. The ex autos measure rose 0.7% vs 0.4% exp
  • Canada Core CPI jumped to 1.7% YoY vs 1.5% exp and 1.4% prev
  • EU Consumer Confidence vs -6.5 exp and -7.1 prev
  • Germany PPI improved to -0.8% YoY in May vs 00.7% exp and -0.9% prev
  • the WSJ discusses how regulators are urging banks not to lend to any LBO w/a debt-to-EBITDA ratio >6x but Jefferies isn’t subject to those rules since it isn’t a bank holding company – WSJ
  • China’s iron ore traders are being “starved” of credit according to Reuters due to a crackdown on lending practices in the industry. “The funding squeeze may force small traders to sell their stocks and pressure already weak prices” – Reuters
  • Australia – a planned $10B coal-port expansion has been delayed due to weak demand.

Upcoming Data:

  • Mon: Japan PMI, China HSBC PMI, Kuroda Speaks, EU PMI, US Markit Mfg PMI, Existing Home Sales
  • Tue: German IFO, US House Prices, Consumer Confidence, New Home Sales
  • Wed: German GfK Consumer Confidence, Italy Consumer Confidence, US DGO, Core PCE,
  • Thu: France Consumer Confidence, US Jobless Claims, Personal Income
  • Fri: Germany CPI, UMichigan Confidence
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