A Crazy Week In Charts

What a week of utter craziness! After last week's inexhaustible flurry, we thought we'd see some respite. But no, the events just ratcheted one notch higher; with volatility in the financial markets at year-to-date highs and global developments on geopolitical, financial and economic fronts, we can barely keep up the the trance that is raving. So rather than using narrative to summarize what has been a very busy week, we thought of using charts to highlight the key talking points of the past 7 days or so.

This edition of the Daily Grail will be the first ever to feature a compendium of graphics and charts but we might indeed start to adopt a similar format in future editions for time constraints. We have tried to broaden the subjects covered under each piece while ensure each note remains relevant to our readers.


Jitters Over China

We start off with the world's second largest economy. This past week saw some data coming out of China that either stirred the ire of investors or served to affirm preexisting fault lines in the raging dragon's economic and social construct.

  China M2 YoY Change:  This chart plotting the YoY growth of China's M2 money supply shows a steep deceleration in money creation. The PBoC hinted that it intended to clamp down on malpractices late 2014, but soon lost the attention of markets after it made rather haphazard policy decisions which included lowering the nation-wide RRR by 0.5% 2 weeks ago. M2 growth has fallen to the lowest in more than 3 decades; while it isn't expected to stagnate nor head into negative territory, this is something to watch closely

China M2 YoY Change: This chart plotting the YoY growth of China's M2 money supply shows a steep deceleration in money creation. The PBoC hinted that it intended to clamp down on malpractices late 2014, but soon lost the attention of markets after it made rather haphazard policy decisions which included lowering the nation-wide RRR by 0.5% 2 weeks ago. M2 growth has fallen to the lowest in more than 3 decades; while it isn't expected to stagnate nor head into negative territory, this is something to watch closely

  China Social Financing : State and social financing make up an almost disproportionately huge part of the Chinese banking system. The shadow banking conduits that run in parallel to the much more transparent deposit-loan based system is largely sponsored by the government itself. This chart handily proves the point. Note that in January this year, local currency loans from the state (government) was essentially the highest since 2012 in terms of aggregate amount and as a percentage. The other components such as trusts loans and corporate debt only make up a minute sum of some RMB2trn in shadow credit. Foreign currency loans have never been even been on the radar as the foreign capital restrictions are still imposed as they have before. It seems China has a long way to go in liberalizing its economy...

China Social Financing: State and social financing make up an almost disproportionately huge part of the Chinese banking system. The shadow banking conduits that run in parallel to the much more transparent deposit-loan based system is largely sponsored by the government itself. This chart handily proves the point. Note that in January this year, local currency loans from the state (government) was essentially the highest since 2012 in terms of aggregate amount and as a percentage. The other components such as trusts loans and corporate debt only make up a minute sum of some RMB2trn in shadow credit. Foreign currency loans have never been even been on the radar as the foreign capital restrictions are still imposed as they have before. It seems China has a long way to go in liberalizing its economy...

  China New Loan Creation : While money supply growth has been decelerating ever since 2009, loan creation remains robust albeit incredibly volatile. The latest numbers indicate that the pace of credit growth was the highest since Lehman, sending a mixed message across the markets. On the one hand, the PBoC has been directly responsible for the slump in M2 growth, while on the other, it has also fostered an environment where credit has never been more accessible and cheaper

China New Loan Creation: While money supply growth has been decelerating ever since 2009, loan creation remains robust albeit incredibly volatile. The latest numbers indicate that the pace of credit growth was the highest since Lehman, sending a mixed message across the markets. On the one hand, the PBoC has been directly responsible for the slump in M2 growth, while on the other, it has also fostered an environment where credit has never been more accessible and cheaper

  China Property Prices : The housing and real estate bubble in China easily dwarfs that of the US's sub-prime mortgage malfeasance in which peaked 2006-2007. It seems that even though the country and its Politburo has managed to avert a so called "hard landing", the pain is far from over. This chart shows the national home price index declining into the first month of 2015, after staging a rebound in 2012 and 2013. As China's economy continues to expand in nominal terms, the aggregate scale of social financing has not kept up - a positive sign of success under President Xi's leadership; structural reforms and the likes

China Property Prices: The housing and real estate bubble in China easily dwarfs that of the US's sub-prime mortgage malfeasance in which peaked 2006-2007. It seems that even though the country and its Politburo has managed to avert a so called "hard landing", the pain is far from over. This chart shows the national home price index declining into the first month of 2015, after staging a rebound in 2012 and 2013. As China's economy continues to expand in nominal terms, the aggregate scale of social financing has not kept up - a positive sign of success under President Xi's leadership; structural reforms and the likes


Markets Loosing Faith In Japan & BoJ

The world is no stranger to Japan. Having fallen into its 4th technical recession in the last 5 years, and perhaps having the world's most aggressive and brazen central bank (possibly in the history of the developed world), the land of the setting sun continues to meet the markets' expectations... of further deterioration.

This week, the BoJ rattled the markets when it announced on Thursday that it felt additional asset purchases (on top of its already expanded LSAP program) would be counter productive at this juncture. The Yen saw significant strength in what was otherwise a muted week for the battered currency.

  CFTC Nikkei Positioning : For the second consecutive week since Abenomics began in 2013, the CFTC commitment of traders report indicated that traders have become overall short on Nikkei 225 futures. The significance of this development is that it seems to hint the market's waning faith in the BoJ and Abe's ability to boost prices of financial assets going forward. The Yen has failed to trade above 121 to the dollar in a very long while now, signalling also that traders believe there is little impetus to add to Yen shorts, implying the inverse for Japanese equities.  Speculators are usually correct for the meat of the move, hence a flip to net short might be a harbinger for further downside in the Nikkei - implying Yen strength. It should be noted that CFTC CoT data is released a full week after positions have been surveyed; traders turned net short Nikkei futures on 23 January

CFTC Nikkei Positioning: For the second consecutive week since Abenomics began in 2013, the CFTC commitment of traders report indicated that traders have become overall short on Nikkei 225 futures. The significance of this development is that it seems to hint the market's waning faith in the BoJ and Abe's ability to boost prices of financial assets going forward. The Yen has failed to trade above 121 to the dollar in a very long while now, signalling also that traders believe there is little impetus to add to Yen shorts, implying the inverse for Japanese equities.

Speculators are usually correct for the meat of the move, hence a flip to net short might be a harbinger for further downside in the Nikkei - implying Yen strength. It should be noted that CFTC CoT data is released a full week after positions have been surveyed; traders turned net short Nikkei futures on 23 January

  Japan Import Prices : When Shinzo Abe launched his much coveted "Abenomics" solution in a desperate attempt to defeat the ghost of the past that is deflation and stagnation, the markets placed high hopes in some efficacy at the very least. 3 years after Abenomics began, things have taken a turn for the worse, far worse. Case in point; import prices have cratered, a large part due to cheap energy imports even factoring in a weak Yen. Abenomics has just about achieved nothing on the front of boosting prices. The only prices that have been inflated are those of financial assets such as stocks

Japan Import Prices: When Shinzo Abe launched his much coveted "Abenomics" solution in a desperate attempt to defeat the ghost of the past that is deflation and stagnation, the markets placed high hopes in some efficacy at the very least. 3 years after Abenomics began, things have taken a turn for the worse, far worse. Case in point; import prices have cratered, a large part due to cheap energy imports even factoring in a weak Yen. Abenomics has just about achieved nothing on the front of boosting prices. The only prices that have been inflated are those of financial assets such as stocks

  BoJ QE Loosing Efficacy : This chart is another example of how the BoJ's second round of QE has lost much of its effectiveness in placating the financial markets compared to its first bout of asset purchases. Even in Dollar terms, Japanese equities rallied in excess of 30% during the first round of QE. In the same light, equities were almost unchanged during the current round of QE. A stark sign the market has lost hope

BoJ QE Loosing Efficacy: This chart is another example of how the BoJ's second round of QE has lost much of its effectiveness in placating the financial markets compared to its first bout of asset purchases. Even in Dollar terms, Japanese equities rallied in excess of 30% during the first round of QE. In the same light, equities were almost unchanged during the current round of QE. A stark sign the market has lost hope


Madness in Europe

For lack of a better description, and the fact that we aren't David Attenborough commenting on a gazelle in the Saharan plains, it was plain old pandemonium in the European continent this week... and we suspect it will be for the coming few.

First of all there was the Ukraine vs. Russia game of chess; leaders agreed in Minsk on a truce effective midnight on Saturday, but last time we checked there was intense fighting in the regions where the ceasefire was supposed to bear down on. A couple more Ukrainian service personnel were killed this week, civilians in the eastern part of the country continue to suffer without electricity, water, and heating amidst the cold of winter. We should add that the previous truce (which was too signed in Minsk almost a year ago in early 2014) held for about 3 days before fighting rendered it moot. We totally see the same repeating; we're not going into the details here but we have our basis for that claim. Truce or no truce, the pro-Russian fighters will fight on.

Second of all, Greece continues to toy with not only the markets' heartstrings but also the patience of European leaders - those whose interest in the Eurosystem are held hostage. More importantly, the fussy beggar-nation is running against the clock either till it runs out of cash to fund its state operations, or until its current rescue package expires end February. Markets have sanguine for most of this week despite the impasse and unwillingness for compromise and seems to be pricing in an orderly resolution. We have no comment.

  Europe's Unexpected Improvement : Europe surprised the markets on Friday when figures showed that the Eurozone grew by 0.3% sequentially in 4Q14, on expectations of a 0.2% figure, marginally higher than 3Q14's 0.2%. Annualized, the Eurozone economy as a whole grew by 1.4% in 2014, compared to the 2.6% growth seen in the US. 4Q14's growth was the best in the whole of 2014. However, once broken down into its 18 individual economies, one country stands out - Germany, again. Germany's economy grew 0.7%, much above estimates of 0.3% and the 0.1% seen in the previous quarter. The statistical office has not released a detailed breakdown of the different components yet, but suggested that strong private consumption and investment spending were the main drivers of growth in 4Q14. Exports "increased again significantly". However, imports rose, according to the statistical office, "at a similar rate", implying a neutral contribution from net trade in 4Q14. German GDP figures tend to show a higher volatility than GDP figures in other big Euro area countries (the relative big size of the industrial sector is probably one factor behind this volatility). Hence, we caution against taking this GDP figure at face value. What the figures nonetheless suggest, and what is consistent with the rise in business sentiment over the past couple of months, is that the underlying momentum of the German economy is now picking up again. And so the bifurcation continues   

Europe's Unexpected Improvement: Europe surprised the markets on Friday when figures showed that the Eurozone grew by 0.3% sequentially in 4Q14, on expectations of a 0.2% figure, marginally higher than 3Q14's 0.2%. Annualized, the Eurozone economy as a whole grew by 1.4% in 2014, compared to the 2.6% growth seen in the US. 4Q14's growth was the best in the whole of 2014. However, once broken down into its 18 individual economies, one country stands out - Germany, again. Germany's economy grew 0.7%, much above estimates of 0.3% and the 0.1% seen in the previous quarter. The statistical office has not released a detailed breakdown of the different components yet, but suggested that strong private consumption and investment spending were the main drivers of growth in 4Q14. Exports "increased again significantly". However, imports rose, according to the statistical office, "at a similar rate", implying a neutral contribution from net trade in 4Q14. German GDP figures tend to show a higher volatility than GDP figures in other big Euro area countries (the relative big size of the industrial sector is probably one factor behind this volatility). Hence, we caution against taking this GDP figure at face value. What the figures nonetheless suggest, and what is consistent with the rise in business sentiment over the past couple of months, is that the underlying momentum of the German economy is now picking up again. And so the bifurcation continues

 

  Greek Banks Battered : At one point in January, when Grexit fears were at their peak, Greek banks collectively experienced their largest single day decline on record, falling by more than 20%. After having found a temporary floor in late January, stocks of these banks have collapsed once again but did not carve new lows. There is obviously some hope being baked into prices

Greek Banks Battered: At one point in January, when Grexit fears were at their peak, Greek banks collectively experienced their largest single day decline on record, falling by more than 20%. After having found a temporary floor in late January, stocks of these banks have collapsed once again but did not carve new lows. There is obviously some hope being baked into prices

  Weapons Fully In Range : Various weapons fired from the Russian boarder to eastern Ukraine will remain effective against ground based targets in the contested regions of Donetsk and Luhansk regardless on the status of the ceasefire agreed upon by leaders of both sides. Although the weapons used by pro-Russian fighters are most primitive and old, they have claimed thousands of innocent lives because they are indiscriminately used for much of the time. Artillery shelling has been the most devastating form of assault so far. There is little question that these weapons are supplied by Russia.  It is also easy to forget that Crimea has been annexed to the Russian Federation early last year, and was the main event that instigated the morass of instability and violence that the region is facing today. 

Weapons Fully In Range: Various weapons fired from the Russian boarder to eastern Ukraine will remain effective against ground based targets in the contested regions of Donetsk and Luhansk regardless on the status of the ceasefire agreed upon by leaders of both sides. Although the weapons used by pro-Russian fighters are most primitive and old, they have claimed thousands of innocent lives because they are indiscriminately used for much of the time. Artillery shelling has been the most devastating form of assault so far. There is little question that these weapons are supplied by Russia.

It is also easy to forget that Crimea has been annexed to the Russian Federation early last year, and was the main event that instigated the morass of instability and violence that the region is facing today. 

  German GDP Estimates vs. DAX : The alligator's jaws have opened up gapingly wide once again, only this time in Europe's strongest and most successful economy - Germany. The DAX 30 this week set a new all time record high on Friday despite the Euro being relatively unchanged. 2015 GDP estimates from the largest European economy have seen a slight uptick in recent weeks but remain precariously near stagnation. The DAX has been outperforming most of its peers mainly due to investors and traders front-running the   ECB's €1.1trn EAPP (QE)  . On top of German equities, German Bunds have also performed extravagantly well with yields going negative up to maturities of 5 years!

German GDP Estimates vs. DAX: The alligator's jaws have opened up gapingly wide once again, only this time in Europe's strongest and most successful economy - Germany. The DAX 30 this week set a new all time record high on Friday despite the Euro being relatively unchanged. 2015 GDP estimates from the largest European economy have seen a slight uptick in recent weeks but remain precariously near stagnation. The DAX has been outperforming most of its peers mainly due to investors and traders front-running the ECB's €1.1trn EAPP (QE). On top of German equities, German Bunds have also performed extravagantly well with yields going negative up to maturities of 5 years!

  Why "Grexit" Should Happen : Rather hilariously, we suggest Greece immediately leave the single currency bloc and repudiate all of its Euro-denominated public debt. Why? The above chart shows it all. Not only will Greece see its output growth accelerate ay above that of the EU18, correction, make that EU17; Greece stands to gain immensely from a hyper-inflated Drachma.  Of course we hope readers would realize we're joking about this. Greece, in our eyes, remains as a basket case. It doesn't have a real economy. Tourism, which is its only strong source of revenue, has fallen through the roof in the last few years. Unemployment is high on the national level, and preposterously so amongst youth (under 21 unemployment of nearly 63%). Although we feel that a 2% nominal growth rate for the stricken nation is fully within the realms of attainment, we fail to recognize any significance this bears on the grander scheme of things. An economy that has already shrunk more than a quarter since 2009 ought to experience sharp and sporadic rebounds. This is natural.  We await the official decision once the time runs out in a few weeks

Why "Grexit" Should Happen: Rather hilariously, we suggest Greece immediately leave the single currency bloc and repudiate all of its Euro-denominated public debt. Why? The above chart shows it all. Not only will Greece see its output growth accelerate ay above that of the EU18, correction, make that EU17; Greece stands to gain immensely from a hyper-inflated Drachma.

Of course we hope readers would realize we're joking about this. Greece, in our eyes, remains as a basket case. It doesn't have a real economy. Tourism, which is its only strong source of revenue, has fallen through the roof in the last few years. Unemployment is high on the national level, and preposterously so amongst youth (under 21 unemployment of nearly 63%). Although we feel that a 2% nominal growth rate for the stricken nation is fully within the realms of attainment, we fail to recognize any significance this bears on the grander scheme of things. An economy that has already shrunk more than a quarter since 2009 ought to experience sharp and sporadic rebounds. This is natural.

We await the official decision once the time runs out in a few weeks

  Greek Banks Battered : As with their equity component, bonds of Greek banks have been hit equally hard, easily trading 70 ¢ on the dollar and yielding over 10% for 2 year maturities. The volatility here is just insane. Credit spreads have exploded and CDS premiums have ballooned. We note that on Wednesday this week, the ECB increased the size of its ELA facility made available to Greek FIs. The limit now sits at   €65bn. Recall that Greek debt securities are no longer  eligible to be pledged effective last week. Deposit outflows are under reported in financial media but are definitely happening en mass

Greek Banks Battered: As with their equity component, bonds of Greek banks have been hit equally hard, easily trading 70¢ on the dollar and yielding over 10% for 2 year maturities. The volatility here is just insane. Credit spreads have exploded and CDS premiums have ballooned. We note that on Wednesday this week, the ECB increased the size of its ELA facility made available to Greek FIs. The limit now sits at €65bn. Recall that Greek debt securities are no longer eligible to be pledged effective last week. Deposit outflows are under reported in financial media but are definitely happening en mass


America, perhaps a little over-egged

Macro data has missed almost across the board in the US. We are adamant that current asset prices can continue trending upwards in a sustainable manner without some sort of external push, either from central banks of a positive surprise in macro data, and in a big way.


Around the World: Trade and other shenanigans

Trade is dying. How does this spell well for the global economy? Our inquiring minds are curious. Besides falling oil prices, deflation will seep in via cheaper commodity prices as we have warned perilously. Meanwhile, the Baltic Dry Index doesn't seem to be able to find a floor...