Article / 02 April 2015 at 9:30 GMT

Daily Shot: Small caps, big gains

TradingFloor.com Team / Saxo Bank
Denmark
  • Several emerging economies are not performing well
  • US data suggest a rike hike is on its way
  • The German 10-year government yield touched another record low
By Walter Kurtz*

Greetings,

Let's start with economic reports from a number of emerging economies. Here are some trends that stand out:

1. Brazil: Industrial production and manufacturing are contracting sharply. This adds to the factory utilization data I included yesterday.
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 2. In Turkey the manufacturing PMI is at the lowest level in 6 years while employment growth stalls. 

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 3. Indonesian manufacturing is contracting rapidly with iron ore and coal prices falling.
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 4. Thailand is in deflation.
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Some of the manufacturing contraction among emerging economies is driven by weak demand from China particularly for raw materials. For example the collapse in iron ore prices has been relentless and in fact accelerated in the past few days (now below $50). 
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 One can see the soft demand in the hot rolled coil (steel) futures on the Shanghai futures exchange for example.
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That is why the Australian dollar is testing the 0.76 support level. The end of the commodity supercycle is proving painful for many exporters.
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 Meanwhile the Shanghai Composite continues to march higher - let the good times roll...
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 We have more of the same out of the Eurozone as desperate rhetoric from Greece continues. Bitcoin?
ds9 Greek depositors continue to flee, forcing banks to tap increasing amounts of emergency assistance from the Bank of Greece (who in turn borrows from the Ecosystem.)

Greek government bond yields are hovering near the highs ...
ds10 And sovereign CDS spreads are on the rise again.
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Also in the Eurozone the German 10-year government yield touched another record low during the day: 15bp. Get it now while it's still positive.
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 Switching to the energy markets, here is the updated crude oil in storage as well as production levels in the US.
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Also in the United States economic indicators for Q1 continue to disappoint. The ISM manufacturing PMI report was quite ugly- manufacturing employment is not growing and export orders are falling (<50). Strong dollar, weakening global growth, West Cost ports labor mess, bad weather? Pick one. Great time for a rate hike...
New-orders-to-inventory ratio, which tends to be a leading indicator, declined as well.
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 By the way, this recovery has been the slowest in recent history. And yet the US is leading global growth now ...
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In US equity markets small cap outperformance over the past 6 months has accelerated. Large firms are punished for having energy exposure or non-US exposure.
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 Now some food for thought - 3 items:

1. Nascent forms of democracy are making their way across Africa. Impressive.
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Source: @calestous @conradhackett

2. Who the heck are the Millennials anyway?
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 3. Rising efficiency of battery packs driven by the Tesla efforts.
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 — Edited by Clemens Bomsdorf

* Walter Kurtz is an alias

** This is an abridged version of the Daily Shot. To subscribe to the full version, link to the Daily Shot and select the appropriate command. E-mail addresses are never shared with anyone.

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