5. This next trend is one of several reasons that HSBC has downgraded their US 2016 GDP forecast to 2.0% from 2.3%. It shows new orders for non-IT equipment.
Let's investigate US credit markets.
1. The pressure on US HY bonds has been relentless. Spreads continue to rise and weaker HY names (CCC and below) now yield over 21% on average.
2. The BDC market has practically imploded. Ironically, now would be the best time to launch a BDC given tightening conditions in private credit markets.
3. US auto debt outstanding exceeded $1 trillion, generating record auto sales. Is the party over?
4. It's not just the banks that are feeling the pressure. Here is CIT share price and CDS spread. The market is pricing in weak demand for credit and rising loan defaults.
5. Related to the above, here is the default rate projection in the leveraged loan market (excluding TXU).
Leveraged loans have sold off over the past year (with tremendous fund outflows). Are the declines overdone? This could be an interesting opportunity.
Switching to US equity markets, we have a few developments to cover.
1. Investor sentiment is now the worst since 2009. This sure feels like a good contrarian indicator.
2. But it's not all doom and gloom in the stock market. Here is Tesla
Next let's look at a few developments in the Eurozone
1. While still minuscule, the CDS-implied German
probability of default rose together with Deutsche Bank
's troubles. This is pricing in some probability of a major government bailout of DB and possibly other banks - putting fiscal pressures on German government. Again, the probability of this is extremely low, but the markets are obviously not ignoring it.
By the way, Deutsche Bank's market cap is now below Danske Bank
's (a major Danish bank). Amazing.
2. German government increasingly generates revenue by issuing bonds at negative rates (investors pay Germany to hold their money).
3. Wage growth in the Eurozone these days is all driven by Germany.
Finally, here is the Yale endowment's asset allocation over time. That "absolute return" bucket is mostly hedge fund investments.
Turning to Food for Thought, we have 3 items this morning:
1. Average credit scores for US men and women by age.
2. US Muslims' support for the 2016 presidential candidates.
3. CEO compensation breakdown by industry.
— Edited by Clemens Bomsdorf* Walter Kurtz is an alias
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