E The Daily Shot And Data – February 11, 2016

We start with the United States where Janet Yellen’s testimony suggests that the Fed is becoming more concerned about tight financial conditions, the RMB devaluation, and global economic uncertainty.

Source: FRB

Strangely, Yellen left the door open for a March rate hike, disappointing those who expected her to take near-term hikes off the table. In that sense the testimony was not as dovish as some had hoped – in spite of the concerns expressed above.

The January 2018 Fed Funds futures now imply a rate of 62.5bp by the end of next year. That’s only 25bp above the current level.

Source: barchart

Here are a number of other economic/market developments in the US.

1. Options on Dec-2017 LIBOR futures are pricing in a rising probability of negative rates in the United States. The markets are questioning the Fed’s credibility.

Source: BAML

By the way, here is the relative search frequency on Google for the term “negative rates” over time.

h/t @ReutersJamie

2. As discussed before, the treasury curve continues to flatten. The 10y-2y spread is now around 100bp, the lowest in 8 years. This shows diminishing expectations for longer-term US economic growth.

Source:  @FT

Related to the above, betting against treasuries once again turned into a nightmare for some (speculative accounts were net short treasuries going into 2016). Here are the 10-year note futures.

Source:  barchart

3. US federal corporate income tax receipts turned lower. Some suggest this is a sign of a recession. Perhaps.

Source: ?Yardeni Research

4. Are the ISM manufacturing and non-manufacturing indices showing the “wrong way” convergence (service sector activity following manufacturing lower)?

 h/t @GoldmanSachs

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. 

Source: HSBC

Next let’s take a look at some developments in the energy space.

1. Mining and exploration investment has fallen sharply as a share of total private investment. A portion of the decline in orders (above) is impacted by this trend.