Trade Fog! UK Industrial Production Falls 1.8% YoY In August, China’s Offshore Currency Goes Bananas And Gold Price/ Volatility Rises, V2X Volatility Goes Haywire

This is an update on key economic news relating to US/China trade and UK/EU Brexit talks. Better known as Trade Fog … or simply “The Fog.”¬†

On the Brexit side, the UK avoided recession by posting of 0.3% in August. Unfortunately, UK industrial production tanked to -1.8% YoY signaling a slowdown for the UK economy.

ukipyoy

On the China/US trade arm wrestling match, China’s offshore currency is showing volatility as even the NBA is getting caught up in the trade scuffle.

offshoreren

The volatility surface for the CNH is quite steep.

yuanvol

Of course, trade fog helps assets such as gold to rise.

gold101519

The volatility surface for gold is similar to that of the Chinese offshore currency.

goldvol

Trade fog (or trade vacillation) is on the rise as seen in this chart of V2X volatility.

vixvpl

The V2X index is above its various historic moving averages.

tradefog

As Brexit negotiation crawl along and the US meets with China or tariffs, we continue to see “The Fog” until Brexit and tariffs are finalized. Throw in Federal Reserve policy errors and we have a party!

p3265_v_v8_at

Gold, Housing And Credit Impulses (US House Price Growth Slowing As US Residential Credit Impulse Slows)

As Hurricane Dorian (cat 4) approaches the eastern Florida coast and Hong Kong protestors clash with police, I thought I would discuss something cheerful .. like rising home prices globally and in the US. Cheerful for current homeowners that is, not current renters.

According to the International Monetary Fund (IMF), the global REAL house price index (white line) has recovered from the global housing bubble burst and is now at an all-time  high. US NOMINAL home prices have recovered from the housing bubble and are now higher than at the peak of the US housing bubble (2005).

hprealnom

If we look at real estate with respect to gold, US housing was the most expensive in the early 2000s. And the ounces of gold needed to buy an average US home remains relatively low (that is, back to 1984 ratios).

1567194666933blob

Of course, the flow of credit can help explain housing prices. In the US, both Commercial and Industrial loans (C&I) and loans and leases (Lo&Le) are significantly lower than during the late 2000s. Yet, US home prices continue to rise.

Screen Shot 2019-08-31 at 9.16.40 AM

If we put home price growth YoY (green line) on the chart, you can see home price growth slowing with the lower than average credit impulse (red line).

Screen Shot 2019-08-31 at 9.31.44 AM

At the global level, credit impulses are down but may be showing signs of increasing.

credit impulse