Random Market News June 4th, 2017

"Egypt joins several GCC countries in severing ties with Qatar."

https://english.alarabiya.net/en/News/middle-east/2017/06/05/Egypt-joins-several-GCC-countries-in-severing-ties-with-Qatar.html

"Qatar’s willingness to talk to Iran is the main bone of contention. The fact that Doha called Iran’s President Rouhani shortly after his re-election is seen as a sign that Qatar is not willing to support Saudi Arabia and the UAE in their proxy wars with Iran in Yemen, Syria and Bahrain."

https://www.mintpressnews.com/saudi-qatar-relationship-thaws-leaving-opec-deal-oil-price-stability-risk/228459/

"America’s Truckers Embrace Big Brother After Costing Insurers Millions.

Customers agreeing to adopt sometimes-invasive technology to get their coverage renewed."

https://www.wsj.com/articles/americas-truckers-embrace-big-brother-after-costing-insurers-millions-1496577601

"Analysis: Trump's climate move to aid Asia energy investment, clean fuel push."

https://www.platts.com/latest-news/natural-gas/singapore/analysis-trumps-climate-move-to-aid-asia-energy-26747459

Data dump.

Implied June 14th rate hike probability ~95.8%.

http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html

VIX ~ 9.75. 10-yr treasury vol (TYVIX) ~4.36.

http://www.cboe.com/products/vix-index-volatility/volatility-on-interest-rates

10yr Sovereigns.

https://www.investing.com/rates-bonds/government-bond-spreads

Qatari yield only up ~0.3% (in this feed anyway).

FX.

https://www.investing.com/currencies/streaming-forex-rates-majors

Equity.

https://www.investing.com/indices/major-indices

Commodities.

https://www.investing.com/commodities/real-time-futures

News feed.

"China Composite PMI Rises To 51.5

The Caixin China Composite PMI rose to 51.5 in May of 2017 from 51.2 in April. While services sector expanded the most in four months (52.8 from 51.5), manufacturing activity declined for the first time since June 2016 (49.6 from 50.3).“The improvement in the services sector bolstered the Chinese economy in May. However, the rapid deterioration in the manufacturing industry is worrying. We need to closely monitor whether the diverging trends in manufacturing and services will widen further," said Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group.

China Services Sector Growth At 4-Month High

The Caixin China Services PMI rose to 52.8 in May of 2017 from 51.5 in April and marking the highest reading since January. New business increased the most in five months and employment went up further while business confidence improved slightly. In addition, cost pressures intensified, due to greater prices for raw materials and higher staff costs, whereas prices charged fell for the second straight month.

Australia Q1 Corporate Profits Rise More Than Estimated

Corporate profits in Australia rose 6.0 percent quarter-on-quarter to 82.63 AUD billion in the March quarter of 2017 from a 20.1 percent rise in Q4 2016 and beating market consensus of a 4.5 percent gain. It was the fourth straight quarter of rise, as profits increased for: information media and telecommunications (9.3 percent vs 4.5 percent in Q4); rental hiring and real estate (5.2 percent vs 10.5 percent) and professional, scientific and technical (5.6 percent vs 42.0 percent). Also, profits rebounded for: retail trade (4.9 percent vs -0.3 percent); transport, postal and warehousing (3.6 percent vs -1.2 percent), administrative services (15.8 percent vs -4.5 percent) and arts and recreation (13.7 percent vs -7.1 percent). In contrast, profits fell for: accommodation and food (-8.9 percent vs -15.2 percent), financial and insurance (-2.8 percent vs 122.6 percent) and other (-28.9 percent vs 20.7 percent). Year-on-year, corporate profit surged 39.7 percent.

Australia Q1 Business Inventories Rise To 5-Year High

Business inventories in Australia increased by 1.2 percent quarter-on-quarter in the three months to March of 2017, following a 0.3 percent rise in Q4 2016 and above market expectations of a 0.5 percent gain. It was the fourth straight quarter of increase and the strongest since the March quarter in 2012. Inventories rose for: electricity, gas, water & waste services (5.4 percent from 1 percent), retail trade (1.8 percent from 1.4 percent), mining (+7.7 percent from -9.7 percent) and accommodation & food services (0.3 percent from -8.2 percent). In contrast, inventories dropped for: manufacturing (-1.1 percent from -1.0 percent). Through the year to the March quarter, business inventories rose 2.5 percent.

Japan Services Sector Accelerates The Most In 21 Months

The Nikkei Services PMI in Japan went up to 53 in May of 2017 from 52.2 in April. It was the eighth straight month of expansion in services activity, and the highest level recorded since August 2015 as new work had its best growth in 4 years, employment improved and backlogs increased. On the price front, input prices continued to increase (currently on a 4-1/2 year streak) as input cost inflation rose to a 3 month high driven by higher wage costs and higher transport costs. Positive sentiment was recorded in May, with confidence rising to the highest level since June 2013.

South Korea Current Account Surplus Widens In April

South Korea's current account surplus widened to USD 4 billion in April of 2017 from USD 3.7 billion in the same month of last year. The goods account surplus increased to USD 11.9 billion, compared to USD 9.8 billion. Meanwhile, the services account deficit widened to USD 2.4 billion (from a USD 1.5 billion gap in April of 2016), explained by larger deficits in travel, manufacturing services and transport. Primary income deficit went up to USD 5 billion (from a USD 4.1 billion gap) and secondary income gap increased to USD 0.53 billion (from a USD 0.5 billion gap)."

Daily Shot.

The United States

1. Let’s begin with Friday’s employment report which missed economists’ expectations.

Revisions to the previous jobs figures have been to the downside.

Source: FTN Financial

Moreover, the overall US job creation is trending lower.

Source: FTN Financial

There are a couple of schools of thought here:

• Some suggest that the labor markets are tight and it is becoming harder to hire workers – thus slower payrolls growth. What about all the people who are not in the workforce?

It seems to be getting harder to attract individuals who are not currently working. The pool of “discouraged” workers (shown as “cyclical” in the chart below) has shrunk.

Source: JP Morgan Asset Management

Furthermore, more US women now seem to be exiting the labor force.

To be sure, the prime-age participation rate is trending higher, but the pace may be too slow at this point.

• The second school of thought focuses on policy uncertainty, which makes businesses less willing to hire. Perhaps companies are unsure about tax, healthcare, and infrastructure legislation getting implemented amid all the media noise and the President’s weak approval ratings. This uncertainty, some suggest, is holding back hiring.

Source: RealClear Politics

Send us your thoughts on the topic in the comments.

2. Here are a few other observations on the jobs report.

• The headline unemployment rate fell to the lowest level in 16 years.

• Unemployment among African Americans also hit the lowest level since 2001.

• US underemployment is improving rapidly.

• Part-time employment for “economic reasons,” while still elevated relative to pre-recession levels continues to slide.

These trends add some credence to the concerns about tightening labor markets.

Source: Capital Economics

• If the shortage of workers is indeed becoming a problem, why aren’t wages rising faster? In fact, wage growth has unexpectedly slowed over the past couple months.

And this chart shows wage growth in manufacturing falling below 2% per year.

Is the Phillips curve broken?

Source: JP Morgan Asset Management

• Below are the payroll trends for select sectors (year-over-year percent change).

- Construction:

- Manufacturing:

- Retail:

- Oil & Gas and Coal:

3. How did the markets react this the jobs report? Below are three intraday moves.

• The dollar:

• The 10yr Treasury yield:

• Gold:

See the Rates section for more on the market reaction.

4. US trade deficit unexpectedly worsened – a trend which will continue to create a drag on the GDP growth.

5. Business loan growth is still slowing.

6. For the first time in over a decade, more Americans think it’s a good time to sell a home than to buy one. With home prices rising at 6% per year, this trend is likely to continue.

Source: Wells Fargo, @joshdigga

Back to Index

The Eurozone

1. The euro rose to the highest level since last August in response to the US payrolls report.

Hedge funds continue to add to their net long euro exposure.

2. Germany’s stock market keeps climbing amid Angela Merkel’s reelection odds approaching 90% in the betting markets.

3. Euroskeptic parties in Italy enjoy a 45% popular support.

Source: Deutsche Bank, @joshdigga

Back to Index

The United Kingdom

The latest horrific events in London are not making their way into the political arena yet. The odds of Conservatives winning a majority remain stable after last month’s declines.

Our thoughts are with those impacted by this tragedy and their families.

Asia

1. Japan’s Nikkei 225 index edged above 20,000, hitting the highest level in almost two years. A stronger yen, however, will be pressuring this market in the coming days.

2. The South Korean stock market is on fire.

3. The New Zealand dollar rose the most among developed market currencies in response to the soft US jobs report.

4. China’s direct investments in the EU far exceed the EU’s activity in China.

Source: @acemaxx, @business; Read full article

Back to Index

Emergung Markets

1. Speculative accounts (such as hedge funds) seem to be moving out of the Russian ruble and into the Mexican peso.

2. The overall emerging markets currency index is grinding higher – now firmly at pre-US-election levels.

3. Turkish financial markets are improving. Here is the stock exchange index and the 10yr government bond yield.

Enegy Markets

1. Crude oil took another hit on Friday amid US rig count rising for the 20th week in a row.

2. Russia’s government media reported that the Saudis are prepared to consider further output cuts later this summer. Perhaps.

Source: TASS;

Commodities

1. The rally in palladium continues.

Platinum, used in catalytic converters (to reduce auto emissions), is more heavily utilized in diesel engines, while gasoline engines usually use palladium. As many automobile markets shift to gasoline cars (especially Europe, which the biggest market for diesel engines), the demand for platinum and palladium diverge. Here is how the two metals’ prices evolved over the past three years.

2. This chart shows the abundance (log scale) of select metals in Earth’s crust.

Source: Deutsche Bank, @joshdigga

Equity Markets

1. Energy firms continued to underperform last week.

2. Small caps had a great day on Friday.

3. Investors’ cash allocations are near multi-year lows.

Source: @Callum_Thomas

4. The S&P 500 earnings projections for the next few years remain aggressive.

Source: JP Morgan Asset Management

Here are the price-to-sales and the price-to-EBITDA ratios for the S&P 500.

5. There has been quite a bit of negative guidance for the current quarter.

Source: @FactSet

6. The cyclicals/defensives relative performance has diverged from Treasury yields. The equity markets see strong economic growth ahead; the bond markets, not so much.

Source: JP Morgan Asset Management

7. Global market correlations are down sharply over the past year, suggesting that diversification and stock selection can be helpful in this environment.

Source: JP Morgan Asset Management

Credit

1. Energy high-yield spreads remain low relative to the past couple of years but have been gradually edging higher (in response to weakness in the oil markets).

2. The LIBOR – OIS spread hit a multi-year low, as demand for interbank financing wanes.

Part of the reason for the trend above has to do with foreign banks reducing US lending as the new money fund regulation raised their cost of funds.

Rates

1. US 5yr real rates are back below zero – a positive development for precious metals.

2. The Treasury curve flattened sharply after the jobs report. The 10yr – 2yr yield spread is now at the lows not seen since last October.

Random fun stuff

https://blogs.wsj.com/dailyshot/2017/06/04/wsjs-daily-shot-for-the-first-time-in-over-a-decade-more-americans-think-its-a-good-time-to-sell-a-home-than-to-buy-one/

Random

"At age 111, America's oldest veteran is still smoking cigars, drinking whiskey and loving life."

https://www.dallasnews.com/life/life/2017/06/02/age-111-americas-oldest-veteran-still-smoking-cigars-drinking-whiskey-loving-life

'Random Place' today - "Jonas Caves. A cave dwelling that was started by the Celts, expanded by monks, and finished by knights."

http://www.atlasobscura.com/places/jonas-caves

Events on 6/5 (ET)

India IN:PMI Services Index, 1:00 AM ET

France FR:PMI Composite, 3:50 AM ET (up to 57.6 consensus)

Germany DE:PMI Composite, 3:55 AM ET (up to 57.3 consensus)

European Union EZ:PMI Composite, 3:55 AM ET (flat at 56.8 consensus)

Great Britain GB:CIPS/PMI Services Index, 4:30 AM ET

USA US:Productivity and Costs, 8:30 AM ET (up to -0.2% Q/Q productivity, down to 2.6% Q/Q unit cost)

USA US:Gallup US Consumer Spending Measure, 8:30 AM ET

USA US:PMI Services Index, 9:45 AM ET (up to 54.0 consensus)

USA US:Factory Orders,10:00 AM ET (down to -0.2% M/M consensus)

USA US:ISM Non-Mfg Index, 10:00 AM ET (down to 57.0 consensus)

USA US:Labor Market Conditions Index, 10:00 AM ET (down to 2.6 consensus)

http://online.wsj.com/mdc/public/page/2_3063-globalEconomicCalendar.html