Friday May 6 Daily Market Primer

Happy Jobs Day.  Stocks were flat in the US Thursday, and are down from about ¼% to 3% on Friday in Asia and Europe.  April nonfarm payrolls are out, with 160,ooo jobs added, lower than the 200K expectation, and the lowest since September, and below the first quarter average of 200K per month.  Hourly earnings rose by eight cents.  February and March jobs gains were revised down by 19K.  This follows yesterday’s initial jobless claims of 274,000, higher than the consensus number of 260K . Equity futures turned more negative on the jobs report.  Oil is rolling over a bit after rallying for the last few days, with lots of conflicting data in the market (4^th story).

Thursday			Friday
US			Asia			Japan
			China		Australia
S&P	Dow	Nasdaq	Shanghai	HK	ASX200
-0.02%	0.05%	-0.18%	-2.82%	-1.66%	0.24%	-0.25%
VIX:	Futures:	-0.62%
0.39%	US 10 Yr:	1.74%
Friday
Europe				Oil
Eurozone	UK	Germany	France	WTI	44.47
Stoxx 600	FTSE	DAX	CAC	$     43.82	$    46.52
-0.89%	-1.27%	-0.67%	-1.24%	-1.13%	-1.24%

Donald Trump’s erratic statements, for example that he would fire Janet Yellen, are a new source of volatility for the capital markets.  Let’s hope CNBC can resist the urge to pour gasoline on the fire.

Saudi Arabia is planning to list its government owned stock exchange as part of a broad privatization.  It should be good for transparency in the country.  There are continuing worries about Chinese debt (third story).  Fitch downgraded Brazil’s debt, as they suffer from a sever recession and impeachment crisis.  SpaceX stuck a second landing of a Falcon 9 rocket on an ocean barge last night, and Elon Musk tweeted “may need to increase the size of rocket storage hanger”. 

Here’s the news:

Bank job losses

Goldman Sachs Group Inc. is extending its cull of fixed-income staff, with 10 percent of positions in the division to be cut, according to people with knowledge of the situation. BNP Paribas SA is also reducing headcount, this time in Asia, as it shrinks its cash equities unit as part of a global push by the bank to reduce costs and employees.

Markets lower

The MSCI Asia Pacific Index slid 0.5 percent overnight with losses in the region led by China's Shanghai Composite Index, which dropped 2.8 percent in the last trading session ahead of this weekend's trade data release. In Europe the Stoxx 600 Index was 0.5 percent lower at 5:27 a.m. ET, with energy companies tracking crude oil prices lower. S&P 500 futures were 0.1 percent lower. 

China crackdown

Chinese a flood of new capital after authorities there introduce new rules on shadow lending. Estimates from Sanford C. Bernstein & Co. suggest the banks may need to raise up to up to 1 trillion yuan ($154 billion). A darker assessment of the problems in Chinese banking comes from CLSA Ltd. who say there could be potential losses of $1 trillion as bad loans are at least nine times higher than official figures.

Oil at crossroads

West Texas Intermediate futures were at $44.09 barrel at 5:57 a.m. ET, setting the commodity up for its first weekly decline in a month. Oil investors are scratching their heads as to where the commodity will go next as the recent rally in crude, based on slumping U.S. production and lower output from Nigeria, Colombia and Libya, seems to mask longer-term problems of over-supply. Dominic Schnider, the head of commodities and Asia-Pacific foreign exchange at UBS’s wealth-management unit in Hong Kong, said “Oil is ripe for a consolidation or correction into the mid-to-low $30s.”

Saudi Arabia's stock exchange is going public. Bloomberg reports that Saudi Arabia's Tadawul Stock Exchange has hired HSBC Saudi Arabia to advise on its initial public offering. According to the report, the IPO will take place by 2018, pending regulatory approval. The IPO comes as Saudi Arabia looks to privatize assets as it reels from the crash in oil prices.
Fitch downgraded Brazil. The credit-rating agency cut its sovereign debt rating for Brazil to "BB" from "BB+." The downgrade drops Brazil's credit rating further into junk territory. According to Fitch's release, "The downgrade of Brazil's ratings reflects the deeper-than-anticipated economic contraction, failure of the government to stabilize the outlook for public finances and the sustained legislative gridlock and elevated political uncertainty that are sapping domestic confidence and undermining governability as well as policy effectiveness." Fitch maintained its negative outlook.
Goldman Sachs is firing traders. People familiar with the matter said the investment bank announced layoffs in its fixed-income, currencies, and commodities (FICC) business, bringing its headcount reduction to about 10%. The news was first reported by The Wall Street Journal. Thursday's cuts follow a difficult first quarter for Goldman, which saw a 37% drop in trading revenue versus a year ago.
Deutsche Bank is being investigated for possible market manipulation. Reuters reports that the German bank is being investigated in Italy on suspicion of manipulating the sale of $7 billion worth of Italian bonds in 2011. Authorities are investigating five former Deutsche Bank managers and the investment bank itself, the report says.
GoPro's quarter was mixed. The digital-camera maker lost an adjusted $0.63 a share, worse than the $0.59 loss that was anticipated by the Bloomberg consensus. Revenue tumbled 49.5% to $183.5 million, but that was good enough to beat the $169.1 million Wall Street estimate. GoPro expects 2016 revenue of $1.35 billion to $1.5 billion. The stock is lower by 3.4% in premarket action.
Square is getting destroyed. The mobile-payment company lost $0.14 a share, worse than the $0.09 loss that was expected by the Bloomberg consensus. Square's 72% spike in operating costs was the reason for the larger-than-expected loss. Meanwhile, revenue climbed 51% versus a year ago to $379.2 million, beating the $343.6 million that was forecast. Shares were down as much as 15% in after-hours trade.
Ride Along
Your first autonomous-taxi ride is on its way. General Motors and Lyft within a year will begin testing a fleet of self-driving Chevrolet Bolt electric taxis on public roads, a move central to the companies’ joint efforts to challenge Silicon Valley giants, such as Tesla and Google, in the battle to reshape the auto industry. The plan is being hatched a few months after GM invested $500 million in Lyft, a ride-hailing company whose services rival Uber. The program will rely on technology being acquired as part of GM’s separate $1 billion planned purchase of San Francisco-based Cruise Automation, a developer of autonomous-driving technology. Details of the testing program are still being worked out, but it will include customers in a yet-to-be disclosed city. Customers will have the opportunity to opt in or out of the pilot when hailing a Lyft car from the company’s mobile app.
The Trump Challenge
It will be a while before the Republican Party is reconciled with Donald Trump. In the latest and most dramatic sign of the challenge Mr. Trump faces in uniting the GOP behind his candidacy, House Speaker Paul Ryan said yesterday that he couldn’t yet lend his support to the party’s presumptive nominee. Mr. Trump responded in kind, illustrating the wide gulf, both in policy and personality, between the party’s two most important leaders. Mr. Ryan, who will be chairman of the Republican national convention in July in Cleveland, is the highest-profile current elected official to join the list of Republicans who have declined to close ranks around Mr. Trump in the days since the field cleared. Though some GOP leaders, such as Nebraska Gov. Pete Ricketts and former Texas Gov. Rick Perry have endorsed Mr. Trump, others worry that he could damage the election prospects of the party’s congressional candidates. Meanwhile, the New York businessman’s effort to choose a vice president also may provoke the ire of conservatives in the party.
Rising Tide
The growing push to raise the minimum wage to as much as $15 per hour is creating new issues in the workplace: While some of America’s lowest-paid workers will get fatter paychecks, their veteran colleagues may feel underpaid. So-called wage compression poses a financial and management challenge for employers. Some companies have raised pay for veteran workers, and others plan to offer extra fringe benefits, fearing that valuable workers might otherwise jump ship. Workers are keenly sensitive about how their compensation relates to that of others: research shows that people derive more happiness from pay when they know they’re earning more than co-workers. Meanwhile, though labor-force participation is still low by historical standards, monthly job gains have been steady for much of the past three years.
Born to Not Run
The running boom is over, and you might blame millennials. A sport traditionally dominated by young adults, running is losing its hold on 18- to 34-year-olds. After two decades of furious growth in footrace participants, the number of finishers dropped 9% in 2015. Of course, most runners don’t compete in races, but the larger pool of noncompetitive runners also is shrinking. But millennials aren’t sedentary. Rather, they’re fueling the proliferation of studios that specialize in everything from cycling, CrossFit and boxing to ballet barre workouts, boot camp and weight training. Millennials grew up in an era of de-emphasized athletic competition and instead have driven the success of untimed events. Meanwhile, the end of the running boom bears implications for a massive industry. Commercially, running is the largest U.S. athletic footwear category by retail sale.
Stock markets pretty much everywhere are lower. China's Shanghai Composite (-2.8%) led the decline in Asia as Australia's ASX (+0.3%) eked out a gain. In Europe, France's CAC (-1.1%) leads the way lower. S&P 500 futures are down 5.50 points at 2,038.50.
Earnings reporting slows down. ArcelorMittal, Exelon, Madison Square Garden, and Weyerhaeuser are among the names releasing their quarterly results ahead of the opening bell. Berkshire Hathaway will report after markets close.

US economic data is light aside from the jobs report. Consumer credit will cross the wires at 3 p.m. ET. The US 10-year yield is down 1 basis point at 1.74%.

'Paralyzing volatility' means trouble for Wall Street giants.

Brexit is the elephant in the room for Bank of England's Carney.

Canada's wildfire set to become costliest catastrophe in country's history.

It's the best day of the month: Jobs Day. So obviously that's what's got our attention this morning. While the labor market has generally been regarded as a bright spot in the U.S. economy, it's not without its blemishes. Wage growth, of course, remains underwhelming, while the unemployment rate, which had been steadily trending down, remains at 5.0 percent - the same level as last October. That's not necessarily bad, however, since the Labor Force Participation Rate has jumped from 62.5 percent to 63.0 percent during the same time. That being said, the rise in the participation rate might be down to fewer people leaving the work force, as opposed to a spike in people who had left coming back in. So, all these numbers will be interesting to watch. One question that's being asked is, what kind of report would get the market to think that a June rate hike is "on the table"? Given that markets are pricing in just a 10 percent chance of a June hike right now, it would take quite a lot. But a blistering wage number would probably move the dial, at least a little. For more on what to look for, check out Bloomberg's full preview here.

Source: Bloomberg, BI, WSJ