Friday June 3 Daily Market Primer

Happy Friday.  Stocks moved sideways but closed up yesterday in the US, ahead of the highly anticipated May nonfarm payrolls report.  Stocks were up in Asia and Europe in spite of lackluster PMI data this week.  Oil slipped below $50 on the failure of OPECs Vienna meeting.

The pressure is on since this is the last jobs report the Fed will see before the June meeting, and the number was surprisingly weak: nonfarm payrolls increased only 38,000 in May, the unemployment rate fell to 4.7%, and the closely watched average hourly earnings increased 5 cents.   The Reuters poll showed +164K expected, and this is the lowest job creation in 5 years.  US equity futures were flat before the jobs report was released but are now pointing down .5%, and the US 10 year slipped below 1.8%.

	LAST	CHANGE	% CHG
DJIA	17838.56	48.89	0.27%
Nasdaq	4971.36	19.11	0.39%
S&P 500	2105.26	5.93	0.28%
Russell 2000	1170.58	7.54	0.65%
Global Dow	2345.92	9.46	0.40%
Japan: Nikkei 225	16642.23	79.68	0.48%
Stoxx Europe 600	346.23	1.88	0.55%
CBOE Volatility	13.72	0.09	0.66%
Australia: S&P/ASX 200	5318.9	40	0.76%
China: Shanghai Composite	2938.68	13.45	0.46%
Hong Kong: Hang Seng	20947.24	88.02	0.42%
India: S&P BSE Sensex	26843.03	-0.11	0.00%
Japan: Nikkei 225	16642.23	79.68	0.48%
Singapore: Straits Times	2809.23	14.14	0.51%
France: CAC 40	4490.51	24.51	0.55%
Germany: DAX	10260.7	52.7	0.52%
Italy: FTSE MIB	17817.92	50.62	0.28%
Spain: IBEX 35	8952.7	-5.2	-0.06%
U.S. 2 Year	0.807	5/32
U.S. 5 Year	1.273	13/32
U.S. 10 Year	1.738	18/32
U.S. 30 Year	2.543	26/32
Crude Oil	48.92	-0.25	-0.51%
Brent Crude	49.85	-0.19	-0.38%
Natural Gas	2.424	0.019	0.79%
E-mini S&P 500	2104.5	0.75	0.04%

As if the Fed doesn’t have enough to worry about, Fed Governor Daniel Tarullo told Bloomberg on Thursday that the Brexit vote would be a factor in the Fed’s June rate hike decision.  As we head into the weekend, there are a lot of warnings: ECB President Mario Draghi is telling European politicians that the ECB can’t go it alone in with economic recovery, and they need pro-growth economic and fiscal policies (first story).  US treasury secretary Jack Lew is warning that Chinese industrial overcapacity is distorting commodity markets.  JP Morgan CEO Jamie Dimon is warning about the poor health of the auto loan market, and that the bank may reduce jobs in the UK if there is a Brexit.  And Hillary is warning us about Donald Trump.

Here’s the news:

ECB chief frustrated with lack of government action

Draghi (Emmanuel Dunand/AFP/Getty Images)

Half-measures are hurting, says European Central Bank President Mario Draghi, who notes that governments' grudging efforts to revive their economies are undermining ECB stimulus. Draghi says the ECB should focus on correct monetary measures, regardless of what governments do fiscally and structurally.

Bloomberg (02 Jun.) 

Lew warns on China

Treasury Secretary Jacob J. Lew has said that China's overcapacity is "distorting markets and important global commodities" ahead of the U.S.-China Strategic and Economic Dialogue, scheduled for June 6-7 in Beijing. With the concern over the Chinese economy already pushing the yuan towards a five-year low, Goldman Sachs Group Inc. is warning of a possible repeat of January's rout, with strategists led by Robin Brooks saying they are shifting to an "outright negative view” on the yuan.

Commodity bull market

The rally in oil is pushing the broader commodities to the brink of bull market territory. The Bloomberg Commodity Index, which tracks returns from 22 raw materials, climbed 0.7 percent to 87.28 by 6:10 a.m. ET this morning, with a close above 87.45 marking a 20 percent advance from January's low. Brent crude is trading above $50 a barrel while WTI futures gained 9 cents to trade at $49.25 a barrel at 6:03 a.m. ET. Gold was unchanged.

Stocks rise ahead of payrolls data

The MSCI Asia Pacific Index added 0.4 percent overnight, with Japan's Topix also rising 0.4 percent as investors awaited U.S. jobs data to gauge the likelihood of a Fed hike in June. In Europe, the Stoxx 600 Index was, again, 0.4 percent higher at 6:05 a.m. ET. S&P 500 futures, which clearly haven't got the '0.4 percent higher' memo yet, were flat.

Trump gets low-key endorsement

House Speaker Paul Ryan has backed Republican presidential candidate Donald Trump in an article in his hometown newspaper in Janesville, Wisconsin. While the low-key endorsement is in contrast to the publicity surround Ryan's holding out, his concession will tie him closer to the volatile nominee. Trump will make a brief trip to the U.K. and Ireland later this month, which will coincide with voting on the Brexit referendum.

Friday is jobs day. US nonfarm payrolls are expected to have increased by 160,000 in May, according to economists surveyed by Bloomberg. In addition, the unemployment rate is forecast to slip to 4.9% as average hourly earnings grew by 2.5% year-over-year. The data will cross the wires at 8:30 a.m. ET.
The UK referendum could delay a Fed rate hike. The UK referendum on whether to leave the European Union is scheduled for June 23, and that might be a good enough reason for the US Federal Reserve to wait on a rate hike. Reuters reports that Fed governor Daniel Tarullo told Bloomberg that a Brexit would be a "factor" that he would consider. The Fed holds its next policy meeting June 14-15.
China's services sector is slowing. The Caixin-Markit services purchasing managers' index slipped to 51.2 in May, making for its lowest reading since December. Looking at the internals of the report, the pace of new orders slowed, but employment gained for a second consecutive month. "A number of companies forecast that improving client demand and planned company expansions will support higher business activity over the next year, but there were reports that an uncertain economic outlook weighed on the overall level of business confidence," Markit said.
The eurozone is stuck in a 'low gear.' Eurozone PMI printed 53.1 in May, according to Markit, a slight improvement from April's 53.0. French services were a standout, hitting a seven-month high of 51.6, while Italian services dropped sharply to 49.8. "The final PMI numbers for May have come in slightly ahead of the earlier flash readings, but still point to a eurozone economy which seems unable to move out of low gear," noted Chris Williamson, Markit's chief economist. The euro is down 0.1% at 1.1140.
Investors keep pulling money out of Bill Gross' old fund. The Pimco Total Return Fund saw a 37th straight month of outflows in May, Morningstar data showed. Assets under management totaled $86.1 billion at the end of the month, down from $87 billion in April. "Assets have gravitated toward funds with both strong records and long tenured management both at Pimco and at other asset managers such as DoubleLine Capital," Todd Rosenbluth, director of exchange-traded and mutual-fund research at S&P Global Market Intelligence, told Reuters' Jennifer Ablan.
Citigroup's second quarter will be rough. Speaking at an investor conference in New York, Citigroup CEO Michael Corbat warned that Q2 net income would be about 25% lower than a year ago, Reuters reports. The bank has had difficulty navigating a tough trading environment and increased regulation. Citigroup will report its Q2 results on July 15.
Twitter and Yahoo reportedly held merger talks. The New York Post reports that Yahoo CEO Marissa Mayer met with Twitter management about a possible combination. The talks didn't seem to have been too serious, however, as Twitter CEO Jack Dorsey wasn't in attendance. A second round of bids for Yahoo is due next week.
BP has agreed to a settlement with shareholders over the 2010 Deepwater Horizon oil spill. The oil giant has agreed to pay $175 million to shareholders who said they were misled about the severity of the Deepwater Horizon oil spill, Reuters reports. BP says the lawsuit would be paid out from 2016 to 2017. The lawsuit is unrelated to BP's civil settlement with the US government and five states that could cost as much as $18.7 billion.
Stock markets everywhere are higher. Australia's ASX (+0.8%) led the overnight advance, and Britain's FTSE (+1%) paces the gains in Europe. S&P 500 futures are unchanged at 2,103.75.

US economic data is heavy. Aside from the jobs report, the trade balance will be released at 8:30 a.m. ET before both factory orders and ISM services cross the wires at 10 a.m. ET. The US 10-year yield is unchanged at 1.80%.

Capital Punishment
After eight years since the financial crisis in which they have been repeatedly required to bolster their capital base, the biggest American banks are being told by regulators they need to do still more. Fed governors Daniel Tarullo and Jerome Powell, in separate public comments, said Thursday that the central bank would probably decide to require eight of the largest U.S. banks to maintain more equity to pass the central bank’s annual “stress tests.” The new capital requirements are likely to further crimp profitability, impede risk-taking and cut dividend payouts at those firms, while increasing pressure on them to shrink. Meanwhile, in our “What Is a Bank?” series, we look at the radical changes that are on the way for investment banks as they become smaller, more specialized and home to technologists instead of traders. We also report that the biggest banks may be in better shape than many investors and others realize.

Presidential Slugfest
In an address in San Diego on Thursday, Hillary Clinton delivered a ferocious salvo in her expected November showdown with Donald Trump, a withering portrait of his foreign-policy positions as uninformed, unsophisticated and “dangerous.” Mr. Trump responded in turn, saying, “It wasn’t a foreign-policy speech, it was a hate speech.” The exchange likely marks the beginning of a general-election debate that will be bruising, though Mrs. Clinton remains locked in a tough race with Democratic rival Sen. Bernie Sanders ahead of California’s primary on Tuesday. In other campaign news, House Speaker Paul Ryan ended his public hesitation and endorsed Mr. Trump for president. Meanwhile, Mr. Trump escalated his attacks on the federal judge presiding over civil fraud lawsuits against Trump University, telling the Journal that the judge has an “inherent conflict of interest” because of his “Mexican heritage” and Mr. Trump’s stance against illegal immigration.

JPMorgan's Dimon: Auto-loan business getting riskier

Dimon (Justin Sullivan/Getty Images)

JPMorgan Chase CEO Jamie Dimon told an industry gathering that America's rapidly expanding auto lending is in store for problems. "Auto is clearly a little stretched, in my opinion," he said. "Someone is going to get hurt."

CNBC (02 Jun.) 

Team LeBron vs. Team Steph
It is the sports equivalent of the Beatles vs. the Rolling Stones. The NBA Finals matchup between the Golden State Warriors’ Stephen Curry and the Cleveland Cavaliers’ LeBron James—and their contrasting approaches—has led to the loss of countless business hours and brain cells on a question that perhaps can’t be answered: Which one is better? Curry, who is 28, has had one of the most sublime NBA seasons ever. James, who is 31 and slightly past his career prime, still exudes control on the basketball court. And unlike Curry, who was underestimated by almost everyone who evaluated him at almost every level of the game, James is a basketball natural. Luckily, we have a possible six more games to compare the two superstars: The Warriors took a 1-0 series lead over Cleveland Thursday night, 104-89.

China's toxic death solution has one big problem.

No room in U.S. grain silos means dumping wheat in parking lots.

Euro catches severe case of ECB apathy as Fed, Brexit take center stage.

Britain's pork pies and ale could be at risk from a vote to leave EU.

The curious case of the Russian money-losing eurobond buybacks.

Faking salt is a big problem for snack makers.

U.S.-China Trade Troubles Grow

Obviously I'm looking forward to today's Non-Farm Payrolls report due out this morning — but everybody knows that, so there's no point in wasting further space here talking about it. Instead, here's something different: a new paper on "helicopter money." Its author Toby Nangle, Co-Head of Global Asset Allocation & Head of Multi-Asset EMEA at Columbia Threadneedle Investments, has actually moved the ball forward on this hotly debated concept. The popular view of helicopter money is that it explicitly involves the central bank funding government spending as a way to boost the economy. As Nangle points out though, there's no functional difference between this and what's been done already in Japan, the U.K. and the U.S. This policy hasn't caused an explosion of inflation - arguably it's hardly sparked any inflation at all. Basically, Nangle argues, helicopter money isn't special, and doesn't deserve all the hype. It seems the real reason the helicopter money debate has taken off is that fiscal policymakers have been reluctant to boost demand by spending, and so everybody's looking for some other kind of tool, and they look at the relative autonomy of central banks and imagine they could play a more direct role in boosting the economy. And maybe central banks could play more of a role! But ultimately, if helicopter money still relies on politicians deciding to spend more money, it's hard to see it really moving the dial.

Source: Bloomberg, BI, WSJ, CFAI Fin. Newsbrief, CNBC