Monday June 6 Daily Market Primer

The US stock market held up remarkably well on Friday after the disappointing May jobs number, dropping just slightly by the closing bell.  The market quickly moved back to the consensus that there will not be a rate increase at the June Fed meeting.  The yield on the two year Treasury note fell to 0.784%, from 0.891% on Thursday, its largest one-day drop since last September.  Financial stocks, which will benefit from higher rates, led the declines.  Markets are mostly positive overseas, the US market is shaking off Friday and opening up about .5%, crude oil is on the move back up toward $50.

Monday June 6	LAST	CHANGE	% CHG
DJIA	2099.13	-31.5	-0.18%
Nasdaq	4942.52	-28.85	-0.58%
S&P 500	2099.13	-6.13	-0.29%
Russell 2000	1164.14	1165.14	1166.14
CBOE Volatility	13.47	-0.16	-1.17%
Australia: S&P/ASX 200	5360.4	41.5	0.78%
China: Shanghai Composite	2934.1	-4.58	-0.16%
Hong Kong: Hang Seng	21030.22	82.98	0.40%
India: S&P BSE Sensex	26777.45	-65.58	-0.24%
Germany: DAX	10127.39	24.13	0.24%
Italy: FTSE MIB	17512.49	17.4	0.10%
Spain: IBEX 35	8815.4	13.8	0.16%
UK: FTSE 100	6276.2	66.57	1.07%
U.S. 2 Year	0.807	-0.0625
U.S. 5 Year	1.26	-0.125
U.S. 10 Year	1.727	-0.28125
U.S. 30 Year	2.535	-0.4375
Natural Gas	2.452	0.054	2.25%
E-mini S&P 500	2096.75	-1	-0.05%
Crude Oil	49.62	1	2.06%
Brent Crude	50.54	0.9	1.81%
Natural Gas	2.408	0.01	0.42%

Barron’s ran a cover story this weekend on how IPO’s are becoming much less popular than they used to be http://bit.ly/FewerIPOs.  And, who knew that global consulting firm McKinsey is running an internal hedge fund for employees?  http://bit.ly/McKinseyHedge

Get fired up and have a great week, here’s the news:

Yellen speech

At 12:30 p.m ET today, Federal Reserve Chair Janet Yellen is due to give a speech in Philadelphia which investors will watch very closely following Friday's surprisingly bad jobs data. The market implied odds of Fed rate hike this summer collapsed after the release of Non-Farm Payrolls report, and now the market isn't pricing a greater than 50 percent chance of a hike until December. In a speech delivered this morning in Helsinki, Federal Reserve Bank of Boston President Eric Rosengren said it's important to see whether Friday's report was an anomaly, rather than reflecting a broader slowdown. Yellen is due to join a roundtable discussion at 2:30 p.m. at the same event, so there will be plenty to keep an eye on this afternoon. 

Brexit risk rushes back

The British pound gave up all its post-jobs data gains against the dollar this morning after polls over the weekend showed momentum swinging back towards the 'leave' campaign. Traders are buying volatility ahead of the vote, with State Street Global Advisors recommending selling U.K. and European equities and Goldman Sachs Assets Management saying it will be heading into the vote “with little U.K. risk in portfolios.” In a surprising development, the BBC reports that British members of parliament, where there is a large majority in favor of remaining in the EU, are considering using that advantage to keep the UK in the single market in the event of a win by the 'leave' side. The pound was trading at $1.4392 at 5:59 a.m. ET.

Commodities rally

The weaker dollar following Friday's jobs data is giving a lift to commodities. West Texas Intermediate for July delivery was at $49.20 a barrel at 5:54 a.m. ET, with Brent at $50.28 a barrel. Saudi Arabia is raising prices on sales of oil to Asia amid robust demand. In industrial metals, zinc is climbing for an eighth day, its longest winning streak since December 2013 as supply concerns mount. Gold is 0.2 percent lower this morning after jumping 2.7 percent on Friday.

London stocks rally

The MSCI Asia Pacific Index added 0.3 percent overnight, with the rising yen hitting stocks in Japan where the Topix index slipped 0.4 percent. In Europe, the Stoxx 600 Index was unchanged at 6:07 a.m. ET while in London equities were higher with the FTSE 100 Index adding 0.9 percent as the pound weakened and miners rallying more than 4 percent on increasing commodity prices. S&P 500 futures were 0.1 percent higher.

China talks

Chinese President Xi Jinping highlighted areas of cooperation between his country and the U.S. at the start of an annual meeting between top officials from both nations. The president did not mention simmering tensions over the South China Sea, but did say that "it’s not scary to have disagreements.” Xi may be more concerned about the domestic economy at the moment though, as a slowdown in industrial production starts to pinch, while the level of debt in the country may be much higher than previously estimated, according to Goldman Sachs Group Inc.

Fed rate-hike odds have been pushed way back. Friday's disappointing jobs report has pushed back market expectations of a Fed rate hike. Ahead of the report, the market was pricing in a 22% chance that the Fed's next hike would happen in June and a 54.8% chance it would happen in July. Now the market sees just a 4% chance of a June rate hike and a 58.5% chance that the next hike won't happen until December.

The Leave campaign continues to gain momentum. Two new polls show the Leave vote out in front for Britain's June 23 referendum on staying in the European Union. A YouGov poll for Good Morning Britain shows Leave at 45% and Remain at 41%. Additionally, a TNS Poll reported by Reuters shows Leave at 43% and Remain at 41%. The news has pushed the British pound to its lowest level in three weeks, down 0.8% at 1.4402.

Switzerland rejected guaranteed basic income. Reuters reports that early projections showed a resounding 78% voting against the initiative that would have guaranteed a monthly income of 2,500 Swiss francs ($2,563) per adult and 625 francs per child under 18. Daniel Haeni, a cafe owner who led the initiative, told the Swiss broadcaster SRF: "As a businessman I am a realist and had reckoned with 15 percent support, now it looks like more than 20 percent or maybe even 25 percent. I find that fabulous and sensational." The Swiss franc is stronger by 0.1% at 0.9752 per dollar.

China's unemployment rate might be a lot higher than the country says. A new report from Fathom Consulting, cited by Bloomberg, shows that China's unemployment rate has tripled since 2012. Fathom says the jobless rate in China is really 12.9% versus the roughly 4% that is reported by Beijing. "China has a substantial hidden unemployment problem, in our view, and that explains why the authorities have come under so much pressure to re-start the old growth engines," the report said.

German factory orders missed big. German factory orders fell 2% in April, missing the 0.5% decline that was expected. Orders from outside the eurozone tumbled 8.3%, while those from inside the eurozone climbed 2.5%. According to Deutsche Welle, April's reading marked the biggest monthly decline since July 2015. The euro is down 0.3% at 1.1334.

David Rosenberg warns that the US economy is looking as if it's headed for recession. In an op-ed article for Business Insider, Gluskin Sheff's market strategist warned that private-sector temp jobs had fallen in four of the past five months and said that type of weakness has been a precursor to US recessions. Rosenberg says that the US economy is seeing parallels to November 1969, May 1974, December 1979, October 1989, November 2000, and May 2007 and that the recessions that followed those periods averaged five months in duration. Rosenberg did note a few positives, saying the median duration of unemployment was at its lowest level of the year, long-term unemployment fell, and millennial employment gained.

Lots of millennials want to work at Goldman Sachs. The investment bank received more than 250,000 applications for summer jobs, according to the Financial Times. A deeper look at the numbers shows 223,849 undergraduates applied for summer jobs and new analyst positions in 2016, a 46% increase from 2012. Additionally, applications from those studying or completing their MBAs climbed 15% to 30,542. By comparison, Morgan Stanley receives about 8,000 applications a year, the FT says.

Slick Saboteurs A band of saboteurs that calls itself the Niger Delta Avengers has been prowling the swamps of Nigeria’s petroleum-rich south for four months, bombing pipelines and diving underwater to destroy equipment. The damage has helped tip Africa’s biggest economy toward recession and has considerably cut the amount of oil in global markets, helping push crude prices above $50 a barrel recently for the first time since November. Brazen strikes on two pipelines on Friday were the latest demonstration of destructive proficiency by the Avengers, who, compared with criminals that have attacked pipelines for profit or terrorist groups with an ideological agenda, seem more interested in undermining the administration of Nigerian President Muhammadu Buhari. Nigeria’s government has publicly asked the Avengers to negotiate, but the group has responded with a mix of threats, steep demands and more attacks.

Schools for Scandal A flood of foreign undergraduates on America’s campuses is improving the financial health of universities while clashing with a fundamental value of U.S. scholarship: academic integrity. Our analysis of data from more than a dozen large U.S. public universities found that in the 2014-15 school year, the schools recorded 5.1 reports of alleged cheating for every 100 international students. They recorded one such report per 100 domestic students. Faculty and domestic students interviewed said it appears that substantial numbers of international students either don’t comprehend or don’t accept U.S. standards of academic integrity. In particular, “cheating among Chinese students, especially those with poor language skills, is a huge problem,” said one professor. Meanwhile, new research shows a significant chunk of government investment in higher education backfired, with millions of students worse off for having gone to school.

Stock markets around the world are mixed. Britain's FTSE (+0.9%) leads in Europe after Japan's Nikkei (+0.4%) lagged in Asia. S&P 500 futures are up 1.25 points at 2,099.00.

Earnings reports trickle out. Casey's General and United Natural Foods are among the names reporting after markets close.

The oil rally is making sugar more expensive.

Land below zero: Where negative interest rates are normal.

Megacaps are now S&P 500's curse as smart beta gets payback.

Inconvenient truth about bond dealers and U.S. treasury auctions.

Eco-bulls took a gut punch on Friday when the May Non-Farm Payrolls report came in much worse than expected. On a headline basis, the 38,000 in jobs created last month was the lowest amount in nearly six years. Unfortunately, it wasn't just the headline number that was bad. There was virtually no good news in the report, even if you dug deep into its guts (If you want to see more, check out Bloomberg reporter Matt Boesler's TV appearance). Furthermore, it wasn't just Friday's jobs report that was disappointing. We also got the latest ISM Non-Manufacturing report. Non-Manufacturing — or services — had been the strongest part of the U.S. economy, but it's since fallen to its lowest level since early 2014. What's more, the employment sub-index from the report fell below 50, signaling contraction. So the economic narrative that dominated in recent weeks has taken a major hit. There had been hope that the first-quarter slowdown, as in previous years, was a fluke and that we'd be off to the races in the second quarter. Now we'll be spending some time trying to figure out if the second quarter is going to be disappointing as well.

Source: Bloomberg, BI, WSJ, Barron’s, FT