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Futures Slide As Debt Ceiling Talks Enter 11th Hour, European PMIs Crumble

Futures Slide As Debt Ceiling Talks Enter 11th Hour, European PMIs Crumble

US equity futures are lower, as treasuries also dropped across…



Futures Slide As Debt Ceiling Talks Enter 11th Hour, European PMIs Crumble

US equity futures are lower, as treasuries also dropped across the curve, with the two-year yield rising for an eighth day, after the latest round of talks between Joe Biden and Kevin McCarthy Monday ended without a deal, while Eurozone manufacturing activity shrank at the fastest pace since the pandemic shuttered factories three years ago, threatening to sap momentum from an economy driven by services. The dollar rose as did bitcoin, gold fell again while oil reversed earlier losses and jumped to session highs after Saudi Arabia's energy minister told oil speculators to “watch out” just over a week before the OPEC+ alliance is due to meet. 

At 7:45am ET, US equity futures dropped 0.2% to session lows, dropping back under  4,200, whlie the Nasdaq was shocking in the red perhaps finally realizing where the 10Y yield is. Lowe’s slipped 1.5% in pre-market trading after cutting its sales outlook. In Europe, a rout in luxury-goods makers including Hermes International and LVMH dragged the Stoxx 600 lower after Deutsche Bank AG analysts warned the sector is crowded and valuations are lofty. Tokyo’s Topix index fell for the first time in eight days, with semiconductor-related stocks turning lower on news that Japan’s tighter export controls will take effect July 23.

In premarket trading, one of the last major retailers left to report Lowe's slumped after it cut its comparable sales forecast for the full year. Here are the other notable premarket movers:

  • Yelp shares jump 11% in premarket trading after TCS Capital Management said it believes “several buyers” would pay a premium for the company as the activist investor confirmed it had written to the board urging the exploration of a sale. 
  • Zoom fluctuated in US premarket trading. The video communications platform boosted its revenue guidance for the full year and management outlined plans to incorporate artificial intelligence into its products.
  • PacWest shares surged in premarket trading Tuesday, set to extend Monday’s gains. The surge was fueled by the bank’s sale of a $2.6 billion portfolio of 74 real estate construction loans to Kennedy Wilson for about $2.4 billion.
  • Microvast plunged as much as 24%, following the US Energy Department’s cancellation of a planned $200 million grant to the lithium-ion battery maker amid criticism over ties to China.
  • Chimerix shares jump 5% in premarket after Baird Equity Research initiates coverage on the biopharmaceutical company with an outperform recommendation. The broker said Chimerix has a lead agent for the treatment of H3 K27M-mutant glioma that is potentially first in class.
  • Tegna shares rose 2.3% in extended trading after the company announced share a share buyback plan and said its merger with Standard General was terminated.

The neverending debt drama continued overnight after Joe Biden and House Speaker Kevin McCarthy called their discussions on Monday productive, but an agreement remains elusive. That left traders on tenterhooks with only a few days left before June 1, when Treasury Secretary Janet Yellen said her department may run out of cash. Any deal would have to be approved by Congress before then.

“I think a default is very unlikely as I don’t think either Democrats and Republicans want it, but we could get close to it and the deadline,” Fabiana Fedeli, chief investment officer for equities and multi-asset at M&G Plc, said on Bloomberg TV. “The closer we get to the deadline the more nervous clients will get. You could have a move towards safer havens, perhaps the long end of yield curve" she warned.

Today’s macro focus will be May PMIs at 9.45am, where consensus estimates the Mfg PMI to print to dip to 50.0 from 50.2 while the Services PMI is also expected to drop to 52.5 from 53.6 prior.

European stocks slumped as a rout in luxury-goods makers including Hermes International and LVMH dragged local markets lower after Deutsche Bank AG analysts warned the sector is crowded and valuations are lofty. The Stoxx 600 was down 053% with consumer products, retailers and industrials the worst-performing sectors. Among individual stock movers, Vivendi SE tumbled after billionaire Vincent Bollore sold shares of the media conglomerate, a sign that he’s isn’t planning a buyout. Swiss asset manager Julius Baer Group Ltd. sank after disappointing results. Here are the most notable European movers:

  • European paper and pulp manufacturers gain after their Brazilian peer Suzano raised June pulp prices in Asia by $30 per ton, according to a Bloomberg report
  • Qiagen rise as much as 3.3% after Morgan Stanley upgraded the diagnostics and laboratory technology firm to overweight from equal-weight, saying the firm’s outlook is being undervalued
  • Cranswick shares rise as much as 5.9%, making it the top performer in the FTSE 250 Index on Tuesday, after the meat supplier reported sales and profit for the full year that beat estimates
  • SSP Group shares rise as much as 5.2% after the food-service company reported first-half revenue that beat estimates. Analysts highlighted new business wins and SSP’s trading momentum
  • Banca Profilo shares jump as much as 9.1% after Twenty First Capital Sas reaches an agreement with Banca Profilo’s controlling shareholder Arepo BP SpA to buy a 29% stake in the bank
  • Crayon gains as much as 16% after the Norwegian IT firm reported 1Q results, including gross profit growth of 31%. DNB says gross profit, Ebitda and operating free cash flow all beat estimates
  • BW LPG shares gain as much as 10%, hitting a record high, after the Norwegian LPG carrier firm’s 1Q results beat expectations, with DNB calling the report solid and a proposed dividend “hefty”
  • Julius Baer shares decline as much as 8.5%, the most in a year, after it reported assets under management of CHF429 billion as of the end of April, which analysts said was below expectations
  • Vivendi falls in Paris trading after billionaire Vincent Bollore sold shares in the media conglomerate, damping optimism among speculators that he would launch a buyout offer
  • RS Group shares decline as much as 5.6%, hitting the lowest since June 2022, after the outlook from the industrial and electronic products distributor pointed to a slowdown in its broader markets

Earlier in the session, Asian stocks were mized as participants digested the latest from the debt limit negotiations with the meeting between US President Biden and House Speaker McCarthy said to be productive but still lacked any major breakthrough.

  • China’s CSI 300 Index falls 1.4% to close at its lowest since Jan. 4, with losses steepening in afternoon trading led by telecoms and financials. Benchmark about 1% away from wiping out 2023 gains; Shanghai Composite drops 1.5%. Hang Seng Index down as much as 1.6%, Hang Seng Tech Tech -1.5%. Mainland stocks was pressured after Chinese press reports noted expectations for the PBoC’s benchmark lending rates to remain unchanged for some time and after the US denied it was planning to lift sanctions on China's defence minister.
  • Tokyo’s Topix index fell for the first time in eight days, with semiconductor-related stocks turning lower on news that Japan’s tighter export controls will take effect July 23. Toyota Motor Corp. tumbled in the final minute of trading. Japan's Nikkei 225 initially climbed to its highest level since August 1990 and was on course to match its longest win streak in around four years, before eventually deteriorating in afternoon trade.
  • ASX 200 was kept afloat but with the upside capped by weakness in the consumer sectors and after Australia’s Flash Manufacturing PMI remained in a contraction.
  • Key stock gauges in India rose for the third successive day amid continued buying by overseas investors and gains in the Adani pack. The NSE Nifty 50 Index advanced 0.2% to 18,348 in Mumbai, while the S&P BSE Sensex closed higher by 18.1 points at 61,981.79. Adani Group stocks clocked third straight day of gains following the observations made by a Supreme Court-appointed panel in relation to stock price manipulation. Adani Ports recovered all of its post-Hindenburg Report losses during the day. of consumer-facing firms and lenders were also contributors to the rally in Nifty 50 and the Sensex indexes, and helped them outperform most Asian peers. The MSCI Asia-Pacific Index closed 0.6% lower.   Adani Enterprises contributed the most to the Nifty 50’s gain, surging 13.2%. Out of 50 shares in the Nifty index, 28 rose, while 22 fell.

In FX, the dollar index rose 0.2%, hovering near its two-month high, after talks between Joe Biden and Kevin McCarthy Monday ended without a deal, though they called their discussions productive and vowed to keep negotiating. The Japanese yen is the best performer among the G-10’s, rising 0.2% versus the greenback. The Norwegian krone is the weakest. GBP/USD fell as much as 0.5% to 1.2373, its lowest since April 21 after disappointing PMI prints; EUR/GBP trades 0.1% higher at 0.8703.

In rates, treasuries added to Monday’s losses with front-end underperforming led by two-year Treasury yields rising another 5bps to 4.36% and flattening the curve even as stock futures also dropped as European names stumbled after euro-zone manufacturing activity shrank at the fastest pace since the pandemic. Treasury yields cheaper by up to 7bp across front-end of the curve with 2s10s, 5s30s spreads flatter by ~4bp on the day; 10- year yields around 3.745%, cheaper by ~ 3bp with gilts following suit, lagging by 1bp and 5.5bp in the sector. European bonds are also in the red and Gilts also fell, underperforming their European counterparts, as UK services PMI data showed cost pressures in the services sector increased at the fastest pace in three months. The Treasury auction cycle begins 2-year note sale, and Fed Chair Powell reportedly will make an unscheduled appearance.   $42b 2-year note auction at 1pm New York time begins cycle that also includes 5- and 7-year sales Wednesday and Thursday. WI 2-year yield at 4.335% is ~37bp cheaper than last month’s, which tailed by 0.3bp.

In commodities, crude futures rose with Brent trading near $76.70 of session highs after Saudi Arabia's energy minister threatened bearish oil speculators. Spot gold falls 0.6% to $1,960.

Bitcoin is bid and has convincingly surmounted the USD 27k handle to a USD 27.47k peak as we await a busy US agenda where the debt ceiling, Powell and PMIs are all potential macro movers.

To the day ahead now, and the main highlight will be the flash PMIs from Europe and the US. Other US data releases include new home sales for April, and the Richmond Fed’s manufacturing index for May. From central banks, we’ll hear from ECB Vice President de Guindos, the ECB’s Muller, Villeroy and Nagel, the Fed’s Logan and the BoE’s Haskel.

Market Snapshot

  • S&P 500 futures little changed at 4,202.75
  • MXAP down 0.4% to 162.32
  • MXAPJ down 0.4% to 514.15
  • Nikkei down 0.4% to 30,957.77
  • Topix down 0.7% to 2,161.49
  • Hang Seng Index down 1.3% to 19,431.25
  • Shanghai Composite down 1.5% to 3,246.24
  • Sensex up 0.4% to 62,180.82
  • Australia S&P/ASX 200 little changed at 7,259.89
  • Kospi up 0.4% to 2,567.55
  • STOXX Europe 600 down 0.3% to 467.52
  • German 10Y yield little changed at 2.46%
  • Euro down 0.1% to $1.0799
  • Brent Futures down 0.2% to $75.87/bbl
  • Gold spot down 0.6% to $1,960.23
  • U.S. Dollar Index up 0.16% to 103.37

Top Overnight News

  • Saudi Arabia’s top energy official issued another warning to oil short-sellers, just over a week before the OPEC+ alliance is due to meet. “I keep advising them that they will be ouching — they did ouch in April,” Saudi Energy Minister Prince Abdulaziz bin Salman said at the Qatar Economic Forum in Doha on Tuesday. “I would just tell them: Watch out!” BBG
  • Japan’s flash PMIs improve in May, with manufacturing rising to 50.8 (up from 49.5 in April) and services jumping to 56.3 (up from 55.4 in April). S&P
  • Taiwan’s industrial production sinks by far more than anticipated in April, coming in -22.8% (vs. the Street -13% and down from -16% in March) (Bloomberg); shipping container production slumps dramatically amid a steep pullback in the global transport industry as consumers globally cut back on discretionary goods purchases. FT
  • The US said it has no plans to lift sanctions on Chinese Defense Minister Li Shangfu, appearing to backtrack on comments made a day earlier by President Joe Biden while he attended the Group of Seven summit in Japan. BBG
  • Europe’s flash PMIs for May are mixed, with a steep drop in manufacturing (44.6, down from 45.8 in April and below the Street’s 46 consensus) while services hold in better (55.9, down from 56.2 in April but ahead of the Street’s 55.5 forecast). S&P
  • Biden/McCarthy meeting is called “productive” and “better than any other”, but a deal still hasn’t been reached, while the “X-date” fast approaches (Yellen reiterated the June 1 ceiling breach date). Politico
  • Private equity groups are increasingly selling shares in portfolio companies at a discount to the price at which they went public, in a sign they do not expect stock market valuations to regain their previous highs soon. Private equity-backed follow-ons in the US are up 180 per cent year on year, but almost two-thirds of the deals were priced below the companies’ IPO. FT
  • Deere will sell $36 billion of medium-term notes through John Deere Financial. It filed to sell notes ranking as senior or subordinated due nine months or more from the date of issue. BBG
  • Activist investor TCS Capital Management has built a stake in Yelp and is calling on the service-recommendation site to explore strategic alternatives including a sale, people familiar with the matter said. WSJ
  • HF VIPS: Mega-cap tech remains at the top of Goldman's list of popular hedge fund long positions. MSFT, AMZN, META, and GOOGL remain the top four stocks in the VIP list this quarter, with the Info Tech and Comm Services sectors accounting for nearly half of the list. The VIP list contains the 50 stocks that appear most often among the top 10 holdings of fundamental hedge funds. The basket has outperformed the S&P 500 in 58% of quarters since 2001 with an average quarterly excess return of 37 bp. 13 new constituents: AER, AVGO, DDOG, FCNCA, GDDY, IAC, ISEE, JPM, LLY, NEWR, SPOT, TTWO, WMT. Read Ben Snider and team’s HF trend monitor HERE.

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were indecisive as participants digested the latest from the debt limit negotiations with the meeting between US President Biden and House Speaker McCarthy said to be productive but still lacked any major breakthrough. ASX 200 was kept afloat but with the upside capped by weakness in the consumer sectors and after Australia’s  Flash Manufacturing PMI remained in a contraction. Nikkei 225 initially climbed to its highest level since August 1990 and was on course to match its longest win streak in around four years, before eventually deteriorating in afternoon trade. Hang Seng and Shanghai Comp. were subdued following Hong Kong’s failure to sustain the early tech-led momentum from China’s approval of 86 domestic online games in May, while the mainland was pressured after Chinese press reports noted expectations for the PBoC’s benchmark lending rates to remain unchanged for some time and after the US denied it was planning to lift sanctions on China's defence minister.

Top Asian News

  • Chinese press reports stated that the PBoC's Loan Prime Rates are expected to remain unchanged for some time and noted the LPR faces little downside due to the economic recovery and banks' tight NIM.
  • Russian PM Mishustin said on his visit to China that Russia-China ties will positively impact both countries and 2023 trade turnover between the countries could reach USD 200bln, according to TASS and RIA.

European bourses are pressured, Euro Stoxx 50 -0.5%, with the exception of the FTSE 100 +0.1% which is deriving some support from regional banking names on post-PMI hawkish BoE implications. Back to Europe, bourses came under pressure from the region's PMIs as it has hawkish ECB implications and with the Manufacturing sector still under marked pressure. Sectors are somewhat mixed with Real Estate bolstered while Luxury names are tarnished after a cautious note from Deutsche Bank. Stateside, futures are essentially flat with the ES pivoting 4200 as we await more substantive debt ceiling updates and remarks from Fed's Powell. Lowe's Companies Inc (LOW) Q1 2023 (USD): adj. EPS 3.67 (exp. 3.44), Revenue 22.35bln (exp. 21.6bln); SSS -4.3% (exp. -3.2%); updates outlook
EU is seeking to reimpose a EUR 14.3bln tax demand on Apple (AAPL), via FT; Competition Commissioner Vestager is looking to overturn the EU's 2020 legal defeat over a tax bill to Ireland.

Top European News

  • UK Chancellor Hunt will meet with food manufacturers today to ask for help from the industry to ease the pressure on households and steps up pressure on supermarkets to rein in soaring prices, according to FT.
  • Hungary is accelerating discussions with Brussels to release nearly a third of its EU funding after a long stand-off, but officials warned funds will likely remain frozen because of differences over reform efforts, according to FT.


  • DXY underpinned after productive US debt ceiling discussions as the index meanders around a Fib at 103.330.
  • Yen regains poise with some traction from upbeat Japanese PMIs and USD/JPY running into supply ahead of 139.00.
  • Aussie underperforms either side of 0.6650 as iron ore slides and the Yuan depreciates below 7.0000.
  • Kiwi loses traction on the eve of RBNZ irrespective of hawkish shift in pricing, with NZD/USD at the lower end of 0.6302-0.6254 bounds.
  • Euro keeps tabs on 1.0800 as strength in EZ services counters manufacturing deficiencies, but Pound waning on 1.2400 handle as UK PMIs miss consensus across the board.
  • PBoC set USD/CNY mid-point at 7.0326 vs exp. 7.0327 (prev. 7.0157)

Fixed Income

  • Debt futures plumb new cycle lows as bearish momentum continues to build.
  • Bunds down to 133.69, Gilts 97.22 and T-note 113-09 ahead of US prelim PMIs, new home sales and Fed's Logan all ahead of USD 42bln 2 year supply.
  • Mixed EU PMIs largely shrugged aside along with UK and German auctions awaiting more talks on the US debt ceiling.


  • Crude benchmarks are in close proximity to the unchanged mark after Monday's circa. USD 0.40/bbl firmer settlement with the complex focused on Energy Officials at the Qatar Economic Forum.
  • Currently, WTI and Brent are incrementally softer and around the mid-point of USD 71.71-72.62/bbl and USD 75.65-76.53/bbl parameters.
  • Saudi Energy Minister says I keep telling speculators they will be "ouching" and they did hurt in April, I would tell them to watch out.
  • Russian Deputy PM Novak says growth of Russian energy shipments to China at 40% in 2023, via Interfax.
  • Spot gold slips as the USD remains underpinned though the yellow metal remains above Friday's USD 1954/oz trough; base metals similarly dented on the USD and with continued attention on China's recent sub-par metrics.

Debt Ceiling News

  • US President Biden said that he is optimistic they will make some progress on the debt ceiling and that they need a bipartisan agreement and sell it to constituencies, while he added that they need to cut spending and should look at tax loopholes and that the wealthy pay their fair share, according to Reuters. US President Biden later commented that he concluded a productive meeting with House Speaker McCarthy about the need to prevent a default and reiterated once again that default is off the table, while they will continue to discuss the path forward.
  • US House Speaker McCarthy said after the meeting with President Biden that he felt they had a productive discussion but don't have an agreement yet and that staff will continue discussions with negotiators instructed to come back together and find common ground. McCarthy also noted the tone of the conversation was better than any previous time and believes they can get a deal done. Furthermore, he is confident that President Biden wants a deal, while they both agreed that they want to reach an agreement and will talk daily until they get this done.
  • White House debt limit negotiators returned to Capitol Hill to resume talks but later declined to comment after the talks concluded for the night, according to Bloomberg.
  • US Treasury Secretary Yellen reiterated that debt-limit measures could still run out as soon as June 1st and that it is highly likely cash will run out by early June, according to a statement from the Treasury Department.
  • "Sources close to McCarthy said the House could pass a short-term boost if there was a deal and the Treasury Department needed a very brief patch to avoid default, But barring that, don’t expect it to happen", according to Punchbowl.


  • Twitter source noted a drone attack was said to have targeted the departments of the Ministry of Internal Affairs and FSB in Russia's Belgorod, while air raid alerts sounded in central and western Ukraine due to Shahed drone activity.
  • Russia's Belgorod regional Governor said a counter-terrorism operation continues and a return to homes in the region's Gaivoron district is not possible yet, according to Reuters.
  • Hungarian PM Orban says the nation will continue to block EU Ukraine aid and the 11th sanctions package; says Ukraine must stop backlisting OTP Bank.

US event calendar

  • 08:30: May Philadelphia Fed Non-Manufactu, prior -22.8
  • 09:45: May S&P Global US Manufacturing PM, est. 50.0, prior 50.2
  • 09:45: May S&P Global US Services PMI, est. 52.5, prior 53.6
  • 09:45: May S&P Global US Composite PMI, est. 53.0, prior 53.4
  • 10:00: May Richmond Fed Index, est. -8, prior -10
  • 10:00: April New Home Sales MoM, est. -2.6%, prior 9.6%
  • 10:00: April New Home Sales, est. 665,000, prior 683,000

Central Bank Speakers

  • 09:00: Fed’s Logan

DB's Jim Reid concludes the overnight wrap

Since it’s AI week, it’s probably worth mentioning that there was a very brief selloff in markets yesterday after unconfirmed reports circulated on Twitter about an explosion near the US Pentagon. For all of a few minutes after the US open, that saw the S&P 500 shed around a quarter of a per cent, whilst yields on 10yr Treasuries moved about 4bps lower as well, even though nothing had been officially confirmed. The tweet was deleted shortly after and the Pentagon confirmed that no explosion had taken place, meaning that markets snapped back those moves in short order. But given the suggestions that the initial photo might have been AI-generated, it just shows the potential pitfalls for markets if fake news driven by AI can cause concrete movements in asset prices. That could be a growing issue over the months and years ahead, particularly if the technology is able to provide increasingly convincing images and that’s before we get to deep fakes. Indeed who knows if it’s really us typing this.

Actually typing is a bit more difficult than normal this morning as I burnt my hand yesterday. File this under first world problems but a power cut/surge blew our boiling water tap yesterday. As we don’t have a kettle I had to make a coffee by putting a pan in the oven (normal for our type of oven when cooking). I took it out carefully with the oven glove and then went over to get my cup. In the 10 seconds I was away I forgot the pan was piping hot and picked it up to pour and scolded my hand.

That’s how you maybe prove this isn’t AI as no robot would be so stupid. Anyway, whilst AI might be the long-term focus right now, in the short term the main issue for investors continues to be the debt ceiling, as the clock ticks towards a potential deadline in early June. Last night’s meeting between Biden and McCarthy seemed to be constructive with Speaker McCarthy saying, “The tone tonight was better than any other time we have had discussions” and President Biden adding “that default is off the table and the only way to move forward is in good faith toward a bipartisan agreement.” This meeting came shortly after Treasury Secretary Yellen’s announcement that it was now “highly likely” that the Treasury would run out of cash in early June with a default possible as soon as June 1. Prior to that meeting President Biden and Speaker McCarthy told reporters that a deal needed to get done in the next few days to avoid hitting the debt ceiling, with the latter saying “decisions have to start being made.”

With the issue still not resolved at yesterday’s close, markets grew increasingly alarmed about the potential implications of a default, and yields on short-term T-bills continued to rise. For instance, the 1-month T-bill yield surged by +13.2bps yesterday to 5.46%, which was just under the highs reached early last week. This morning we've reversed yesterday's losses on the overnight headlines from Biden and McCarthy

As investors were focusing on the debt ceiling, US Treasuries came under further pressure from a collection of hawkish Fed speakers yesterday. That started with St Louis Fed President Bullard (non-voter), one of the most hawkish FOMC members, who said that “I think we’re going to have to grind higher with the policy rate”, and that his thinking was for “two more moves this year”. Earlier in the day, Minneapolis Fed President Kashkari (voter) had also sounded open to another hike in June, saying that “I think right now it’s a close call, either way, versus raising another time in June or skipping.” Later on however, San Francisco Fed President Daly (non-voter) didn’t give an obvious signal, saying that there was still a lot of time to collect information ahead of the June meeting.

With Fed speakers sounding more hawkish, investors continued to dial up their expectations for the fed funds rate over the months ahead. For instance, the chances of a June hike moved back up to 22.5%. And the rate priced in for the December meeting was up +6.1bps to a post-SVB high of 4.696% (just above the midpoint of its intra-day range of 3.40% to 5.56% this year), which speaks to the increasing scepticism that the Fed will be able to cut rates this calendar year. In turn, that meant yields on 10yr Treasuries rose for a 7th consecutive session, rising +4.2bps to 3.715%. That’s the longest string of increases in over a year, having been at just 3.38% before this current run began a week and a half ago.

Equities were more resilient than bonds yesterday though also seemed to be waiting for the resolution of the Biden-McCarthy talks last night. The S&P 500 closed largely unchanged (+0.02%) but tech stocks again outperformed as the NASDAQ (+0.50%) hit another post-August high, which takes its YTD gains to +21.54%. Back in Europe, equities were broadly flat as well, with the STOXX 600 up +0.01%. However, there was a massive outperformance in Greece, where the Athens Stock Exchange General Index surged +6.09% after Sunday’s election. That was the index’s best daily performance since 9 November 2020, back when Pfizer announced that their vaccine had an effectiveness of over 90%, and global risk assets soared as investors saw a path out of the pandemic. Similarly, the Greek 10yr government bond yield came down -14.2bps, which contrasted with the rest of Europe where yields on 10yr bunds (+3.1bps), OATs (+2.8bps) and BTPs (+4.2bps) all moved higher.

In Asia the Nikkei (+0.64%) is leading gains, pushing towards a fresh 33-year high aided by a weaker yen and stronger PMI data (more below) while the KOSPI (+0.62%) is also trading in the green. Elsewhere, Chinese stocks are losing ground with the Shanghai Composite (-0.58%), the CSI (-0.53%), and the Hang Seng (-0.34%) all edging lower. Outside of Asia, US stock futures are reflecting a more positive tone on the debt ceiling talks with the S&P 500 (+0.21%) and NASDAQ 100 (+0.28%) trading up as we type.

Coming back to Japan, the manufacturing sector witnessed an expansion for the first time in 7 months as the PMI came in at 50.8 in May, up from a reading of 49.5 in April, as output and new orders rose for the first time in 13 months. At the same time, service-sector activity expanded at the strongest pace on record in May, advancing to 56.3, from 55.4 in April, indicating that the post-COVID recovery is showing signs of continuing momentum.

Elsewhere, Australia’s manufacturing sector continued to contract in May, with the PMI remaining unchanged at 48.0, marking the joint-lowest reading since May 2020. The survey also showed that the services PMI fell from 53.7 in April to 51.8 in May with the composite index edging lower from 53.0 in April to 51.2 in May.

Finally, there were some fresh developments in the 2024 US presidential race yesterday, as Senator Tim Scott announced his candidacy on the Republican side. But so far at least, polls continue to suggest that former President Trump is the overwhelming frontrunner for the nomination ahead, with the RealClearPolitics average currently placing Trump at 56%, and Florida Governor Ron DeSantis in second place on 19%. Speaking of DeSantis, several media outlets including CNN and CBS have reported sources saying that he’ll will formally announce a run tomorrow, so the field of candidates is beginning to emerge now.

To the day ahead now, and the main highlight will be the flash PMIs from Europe and the US. Other US data releases include new home sales for April, and the Richmond Fed’s manufacturing index for May. From central banks, we’ll hear from ECB Vice President de Guindos, the ECB’s Muller, Villeroy and Nagel, the Fed’s Logan and the BoE’s Haskel.

Tyler Durden Tue, 05/23/2023 - 08:09

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February Employment Situation

By Paul Gomme and Peter Rupert The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000…



By Paul Gomme and Peter Rupert

The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000 average over the previous 12 months. The payroll data for January and December were revised down by a total of 167,000. The private sector added 223,000 new jobs, the largest gain since May of last year.

Temporary help services employment continues a steep decline after a sharp post-pandemic rise.

Average hours of work increased from 34.2 to 34.3. The increase, along with the 223,000 private employment increase led to a hefty increase in total hours of 5.6% at an annualized rate, also the largest increase since May of last year.

The establishment report, once again, beat “expectations;” the WSJ survey of economists was 198,000. Other than the downward revisions, mentioned above, another bit of negative news was a smallish increase in wage growth, from $34.52 to $34.57.

The household survey shows that the labor force increased 150,000, a drop in employment of 184,000 and an increase in the number of unemployed persons of 334,000. The labor force participation rate held steady at 62.5, the employment to population ratio decreased from 60.2 to 60.1 and the unemployment rate increased from 3.66 to 3.86. Remember that the unemployment rate is the number of unemployed relative to the labor force (the number employed plus the number unemployed). Consequently, the unemployment rate can go up if the number of unemployed rises holding fixed the labor force, or if the labor force shrinks holding the number unemployed unchanged. An increase in the unemployment rate is not necessarily a bad thing: it may reflect a strong labor market drawing “marginally attached” individuals from outside the labor force. Indeed, there was a 96,000 decline in those workers.

Earlier in the week, the BLS announced JOLTS (Job Openings and Labor Turnover Survey) data for January. There isn’t much to report here as the job openings changed little at 8.9 million, the number of hires and total separations were little changed at 5.7 million and 5.3 million, respectively.

As has been the case for the last couple of years, the number of job openings remains higher than the number of unemployed persons.

Also earlier in the week the BLS announced that productivity increased 3.2% in the 4th quarter with output rising 3.5% and hours of work rising 0.3%.

The bottom line is that the labor market continues its surprisingly (to some) strong performance, once again proving stronger than many had expected. This strength makes it difficult to justify any interest rate cuts soon, particularly given the recent inflation spike.

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Mortgage rates fall as labor market normalizes

Jobless claims show an expanding economy. We will only be in a recession once jobless claims exceed 323,000 on a four-week moving average.



Everyone was waiting to see if this week’s jobs report would send mortgage rates higher, which is what happened last month. Instead, the 10-year yield had a muted response after the headline number beat estimates, but we have negative job revisions from previous months. The Federal Reserve’s fear of wage growth spiraling out of control hasn’t materialized for over two years now and the unemployment rate ticked up to 3.9%. For now, we can say the labor market isn’t tight anymore, but it’s also not breaking.

The key labor data line in this expansion is the weekly jobless claims report. Jobless claims show an expanding economy that has not lost jobs yet. We will only be in a recession once jobless claims exceed 323,000 on a four-week moving average.

From the Fed: In the week ended March 2, initial claims for unemployment insurance benefits were flat, at 217,000. The four-week moving average declined slightly by 750, to 212,250

Below is an explanation of how we got here with the labor market, which all started during COVID-19.

1. I wrote the COVID-19 recovery model on April 7, 2020, and retired it on Dec. 9, 2020. By that time, the upfront recovery phase was done, and I needed to model out when we would get the jobs lost back.

2. Early in the labor market recovery, when we saw weaker job reports, I doubled and tripled down on my assertion that job openings would get to 10 million in this recovery. Job openings rose as high as to 12 million and are currently over 9 million. Even with the massive miss on a job report in May 2021, I didn’t waver.

Currently, the jobs openings, quit percentage and hires data are below pre-COVID-19 levels, which means the labor market isn’t as tight as it once was, and this is why the employment cost index has been slowing data to move along the quits percentage.  


3. I wrote that we should get back all the jobs lost to COVID-19 by September of 2022. At the time this would be a speedy labor market recovery, and it happened on schedule, too

Total employment data

4. This is the key one for right now: If COVID-19 hadn’t happened, we would have between 157 million and 159 million jobs today, which would have been in line with the job growth rate in February 2020. Today, we are at 157,808,000. This is important because job growth should be cooling down now. We are more in line with where the labor market should be when averaging 140K-165K monthly. So for now, the fact that we aren’t trending between 140K-165K means we still have a bit more recovery kick left before we get down to those levels. 

From BLS: Total nonfarm payroll employment rose by 275,000 in February, and the unemployment rate increased to 3.9 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care, in government, in food services and drinking places, in social assistance, and in transportation and warehousing.

Here are the jobs that were created and lost in the previous month:


In this jobs report, the unemployment rate for education levels looks like this:

  • Less than a high school diploma: 6.1%
  • High school graduate and no college: 4.2%
  • Some college or associate degree: 3.1%
  • Bachelor’s degree or higher: 2.2%

Today’s report has continued the trend of the labor data beating my expectations, only because I am looking for the jobs data to slow down to a level of 140K-165K, which hasn’t happened yet. I wouldn’t categorize the labor market as being tight anymore because of the quits ratio and the hires data in the job openings report. This also shows itself in the employment cost index as well. These are key data lines for the Fed and the reason we are going to see three rate cuts this year.

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Inside The Most Ridiculous Jobs Report In History: Record 1.2 Million Immigrant Jobs Added In One Month

Inside The Most Ridiculous Jobs Report In History: Record 1.2 Million Immigrant Jobs Added In One Month

Last month we though that the January…



Inside The Most Ridiculous Jobs Report In History: Record 1.2 Million Immigrant Jobs Added In One Month

Last month we though that the January jobs report was the "most ridiculous in recent history" but, boy, were we wrong because this morning the Biden department of goalseeked propaganda (aka BLS) published the February jobs report, and holy crap was that something else. Even Goebbels would blush. 

What happened? Let's take a closer look.

On the surface, it was (almost) another blockbuster jobs report, certainly one which nobody expected, or rather just one bank out of 76 expected. Starting at the top, the BLS reported that in February the US unexpectedly added 275K jobs, with just one research analyst (from Dai-Ichi Research) expecting a higher number.

Some context: after last month's record 4-sigma beat, today's print was "only" 3 sigma higher than estimates. Needless to say, two multiple sigma beats in a row used to only happen in the USSR... and now in the US, apparently.

Before we go any further, a quick note on what last month we said was "the most ridiculous jobs report in recent history": it appears the BLS read our comments and decided to stop beclowing itself. It did that by slashing last month's ridiculous print by over a third, and revising what was originally reported as a massive 353K beat to just 229K,  a 124K revision, which was the biggest one-month negative revision in two years!

Of course, that does not mean that this month's jobs print won't be revised lower: it will be, and not just that month but every other month until the November election because that's the only tool left in the Biden admin's box: pretend the economic and jobs are strong, then revise them sharply lower the next month, something we pointed out first last summer and which has not failed to disappoint once.

To be fair, not every aspect of the jobs report was stellar (after all, the BLS had to give it some vague credibility). Take the unemployment rate, after flatlining between 3.4% and 3.8% for two years - and thus denying expectations from Sahm's Rule that a recession may have already started - in February the unemployment rate unexpectedly jumped to 3.9%, the highest since February 2022 (with Black unemployment spiking by 0.3% to 5.6%, an indicator which the Biden admin will quickly slam as widespread economic racism or something).

And then there were average hourly earnings, which after surging 0.6% MoM in January (since revised to 0.5%) and spooking markets that wage growth is so hot, the Fed will have no choice but to delay cuts, in February the number tumbled to just 0.1%, the lowest in two years...

... for one simple reason: last month's average wage surge had nothing to do with actual wages, and everything to do with the BLS estimate of hours worked (which is the denominator in the average wage calculation) which last month tumbled to just 34.1 (we were led to believe) the lowest since the covid pandemic...

... but has since been revised higher while the February print rose even more, to 34.3, hence why the latest average wage data was once again a product not of wages going up, but of how long Americans worked in any weekly period, in this case higher from 34.1 to 34.3, an increase which has a major impact on the average calculation.

While the above data points were examples of some latent weakness in the latest report, perhaps meant to give it a sheen of veracity, it was everything else in the report that was a problem starting with the BLS's latest choice of seasonal adjustments (after last month's wholesale revision), which have gone from merely laughable to full clownshow, as the following comparison between the monthly change in BLS and ADP payrolls shows. The trend is clear: the Biden admin numbers are now clearly rising even as the impartial ADP (which directly logs employment numbers at the company level and is far more accurate), shows an accelerating slowdown.

But it's more than just the Biden admin hanging its "success" on seasonal adjustments: when one digs deeper inside the jobs report, all sorts of ugly things emerge... such as the growing unprecedented divergence between the Establishment (payrolls) survey and much more accurate Household (actual employment) survey. To wit, while in January the BLS claims 275K payrolls were added, the Household survey found that the number of actually employed workers dropped for the third straight month (and 4 in the past 5), this time by 184K (from 161.152K to 160.968K).

This means that while the Payrolls series hits new all time highs every month since December 2020 (when according to the BLS the US had its last month of payrolls losses), the level of Employment has not budged in the past year. Worse, as shown in the chart below, such a gaping divergence has opened between the two series in the past 4 years, that the number of Employed workers would need to soar by 9 million (!) to catch up to what Payrolls claims is the employment situation.

There's more: shifting from a quantitative to a qualitative assessment, reveals just how ugly the composition of "new jobs" has been. Consider this: the BLS reports that in February 2024, the US had 132.9 million full-time jobs and 27.9 million part-time jobs. Well, that's great... until you look back one year and find that in February 2023 the US had 133.2 million full-time jobs, or more than it does one year later! And yes, all the job growth since then has been in part-time jobs, which have increased by 921K since February 2023 (from 27.020 million to 27.941 million).

Here is a summary of the labor composition in the past year: all the new jobs have been part-time jobs!

But wait there's even more, because now that the primary season is over and we enter the heart of election season and political talking points will be thrown around left and right, especially in the context of the immigration crisis created intentionally by the Biden administration which is hoping to import millions of new Democratic voters (maybe the US can hold the presidential election in Honduras or Guatemala, after all it is their citizens that will be illegally casting the key votes in November), what we find is that in February, the number of native-born workers tumbled again, sliding by a massive 560K to just 129.807 million. Add to this the December data, and we get a near-record 2.4 million plunge in native-born workers in just the past 3 months (only the covid crash was worse)!

The offset? A record 1.2 million foreign-born (read immigrants, both legal and illegal but mostly illegal) workers added in February!

Said otherwise, not only has all job creation in the past 6 years has been exclusively for foreign-born workers...

Source: St Louis Fed FRED Native Born and Foreign Born

... but there has been zero job-creation for native born workers since June 2018!

This is a huge issue - especially at a time of an illegal alien flood at the southwest border...

... and is about to become a huge political scandal, because once the inevitable recession finally hits, there will be millions of furious unemployed Americans demanding a more accurate explanation for what happened - i.e., the illegal immigration floodgates that were opened by the Biden admin.

Which is also why Biden's handlers will do everything in their power to insure there is no official recession before November... and why after the election is over, all economic hell will finally break loose. Until then, however, expect the jobs numbers to get even more ridiculous.

Tyler Durden Fri, 03/08/2024 - 13:30

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