Overnight

Friday slipped into Monday. At least that's how Japanese investors apparently saw it in early trading Monday as the Nikkei 225 was off nearly 2% at 1.8% before stemming some of those loses. The Australian ASX 200 was up slightly, 0.60%, and the Korean Kospi traded flat and the Hang Send was down 0.22%. The Shanghai Composite was also 0.08.

Friday's poor U.S. jobs report, creating only 38,000 jobs in May when nearly six times that many were expected, sent the dollar lower and the yen higher. For many the sad numbers put on hold any chance for a June hike in interest rates and so now the focus switches to the Fed's July meeting after which the next meeting is scheduled for September just before the November election. Some believe that the Fed won't raise rates that close to election time because of its political overtones.

The dollar index, a benchmark against a basket of six major currencies edged up sightly to 94.112.DX its recent low of 93.855., last seen May 12. The MSCI's broadest  index of Asian-Pacific shares outside Japan was up 0.45%. Much of the investment community is awaiting Fed Chair  Janet Yellen's speech that will open the coming week in the U.S.

Special Is As Special Does

 
France thinks it's special. Nothing new here. But this is just one of the reasons the European Union is doomed to crumble like the walls of some ancient city.

The EU as currently constructed is humorless. None dare criticize it let alone it's Commission. The whole idea from the beginning that this disparate tribe of people called countries would subscribe and heed to an arbitrary guideline for debt smelled from the beginning like the uncollected trash now stinking of parts of Rome.

Back to France. They're the second largest EU economy. Rank is suppose to impose obligations. In France's case the same applies to special privilege. Here's an example. France and it's leaders think they are special. We don't know whether France caught the American disease or the other way around. One thing, however, remains clear. The entrenched in both nations think they're special.

Now, the eurocrats are not just falling into despondency and despair, they’re beginning to turn on each other.

European Commission President Jean Claude Juncker tried to convince a hall packed with French mayors of the need for austerity à la carte in France. The linchpin of his argument was that France has been allowed by the Commission to repeatedly break Eurozone fiscal rules, not just due to its size and influence over EU policy but also its “reflexes, its internal reactions, its multiple facets” — an oblique reference to the tendency of its workers to bring the national economy to a halt whenever the government introduces measures that are not to their liking, as is happening right now.

The irony is that Juncker — who is famous for saying that when things get tough, “you have to lie” — is right on this point. Since 1999 France has broken the Eurozone’s 3% deficit limit during non-recessionary years 11 out of 16 times. That’s one more time than Greece and Portugal, three more times than Italy, and seven more times than Spain (which has broken the limit eight times but four of which were during years of recession, with the Commission’s blessing). wolfstreet.com/2016/06/05/eurocrats-turn-on-each-other-internal-strife-divisions-in-euro-land/

The key term is non-recessionary years. Hard times are one thing, special privileges another.

Roosting Time?

The chart and excerpt below appeared in a Business Insider article a few days ago. We have long questioned, to use a kind term, the quality of corporat earnings. There might be some other birds out circling their way home to roost, businessinsider.com/tsunami-about-to-hit-bond-market-2016-6?, also.

1. Decreasing profits: Mish notes that corporate profits fell 7.6% in the first quarter against the same period a year ago. In order to pay back loans, companies need to continue to make more, and with less cash coming in, there will be less to allocate to debt.
   
   UBS
2. Lending standards are getting tighter: Firms also have the ability to pay down debt that is coming to maturity by issuing new debt, effectively kicking the can down the road. Lending conditions for new debt, however, are getting tighter as banks focus on higher quality borrowers. In turn, this makes it tougher for companies to pay for debt with more debt. 
3. Debt is getting more expensive: Loan spreads, or the difference between what banks have to pay to borrow money and what they charge companies in interest on loans they then give out, are starting to widen. In other words, new debt is getting more expensive. 

Add up these factors and you've got a problem for companies with debt outstanding, and the $1 trillion market for low-grade, risky bonds. This trouble is not just limited to the commodity space. Mish estimates that the default rate for nonenergy firms will creep up to 3.5% in 2016, up from 1.5% currently.

Making Money

The bullish dollar trend is artificial. That doesn't mean it won't continue. It just means in our view it's artificial. Despite what anyone tells you, there's a currency war going on though many will still deny it. Look at the U.S. and China or Japan and there are others less public.

Politicians and central bankers are lost and getting more desperate. Saudi Arabia is another interesting case. A strong dollar bites both ways. Back when oil hit $27 a barrel on its way many thought to $20, it was difficult to get our clients interested. This is not to say it won't suffer another down turn and go there. Investors are humans and when dealing with the species--we don't know enough yet about robots to make a call--you should always keep this saying posted on your favorite morning mirror: Anything Is Possible.

Recently, it touched $50 a barrel. The math between $27 and $50, as a friend would say, ain't bad. The idea that more shakouts in the oil patch is necessary before the price finally bottoms has it's merits, but it's also one that could in this long global downturn be made just about any country on the planet. Austerity, even that imposed by markets, has it's limits. Whether you agree or not, all of this monetary central bank madness is a huge protest against austerity.

As we cruise around and find interesting points of view, we try to share them with our readers. Here is one,wolfstreet.com/2016/06/04/david-teppers-big-bet-mlp, that gives a good breakdown on the sector. Though we differ with some of the author's conclusions, it's well done. Being right about something doesn't always make you money. Nor does being wrong always lose you money. Yet it's about making money, a fact lost on too many though we're not implying that here.

 Here's excerpt:

For those unfamiliar with the energy space, the industry can be broken up into 3 segments:

• Upstream: These are the exploration and production (E&P) companies that include drillers. They find and extract energy products.
• Midstream: These are transportation companies that move raw product through their pipelines. It’s in this segment that we find our MLPs.
• Downstream: The transportation companies move raw product to downstream companies that act as the processors and distributors of the final product. Refineries are in this segment.

If you take a look at Tepper’s latest 13F filing, his top buys are ETP and WPZ. Both these companies are also part of his most concentrated holdings. Tepper is betting big on the MLP theme.

Energy Transfer Partners (ETP) is an MLP that started with natural gas pipelines, but later expanded into natural gas liquids (NGLs), refined products, and also crude oil. It currently has a dividend yield of 11.49% — exactly the type of yield investors would love to earn.

A big part of this MLP thesis rests on the idea that energy prices have bottomed. But we don’t believe this is true. The bullish US dollar trend is still intact. And because commodities are priced in dollars, a stronger dollar means lower commodity prices.

Just looking at the relationship between oil and the dollar, dollar strength has historically accounted for 30-50% of oil’s price movement. Take a look at the graph below. It isolates an estimate of the price of oil based only on demand. It then compares it to the real price of oil in the market. The gap you see between actual prices and demand exist because of the impact of USD strength.

As the dollar strengthens, commodities in general (including energy) will take another trip back to prior lows. The pain in the energy space is not over. The “blood in the streets” moment has yet to occur. There were not enough defaults and there are still too many companies hanging on by a thread. There needs to be another washout once energy prices drop again.

Bogusville

This series of charts speak a clear picture. Bogus is as bogus does. Some people are beyond shame.
 Unfortunately, for average Americans, a clutch of them reside in Washington DC.



To read more zerohedge.com/news/2016-06-03/funniest-bls-report-ever 

Dollar Takes Hit

The picture turned ugly for he U.S. dollar after the anemic jobs report today, falling against several currencies, a move that won't make Japanese officials, to name one, happy. To be sure, they'll be those who cite different reasons for the pathetic jobs report with the recent Verizon strike one of them.
                                
With Fed Chair Janet Yellen set to speak Monday for the last time before the next FOMC gathering investors will be scanning carefully her words looking for clues to see if a June hike is in the cards. The next hike, if and when there is one, will be the first of this year. China and the U.S. are already upset about trade sanctions and currencies differentials. A weaker dollar won't smooth things over there anytime soon.

The dollar index, which tracks the greenback against a basket of currencies, is down by 1.6% at 94.02 — its lowest level since mid-May.

The major currencies are all up against the US dollar. Here's the scoreboard as of 10:16 a.m. ET:

• The Japanese yen is stronger by 1.8% at 106.97 per dollar.
• The euro stronger by 1.7% against the dollar at 1.1341.
• The British pound is stronger by 0.8% against the dollar at 1.4543.
• The Australian dollar is stronger by 1.5% at 0.7334 per dollar.
• The Canadian dollar is stronger by 1.2% at 1.2948 per dollar.

Tellingly, three big "risk-off" trades stand out: the yen is stronger against the dollar, gold prices are up by 2.7%, and US Treasurys have rallied.

Gold rallied on the weaker dollar and the possibility of no rate hike soon that should push the dollar higher and Treasury prices usually react inversely to what interest rates do. There is more at stake here, however, as the Fed gets wedged into a higher possibility of doing the wrong thing at the right time. Jawboning can only carry them so far.  

Holding fast or raising rates will both be interpreted as doing something. Investors could decipher either one as a negative given the tight corner the Fed now finds itself sitting.

U.S. Non-Farm Payrolls

Here's a chart to compare the upcoming announcement on non-farm payrolls.

Slow Global Growth Here to Stay?

Slow global growth has been on the minds of many. Here's a chart. Despite all the monetary easing growth seems to be hard to find. Given that expect to hear more cries for fiscal stimulus since it's fairly obvious zero to negative zero rates hasn't done the job.

If we weren't before we're soon to be all Keynesian soon if certain folks get their way. Anybody smell stagflation?


advisorperspectives.com/commentaries/20160602-blackrock-the-narrowing-corridor-of-global-growth

Production Cut

Here's a chart you might find interesting, especially if you follow oil and are an investor.

 
US crude oil production looks set to slow sharply over the coming months, and that should keep prices well supported in the second half of the year.

That’s the view of Daniel Hynes, senior commodity strategist at ANZ Bank, who points to a reduced number of active drilling rigs, along with the prospect of heightened financial stress in the energy sector, as two factors suggesting output will fall “significantly”.

“Active or new drill rigs in the US have fallen from 1,600 to 316 (in May), the lowest level since September 2009,” says Hynes.

He believes that “this is only just being translated into a fall in US oil production”, adding “we believe the rate of falls in weekly US oil production is about to accelerate as the impact of the falling rig count will be compounded by forced closures and low prices biting.”
The chart above, supplied by Hynes, does nothing to undermine this view, demonstrating the lag effect US output has on changes in new and active drilling rigs in production.
 businessinsider.com/image/575114c952bcd023008c6ad9-680/us-crude-production-v-rig

Overnight

It's 20-60, that's what futures market is betting a rate hike will come either this month or in July as investors pushed Asian shares higher overnight awaiting news about U.S. job and wage warning numbers.

The Nikkei gained 0.2% cutting losses for the week to 1.5%,given the controversy over Abernomics and whether it's really working coupled with a postponed sales tax hike. The Shanghai Composite edged lower 0.2%  with it's expected to finish the week up 3.5%, the Hang Seng index rose a modest 0.3%, also expected to close out the week positive 1.7% and MSCI's broadest Asian-Pacific index outside Japan gained 0.4%. 

In other news, the WSJ reports that trade differences between the U.S. and China continue to flare as the yuan hits a five year low against the dollar.

The U.S. and China, facing mounting political pressures at home, are seeing economic tensions flare to their worst point in years over currency and trade practices.

China has pushed the yuan to a five-year low against the dollar, reviving charges from American firms of currency manipulation to gain a competitive advantage for Chinese goods. The Obama administration has fired off a series of trade complaints and levied duties on several Chinese industries, from chicken feet to cold-rolled steel used in appliances and auto parts.