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08Jul2016 Pre-Market Commentary: NFP Report Better Than Expected, US Dollar Skyrockets, WTI Crude Slips Fractionally, Global Bearish Indicators Remain Alive

Written by Gary

US stock future indexes were marginally higher (SPY +0.6%) after US non-farm payrolls rose more-than-expected last month, showing signs of recuperation as the economy created more jobs than expected. Crude prices eased off from yesterday's two-month lows as the US dollar skyrocketed after the NFP report.

Here is the current market situation from CNN Money

European markets are broadly higher today with shares in Germany leading the region. The DAX is up 1.29% while France's CAC 40 is up 0.91% and London's FTSE 100 is up 0.20%.

What Is Moving the Markets

Here are the headlines moving the markets.

Stock futures cautiously higher ahead of crucial jobs data

(Reuters) - U.S. stock index futures were marginally higher on Friday as investors braced for crucial monthly jobs data that would determine the health of the labor market.

U.S. payrolls seen rebounding in June in boost to economy

WASHINGTON (Reuters) - U.S. job growth likely rebounded in June as striking Verizon employees returned to work and wages probably rose steadily, more evidence the economy has regained speed after a first-quarter lull.

EU-U.S. commercial data transfer pact clears final hurdle

BRUSSELS (Reuters) - A commercial data transfer pact provisionally agreed by the EU executive and the United States in February received the green light from EU governments on Friday, the European Commission said, paving the way for it to come into effect next week.

Oil bounces off two-month lows but faces sharp weekly loss

LONDON (Reuters) - Crude prices bounced back on Friday from two-month lows hit in the previous session, but benchmark Brent was in line for its largest weekly decline since January as bearish economic indicators weighed on oil.

U.S. tax agency investigates Facebook's Ireland asset transfer

(Reuters) - The U.S. Internal Revenue Service (IRS) said Facebook Inc may have understated the value of intellectual property it transferred to Ireland by "billions of dollars", unfairly cutting its tax bill in the process, according to court papers.

Twitter seeks NBA, MLS, Turner deals to stream sports: Recode

(Reuters) - Twitter Inc is in talks with the NBA, Major League Soccer and Time Warner Inc's cable network Turner Broadcasting to buy digital streaming rights for content related to major sports and events, Recode reported.

Striking Wal-Mart workers in China return to work - for now

SHANGHAI/CHICAGO (Reuters) - Workers striking at Wal-Mart Stores Inc outlets in China have returned to work after the firm agreed to consider their protests against a new work scheduling system that some fear could be used to cut overtime pay, workers and labor activists say.

Toshiba ex-CEOs unlikely to face charges over scandal: source

TOKYO (Reuters) - Prosecutors believe it would be difficult to bring charges against former top executives of Toshiba Corp over the conglomerate's $1.3 billion accounting scandal, a person briefed on the matter said on Friday.

Spanish court says Volkswagen parent company liable to answer any emissions fraud charges

MADRID (Reuters) - Spain's High Court said on Friday Volkswagen's parent company, based in Germany, would be liable to answer any charges over emissions fraud, rather than its Spanish affiliates.

A Precarious State

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The global political/economic state feels precarious for a good reason: it is precarious.

That the global economy is in a precarious state seems self-evident. Take your pick of the systemic risks: debt bubble and slowdown in China, banking/political crisis in Europe, negative interest rates and stagnation in Japan, ongoing meltdown in emerging markets and currencies, oil prices that threaten mayhem if they go up and if they go down, and a downturn in global trade that is usually associated with recession.

Other than that, everything's great. How about those summer Olympics? Seriously, what isn't in a precarious state?

If the global financial sector isn't precarious, then why is capital flooding into negative interest bonds? Why are money managers willing to accept a guaranteed loss of capital if things are going great and opportunities for low-risk profits are abundant?

The political realm is also in a precarious state. No matter how you interpret Brexit--as a Kabuki play by Deep State insiders, as a political ploy that went off the rails, as an ugly outburst of xenophobia, as a rebellion of the Forgotten Class that lost out in the Great Financialization boom, as a resurgence of nationalism--whatever interpretation or combination of factors you favor, the net result is the same: Brexit reflects a precarious state of shifting political tectonics that threatens the status quo.

It isn't just political certainties that are giving way beneath our feet--the global "recovery" narrative is crumbling like weathered sandstone on the edge of a cliff. No wonder institutiona ...

Your Last Minute Payrolls Preview

Another payroll Friday is upon us and one which would have been a long-awaited event had Brexit not intervened. As Jim reid writes, it's still important as it was only last month (it seems a lifetime ago) that we saw the shock 38k print relative to 160k expectations. The Verizon strike was an issue but not anywhere near large enough to explain the scale of the miss. Consensus expects 180k jobs added, a sharp rebound from last month's 38,000 print. Assuming consensus is spot on (and with no revisions) it would the effect of reducing the three-month moving average to 114k from 116k previously. This is significantly lower than the trend over the past couple of years, as nonfarm payroll gains averaged 251k in 2014 and 229k in 2015.

The big question would be whether this means full employment is approaching and higher wages are round the corner or whether it reflects companies scaling down hiring as profit margins get squeezed? At least according to Deutsche Bank the answer is "the latter view given we think we're late cycle."

Here is the full breakdown of consensus forecasts:

US Change in Nonfarm Payrolls (June) M/M Exp. 180K (Low 50K, High 243K, Prey. 38K, April. 160K)

US Unemployment Rate (June) M/M Exp. 4.8% (Low 4.7%, High 4.9%), Prey. 4.7%, April. 5.0%

US Average Hourly Earnings (June) M/M Exp. 0.2% (Low 0.1%, High 0.3%), Prey. 0.2%, April. 0.3%

Here is the full forecast by bank:

BNP Paribas: 130K

SocGen: 145K

Deutsche Bank: 155K

JPMorgan: 160K

Barclays: 175K

BofA: 180K

Morgan Stanley: 180K

Goldman Sachs: 210K

And some thoughts from RanSquawk:

The latest NFP report expected at 1330BST/0730CDT is under a lot of focus this month given that the previous release came in at a disappointing 38K and at the time took a June Fed ...

Fearing Confiscation, Japanese Savers Rush To Buy Gold And Store It In Switzerland

Japan has pushed further away from being the nation that embraces "Krugman Era" economics and deeper into the new "Bernanke Era" economics of helicopter money. As a result Japan's citizens have been on a blitz to save what little purchasing power they still possess, before hyperinflation finally arrives.

The gold price is up double digits in the past month and as we said last night, something big is coming as Japan appears to prime itself for "helicopter money". With the Yen soaring and that whole negative rate thing going on, the Japanese savers are understandably concerned about the future of their savings. To be sure, Japan's thirst for gold is hardly new. Back in March, when Japan's yields first turned negative, gold merchants such as Vaultoro reported that gold sales jumped 13% thank to an increase in trading from Japan. Japanese savers and investors have flooded towards gold as a safe heaven after the Japanese central bank made a move to set interest rates into the negative.

Now, they are buying even more.

As Bloomberg reports, in the face of a clear lack of trust in Japanese leadership, local investors are buying gold to store in Switzerland. The reason: they are increasingly worried about confiscation which is why they are storing it half way around the globe. The number of buyers jumped 62% in the first six months from the second half of 2015, Atsuko Sato Whitehouse, head of Japanese markets at the London-based BullionVau ...

One Trader's Take On Today's Jobs Number

From Bloomberg's Richard Breslow

Non-farm payrolls are coming. There's no shortage of opinions on what the numbers will be. And if they come in as widely expected, they'll be pretty good. Good enough that had this been last month, we'd still be having the tiresome "every month is live" debate.

This time around, markets may have to deal with how to trade a result where the number is sound, maybe even outright strong, and we're still on perma-hold.

A weak number will stink for the economy but is relatively easy to react to. As long as you can force yourself to close your eyes and buy bonds and, ultimately, equities at arguably distasteful levels.

The world's woes, from the U.K., to Europe in general, Italian banking or China were not solved because we had one quiet day of news flow. I was told multiple times yesterday morning (not so much in the afternoon) that risk is on because there's no new bad news. Ugh.

The Fed isn't going to pivot to everything's rosy out there on a good number. Unless they want to look stunningly parochial and unaware. In this perverse environment, a shaky landscape gives them optionality on rates; it doesn't control their actions.

A back-up in rates on a good number has to be taken in the context of other central banks continuing to compress yields with gusto. Who'd have thought the search for yield would make Treasuries look like a bargain at these levels. Everything's relative. Buyers on dips will be there.

For equities, at the end of the day, dividend yield and friendly Fed will continue to support. They're a rates play.

The dollar will love it. And should. That'll also suppress yields and weigh on commodities. Oil just doesn't seem to like it above $50.

A strong number will be a relief, but not a game changer.

Brexit and the Hit to U.K.'s Consumer Culture

Consumer confidence has been slammed by the Brexit vote. More headwinds are in store for the U.K. economy

How U.K. Bank Equity Release Adds Less Freedom Than You Think

The Bank of England has cut capital requirements this week to give banks more room to cope with stress, but not much.

Banks Have Brexit to Thank for Two Paths to Poorer Profits

U.K. lenders face two potential paths after the Brexit vote: one that looks bad, the other far worse. Share prices have crumbled though so far investors are only betting on the bad, not the far worse.

The Wall Street Journal: Theranos CEO Elizabeth Holmes banned by government from operating labs for two years

Theranos was once a darling of Silicon Valley and valued at $9 billion.

Economic Report: U.S. economy adds 287,000 jobs in June

Hiring in the U.S. roared back in June with a gain of 287,000 new jobs, putting to rest any lingering worries that the labor market and broader economy has taken a turn for the worse.

Metals Stocks: Gold, silver slip ahead of key jobs report

Gold futures retreat Friday, putting the precious metal on track to record a second day of losses ahead of a jobs report that could offer Federal Reserve officials greater clarity on the health of the economy.

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