06May2015 Pre-Market Commentary: U.S. Futures Fractionally Higher, Bad U.S. Employment Change, European Stocks Teeter Over Greece’s Future

Here is the current market situation from CNN Money

European markets are higher today with shares in Germany leading the region. The DAX is up 0.63% while France’s CAC 40 is up 0.37% and London’s FTSE 100 is up 0.34%.

Five Things Everyone Will Be Talking About Today

Bonds get jumpy, crude keeps climbing and Fed Chair Janet Yellen speaks. Here are a few of the things that people are talking about this morning.

A choppy bond market

It has been an ugly few weeks for euro-area sovereign debt and early this morning was no different: yields from Germany to Spain surged to fresh highs for 2015. Then just a few hours later the market completely turned around. Try keeping up with this one today.

Crude surge

After closing at a high for the year yesterday, oil prices are pushing higher again today. WTI extended its advance to trade above $62 for the first time in 2015 and Brent continues to inch back towards $70.

Greece on the ECB’s agenda

According to people familiar with the matter, officials at the ECB will debate whether to increase haircuts on the collateral Greek banks pledge in exchange for emergency funding.

PMIs hit the campaign trail

It’s the final day for U.K. politicians to convince the public to vote for them and all of the major political parties are desperately trying to get an edge. Prime Minister David Cameron is even tweeting about today’s strong U.K. PMI.

Fed speak

Federal Reserve Chair Janet Yellen is scheduled to speak on a panel discussion at a conference in Washington at 9:15 am local time.

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US productivity slumps 1.9 percent in Q1, while labor costs rise in sign of weaker growth

WASHINGTON (AP) — U.S. worker productivity declined in the first three months of the year as labor costs jumped, reflecting a slowdown in growth. The Labor Department says productivity, which is the amount of output per hour of work, fell at 1.9 percent rate in the first quarter. Productivity dropped at a 2.1 percent rate in the final three months of 2014. Labor costs surged at a 5 percent rate in the first quarter, after having increased 4.2 percent in the fourth quarter. The drop in productivity and rise in labor costs are signs of nearly flat economic growth in the first quarter, when overall growth was hammered by harsh winter weather and falling oil prices that hurt energy firms. Still, economists say quarterly changes in productivity and labor costs are extremely volatile.

ADP Employment Tumbles To 15 Month Lows As Manufacturing Jobs Plunge

Following March’s dismal drop in the ADP Employment report (the biggest miss in 4 years) and missing for 3 straight months, April printed a very weak 169k (against notably lowere expectations of a 200k rise). Even worse, February and March was revised even lower. This is lower than the lowest economist estimate. Large companies were particularly weak with smaller businesses adding the bulk of the meager jobs print. All job gains were in the Services segment with Manufacturing losing 10,000 jobs in April. The esteemed Mark Zandi blames this on “the fallout from the collapse of oil prices and the surging value of the dollar.”

Must be the weather, oil port strike…

Mark Zandi, chief economist of Moody’s Analytics, said,

“Fallout from the collapse of oil prices and the surging value of the dollar are weighing on job creation. Employment in the energy sector and manufacturing is declining. However, this should prove temporary and job growth will reaccelerate this summer.”

Greece makes loan repayment to IMF but another, bigger one looms next week

ATHENS, Greece (AP) — With Greece’s cash flow problems growing by the day and negotiations with its creditors on the ropes, Athens managed to make a 200 million euro ($222 million) repayment to the International Monetary Fund on Wednesday. But another, much larger repayment looms next week that Greece will struggle to manage. The country once more faces the possibility of having to default on its debt, which could set off a chain of events jeopardizing its membership in Europe’s joint currency. The country’s left-wing government has been locked in troubled negotiations with its creditors and the institutions overseeing its bailout — the IMF, European Central Bank and European Commission — for the past three months. Finance Minister Yanis Varoufakis was in Rome to discuss the issue with his Italian counterpart Pier Carlo Padoan, while he heads to Madrid on Friday to meet Spanish Finance Minister Luis de Guindos.

Germanwings Co-Pilot May Have Tried To Crash Previous Flight

Andreas Lubitz, the Germanwings co-pilot who deliberately crashed an Airbus A320 carrying 150 people into the French Alps in March after locking the pilot out of the cockpit, may have rehearsed the tragedy the very same day on the outbound flight from Düsseldorf to Barcelona. The report (embedded below), indicates that Lubitz put the flight into a controlled descent on several occasions, selecting an altitude of 100 ft during times when the audio from the voice recorder suggests the Captain had left the cockpit.

* * *

From the report:

All of the data from the previous flight, from Düsseldorf to Barcelona, was recorded on the FDR. The recordings from the CVR included the last 50 minutes of this flight. Synchronization of these recordings and the radio communications with the Bordeaux en-route control centre with which the crew was in contact, was performed based on the same principle as for the accident flight.

On the previous flight, the following facts can be noted:

at 7 h 19 min 59, noises like those of the cockpit door opening then closing were recorded and corresponded to when the Captain left the cockpit; the aeroplane was then at cruise speed at flight level FL370 (37,000 ft);

at 7 h 20 min 29, the flight was transferred to the Bordeaux en-route control centre and the crew was instructed to descend to flight level FL350 (35,000 ft), an instruction read back by the co-pilot;

at 7 h 20 min 32, the aircraft was put into a descent to flight level FL350 , selected

Wendy’s tops 1Q earnings expectations, misses revenue forecasts

DUBLIN, Ohio (AP) — Wendy’s Co. (WEN) on Wednesday reported first-quarter net income of $27.5 million. The Dublin, Ohio-based company said it had profit of 7 cents per share. Earnings, adjusted for non-recurring gains, came to 6 cents per share. The results topped Wall Street expectations. The average estimate of nine analysts surveyed by Zacks Investment Research was for earnings of 5 cents per share. The hamburger chain posted revenue of $466.2 million in the period, missing Street forecasts. Six analysts surveyed by Zacks expected $478.2 million. Wendy’s expects full-year earnings in the range of 33 cents to 35 cents per share.

China One Step Closer to Becoming World’s Gold Hub

China One Step Closer to Becoming World’s Gold Hub

– Shanghai Gold Exchange one step closer to becoming the globe’s major gold hub
– China tests system at Shanghai Gold Exchange (SGE) to establish yuan-denominated gold price fix
– SGE opened last year allowing trade in physical gold as opposed to electronic futures contracts on COMEX
– Yuan fix, which has broad regional support, will rival the century old LBMA fix
– China now world’s largest producer and buyer of gold
– Chinese government, central bank and people have affinity towards gold

Chinese ambitions to become the world’s leading gold trading hub and international financial hub have taken another step forward.

Trials were quietly conducted to launch a yuan-backed gold pricing benchmark last month, according to Reuters today.

China, the world’s largest gold producer and buyer, feels its market weight should entitle it to be a price setter for gold bullion. It is asserting itself at a time when the established benchmark, the century old London ‘gold fix’, is under scrutiny because of long-running allegations of price manipulation.

The new Chinese gold price benchmark may be launched before the end of the year.

The Shanghai Gold Exchange (S …

Chesapeake Energy has loss, sees more output

(Reuters) – Chesapeake Energy Corp on Wednesday raised its oil and gas production forecast for the year even as the second largest U.S. producer of natural gas reported a quarterly loss related to lower commodity prices.

For HFTs It’s All About FX: Trading Currencies Is Now Virtu’s Biggest Source Of Revenue

One month ago, when looking at Virtu’s S-1 just before the HFT company went public, we broke down the company’s revenues and found something fascinating. This is what we said:

Which asset class was responsible for Virtu’s trading perfection for yet another year. It wasn’t stocks because adding across the firm’s America, EMEA and APAX equity product lines, Virtu revenues actually declined, from $201 million in 2013 to $195 million in 2014. It also wasn’t commodities, where revenue dropped by almost $2 million in 2014 to $93.1 million.

So what was it?

The answer, by a wide margin, was FX or as Virtu defines it “Global Currencies.”

The punchline: “since the data is as of December 31, and extrapolating these growth rates, it is virtually assured that as of this moment, the primary source of revenue for Virtu is no longer equities but FX!”

Today, Virtu released its first public financials since going public, and our speculation has been proven correct: FX is now the largest revenue generator for VIRT, amounting to 28.4% of revenues in the quarter ended March 31, at $42.2 million, well above the $29.1 million generated from trading America Equities and the $34.7 million from global commodities.

In fact, as the chart below shows, on an LTM basis, FX is now not only the biggest revenue item for the world’s dominant HFT firm at $131.1 million, but is also the fastest growing source of profit, rising 103% on a year over year basis!

GlaxoSmithKline Bets on Consumer Health Spending

Consumers from New York to New Delhi are digging deeper in their pockets for over-the-counter remedies and health products, a trend GlaxoSmithKline is banking on to help shape the next chapter in its evolution.

It Now Looks as if the Economy Shrank in the First Quarter

It may be just what we need to keep the Fed in a cautious mode and thus keep the dollar from getting even stronger.

California Adopts “Unprecedented” Restrictions On Water Use As Drought Worsens

Early last month we warned that California’s drought was approaching historic proportions and that if climatologists were to be believed, the country may see a repeat of The Dirty Thirties as experts cite “Dust Bowl” conditions. Governor Jerry Brown has called for statewide water restrictions aimed at reducing consumption by 25%.

Now, the conservation calls are getting much louder as the state’s water regulators have approved “unprecedented” measures aimed at curtailing the crisis.

Via AP:

California water regulators adopted sweeping, unprecedented restrictions Tuesday on how people, governments and businesses can use water amid the state’s ongoing drought, hoping to push reluctant residents to deeper conservation.

The State Water Resources Control Board approved rules that force cities to limit watering on public property, encourage homeowners to let their lawns die and impose mandatory water-savings targets for the hundreds of local agencies and cities that supply water to California customers.

Gov. Jerry Brown sought the more stringent regulations, arguing that voluntary conservation efforts have so far not yielded the water savings needed amid a four-year drought. He ordered water agencies to cut urban water use by 25 percent from levels in 2013, the year before he declared a drought emergency…

Despite the dire warnings, it’s also still not clear that Californians have gr …

French Banks Lifted by Lively Stock Markets

Société Générale and Crédit Agricole said their first-quarter results were boosted by volatile markets and amid growing signs the European economy is picking up.

Frontrunning: May 6

‘Flash Crash’ Overhaul Is Snarled in Red Tape (WSJ)

ECB Considers Tighter Noose on Greek Banks (BBG)

Dollar Falls as U.S. Data Cast Doubt on Fed Policy Tightening (BBG)

Market U-Turn Rams Hedge Funds (WSJ)

Greece makes 200 million euro IMF payment due Wednesday (Reuters)

Greek unemployment was 25.4 percent in February (Reuters)

J.P. Morgan’s Barista-Turned-Banker Sees Good Things Brewing (WSJ)

Oil Extends Gain Above $62 as U.S. Crude Supply Glut Seen Easing (BBG)

JPMorgan in advanced talks to settle forex investigation (Reuters)

EU Aims to Tear Down Online Barriers, Curb Web Giants (

Accused ‘flash crash’ trader tells UK court: ‘I did nothing wrong’

LONDON (Reuters) – The British trader fighting extradition to the United States on charges of having contributed to the 2010 “flash crash” on Wall Street told a London court on Wednesday he had done nothing wrong and was just good at his job.

Changan Investors Get Ford Focus in China

Ford’s success in China can be ridden through its local partner, Changan Automobile, whose unique share listings should attract attention.

StanChart says HQ under review amid rising UK bank tax

LONDON (Reuters) – Standard Chartered said it continued to keep its domicile under review, particularly given the likelihood Britain’s bank tax will continue to rise, raising the prospect it could leave London for Asia.

Violent Moves Continue In European Bond Market; Equity Futures Rebound With Oil At Fresh 2015 Highs

This is how DB summarizes what has been the primary feature of capital markets this week – the huge move in European bond yields: “On April 17th, 10-year Bunds traded below 0.05% intra-day. Two and a half weeks later and yesterday saw bunds close around 1000% higher than those yield lows at 0.516% after rising +6.2bps on the day. This is the highest level since January 21st. To be fair Bunds were the outperformer in Europe yesterday with Italian, Spanish, Portuguese 10 year yields +27.2bps, +27.7bps and +29.8bps higher. These are now +49bps, +49bps and +63bps higher than when QE started.”

Right out of the European open today, the government bond selloff accelerated with the 10Y Bund reaching as wide as 0.595% with the periphery following closely behind when at 9:30am CET sharp, just as the selloff seemed to be getting out of control, it reversed and out of nowhere and a furious buying wave pushed the Bund and most peripheral bonds unchanged or tighter on the day! Strange, to say the least. Also, illiquid.

The bund selloff has kept pressure on the EUR, which rose as high as 1.127 before also retracting some of the gains. As for the driver – according to many the latest catalyst for the “reflation” trade is the surge in oil, which is now 50% from its 2015 lows, mostly on the back of hopes that this time Chinese easing will translate into greater demand for crude. This coupled with the first API drawdown since mid-January has sent WTI surging again, and at last check it was just shy of $62, while Brent is rapidly approaching the “unambiguously bad” (right Larry Kudlow?) $70 barrier.

So as US traders walk into the work today, Bunds trade marginally in the red following their recent trend by extending losses early in the European session and seeing the German 10yr yield at on …

Bond rout rattles all assets

LONDON (Reuters) – A worldwide selloff in government bonds deepened on Wednesday, with the rise in yields to their highest level this year spreading unease across all asset classes and putting stock markets around the world under pressure.

SunGard Prepares IPO

SunGard is preparing for an initial public offering nearly a decade after a group of private-equity firms acquired it in the wave of megabuyouts that preceded the financial crisis.

LendingClub Draws Competitors in Spades

LendingClub posted earnings above expectations, reporting a surge in new loans, even as it cited growing congestion in the industry.

Evolving Hotel Market Poses Challenge for Host

Investors are checking out of Host Hotels & Resorts Inc.

E.U. Commission Opens Antitrust Inquiry Into E-Commerce Sector

Officials said the investigation would address whether large players like American tech giants were impeding competition over how Europeans buy goods and services online.

Bits Blog: Zenefits Raises Money (Again), Landing $4 Billion Valuation

Zenefits, a fast-growing software-as-a-service start-up raises $500 million in funding at a $4 billion valuation.

Daimler says Nevada license to help self-drive trucks gain traction

LAS VEGAS (Reuters) – Daimler has been granted a license by the U.S. state of Nevada to test self-driving trucks on public roads, as the United States and Europe race to establish a regulatory framework for autonomous vehicles.

ECB set to decide on increasing Greek bank lifeline

FRANKFURT (Reuters) – The European Central Bank’s Governing Council on Wednesday may nudge up the amount of Emergency Liquidity Assistance teetering Greek banks can borrow, as Athens struggles to avert a potentially catastrophic funding crunch.

U.K. Stocks Rebuff Election Uncertainty

Heading into a highly uncertain U.K. election, stock investors have been resolutely upbeat, with strategists saying the market is being driven by larger trends.