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Dentalfloss · Jun 2, 2020

Dentalfloss · Jun 3, 2020

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Dentalfloss · Jun 3, 2020

Dentalfloss · Jun 3, 2020

Dentalfloss · Jun 3, 2020

Dentalfloss · Jun 3, 2020

Dentalfloss · Jun 3, 2020

Dentalfloss · Jun 3, 2020

Good Morning: The Long & the Short of it and The Bigger Picture - 3 June 2020 - ADM ISI

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Ostwald, Marc

08:39 (12 minutes ago)

to Marc

- Digesting China Services jump, Australian & Swiss Q1 GDP, UK BRC Shop
Prices; awaiting German Unemployment Services PMIs/ISM and US ADP;
bond auctions in Germany and UK

- German Unemployment seen rising more slowly; short-time workers key

- Services PMIs: China aside, sharp rebounds expected elsewhere, but to
remain deep in contraction territory

- US ADP Employment slide seen slowing, but still monumentally large

- When central banks eradicate risk and term premia, all markets are left
with is to chase carry, until the insolvency canary sings

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** EVENTS PREVIEW **
********************

Extrapolating from incoming data to the outlook for national and global economies is a fool's errand at the current juncture, given an array of uncertainties that include the Covid19 pandemic and associated lockdowns, but increasingly have to include politics in the broadest sense. However today's run of Services PMIs, Germany Unemployment and US ADP Employment will have some sensitivity, even if the market mirror is heavily distorted; Australian (in line with forecasts at -0.3% q/q , but Q2 will be much worse) and Swiss Q1 GDP (worse than expected at -2.6% q/q), Turkish CPI and PPI are also due, as is an expected no change rate decision from Poland's NBP. Germany and the UK hold bond auctions, and there is also the potentially 'interesting' Alphabet (Google) AGM. For the many of us that are stupefied by the seemingly incessant 'risk on' rally, one simple perspective is this: central banks have via way of ZIRP, NIRP and their multitude of asset purchase programmes completely eradicated all forms of risk premia, and largely obliterated term premia, by dint of the fact that real rates are negative (the swing in oil prices behoves us to exclude this in the calculation), as well as acting as buyer of last resort across the board. Markets are therefore effectively instructed to look for any and every form of carry, with zero regard to incoming macro data or political risks. But as noted previously, central bank actions will not prevent surging insolvency and default rates, and the news that a number of major US banks are no longer willing to finance US auto dealers (as but one example) underlines that the credit crunch in the real economy is very much alive. The longer the disconnect between Main St and Wall St exists, the sharper the likely eventual retribution.

** Germany - May Unemployment **
- May Unemployment is seen rising 190K after surging 373K in April, with the Unemployment Rate forecast at 6.2% from 5.8%; but this is a total irrelevance given that April saw a record 10.1 Mln on short-time work (aka Kurzabeit), which compares with a prior all-time record of 1.44 Mln in May 2009.

** World - May Services PMIs **
- The surge in China's Caixin Services PMI compares with a solid but little changed NBS reading (53.6 vs. prior 53.2) will give hope of hopes of a v-shaped recovery, above all given the acceleration to 11.7% y/y in China Auto Sales reported yesterday. But the compare and contrast elsewhere of today's Services PMIs with the mostly improving, though still very contractionary Manufacturing PMIs is quite simple, whereby Services PMIs may stage a stronger bounce, in part differentiated at a national level by the timing of lockdown easing measures, but will still signal a very sharp contraction for the current quarter, as more than amply demonstrated by the outturns in Japan (26.5 vs. prov. 25.3) and Australia (26.9 vs. prov. 25.5) overnight. Given markets are so clearly insensitive to any and every bit of bad news, retro-fitting better than expected outturns on today's surveys to market performance would really beggar credibility.

** U.S.A. - May ADP Employment **
- The first of this week's US labour data are forecast to see the ADP Employment measure post a -9.0 Mln drop against April's -20.236 Mln. As noted in the week ahead in respect of Friday's official data: market reaction to April's catastrophic US labour report was an abject example of heartless nonchalance, with perhaps the most apposite counter being that markets should remember that while wartime comparisons may be largely off the mark, one element that could prove highly relevant, is that the sharp swing of the pendulum from capital back to labour post WWII (above all due to loss of life) via way of the post WWII social contract should probably be borne in mind.

========================== ** THE DAY AHEAD ** ===========================