Greetings,

1. Let's begin with the United States where we have more evidence of a softening labor market. To be sure, we don't see any significant layoffs as the jobless claims remain quite low. However, hiring may be slowing. Below is the Conference Board's online help-wanted index.

Source: The Conference Board

While job openings in the US are near record levels, the rate of increases in job openings has slowed. When combined with the May payrolls report, there are clearly some downside risks here.

2. US residential construction activity is still relatively soft as growth in US single-family home construction permits stalls. Will lower mortgage rates help?

3. The WSJ survey of economists suggests that the US recession probability is elevated relative to the 2014-2015 period.

Source:  ‏@WSJecon

4. On the other hand, the second quarter GDP growth is tracking 2.8% according to the Atlanta Fed's GDPNow.

Source: @AtlantaFed

The NY Fed's Nowcast, however, has Q2 GDP at 2.1%. Note that Goldman is projecting 3.2%. It will be interesting to see where US Markit PMI indicators come in for May - should know later this week.

Source: NY Fed

5. The ECRI US index of leading indicators is growing at the fastest rate in over 3 years, which is consistent with Goldman's forecast.

Source: @businesscycle

6. The US 5yr real rate moved lower again, which indicates easier monetary conditions.

7. The 10yr and 5yr inflation expectations are now the same - a flat breakeven curve. This trend suggests that the markets increasingly see "lower for longer" inflation dynamics. It's hard to reconcile this with some of the bullish oil price forecasts for the next decade.

1. Speaking of oil, crude prices jumped sharply as Brexit fears ease.

Source: Investing.com

2. US forward inflation expectations (5x5) completely decoupled from oil. Something has to give here - possibly after the EU Referendum vote in the UK.

  3. US oil rig count rises for the third week. Will US crude oil production follow?

Source: Investing.com

4. This next chart shows that the global oil price correction was mostly a supply issue, although softer demand expectations early this year have not helped.

Source: NY Fed, @joshdigga

5. Natural-gas prices rise on expectations of higher power demand this summer.

Source: Investing.com  

Related to the above, we have some interesting slides from the Dallas Fed on the impact that weak energy prices had on the 11th Fed District (Texas, northern Louisiana, and southern New Mexico).

1. Loan-loss provisions rise.

Source: @DallasFed, @MarathonWealth

2. Weakening credit situation clearly corresponds to lower oil prices.

Source: @DallasFed, @MarathonWealth

3. One area of concern is Texas banking system's concentration in commercial real estate.

Source: @DallasFed, @MarathonWealth

4. Wages in oil producing states have taken a hit.

Source: @DallasFed, @MarathonWealth

5. Data from Texas shows loss of high-paying jobs while demand for low-wage labor rose.

Source: @DallasFed, @MarathonWealth  

1. In other commodity markets, here are the latest global fund flows.

Source: Jefferies

2. US sugar prices hit a 2.5-year high as India imposes a 20% export tax - making sugar exports from India completely uneconomical. The reason for the tax was to ease domestic prices which have been on the rise.

Source: Investing.com

3. Copper net short speculative positions increase. This is a commodity everyone loves to hate (due to some oversupply dynamics). Such positioning makes copper vulnerable to a short-squeeze.

  4. Brexit risk sends speculative accounts into gold as net long exposure is now near record. If the "stay" camp prevails in the UK, the selloff in gold could be quite sharp.

  5. Separately, bitcoin is pushing toward $770. The downside risk we see in gold applies here as well.

Source: bitcoinchart.com  

Speaking of the EU Referendum, the British pound implied vol eases somewhat as the probability of Brexit declines.

  Indeed, the betting markets have pushed the Brexit probability to the low 30s now.

Source: @predictiit_

Source: @predictwise

Source: @predictiit_

Many suggest that this is the Jo Cox effect. Others point to the "late move to the status quo" effect.

Source: politicscounter.com

Does the British pound follow the path of the Scotland Referendum?

Source: Natixis

As of Sunday night, market participants have turned the risk back on, with the S&P500 futures jumping 1.2% in response to the reduction in Brexit probability.

    As a side note, the UK is unlikely to be the last such anti-EU effort, with the Europeans' views of the EU worsening.

Source: Pew Research, ‏@joshdigga  

1. In the Eurozone, construction investment remains weak. Will the ridiculously low rates help stabilize this trend?

Source: Credit Suisse, ‏@joshdigga

2. Eurozone market-based inflation expectations are not cooperating with Mr. Draghi's efforts.

  3. Cross-currency basis blows out again, an indication of demand for US dollar-based funding, with the wider spreads usually corresponding to market stress. This should ease if Brexit doesn't materialize.

Source: Barclays

4. Stories are circulating of Greece lifting capital controls by year-end. Will this action result if a further loss of deposits?

Source: Reuters  

Globally, negative-yielding securities volume hits a new record. Again, if Brexit is avoided, this should ease.

Source: ‏@ReutersJamie  

1. Turning to Japan, Brexit risk has given a significant boost to the yen. Long-yen bets are back, with speculative accounts' net yen exposure rising again.

  2. US-Japan real rate differential has diverged from the yen. Once again, this is a Brexit effect and should come back in line if Brexit is avoided. 

Source: Morgan Stanley

3. Similarly, Japan's real rates and equities diverge.

Source: Morgan Stanley  

1. Turning to emerging markets, according to Goldman, China's "May housing price inflation slowed again in tier-1 cities". Here is the chart of month-over-month prices and year-over-year.

Source: Goldman Sachs

2. Despite recent declines, the real trade-weighted renminbi is still quite strong. Is this a significant competitive disadvantage for China? Will we see more pressure to devalue?

  3. Activity in China's cotton futures (Zhengzhou) picks up again after regulators tried to rein in all that "speculation".

Source: @barchart

4. Brazil's business confidence jumps. Green shoots?

  5. Indian central bank head has been pushed out by Modi's government. This move is a significant loss for the RBI and is likely to undermine confidence in the central bank. How quickly politicians forget the disaster that the RBI faced during the taper tantrum period in late 2013. Rajan quickly restored confidence at the time.

Source: Reuters The rupee took a hit in response to the news. 

  6. Abu Dhabi's banks are contemplating combining into a massive single lender. The news sent  Abu Dhabi's stock index up almost 5% on Saturday.

Further Reading

7. The Russian credit markets have contracted sharply since 2013. Some suggest this market looks attractive relative to other EM fixed income opportunities.

Source: Barclays, @joshdigga 

Source: Barclays, @joshdigga

8. The next chart shows the appreciation in the Brazilian real (BRL), the Russian ruble (RUB), and the South African rand (ZAR) vs. the US dollar year-to-date.

Source: @barchart  

Finally, US pharmaceuticals' underperformance over the past year has been spectacular. Is it just Valeant and several other firms with disappointing results? Or is the market already pricing in Democrats in the White House implementing price controls?

Source: Ycharts.com

Source: Google Turning to Food for Thought, we have 5 items this morning:

1.  Global infrastructure spending over the next decade or so is going to have to be enormous to support projected growth. 

Source: @wef,  ‏@joshdigga 2. The working class white Americans will become a minority by 2032.

Source:  ‏@WSJecon 3. The numbers and origins of refugees coming to the US fluctuated in response to global conflicts. This year the largest numbers according to Pew are coming from Burma, DRC, and Somalia.

Source: @RuthIgielnik 4. These are photos inside a massive Icelandic bitcoin "mining" operation called Genesis Mining (utilizing "cheap energy, good internet connections, and a cold climate"). Rather that mining with their own graphics cards, etc., individuals can sign on to use this equipment. 

Source: @wef

Source: @wef 5.  Goldman Sachs' UEFA Euro 2016 prediction update.

Source: Goldman Sachs​