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Submitted by Michael Every of Rabobank

Global Samizdat

This is going to be another shocking US payrolls day. How does one even begin to describe the most important data series in the world for markets recording a drop of 7.5m in May according to consensus expectations, on the back of 20.5m job losses for April? Even if 80% of these jobs bounce back quickly as the economy reopens –and lockdown now appears to be totally over in people’s minds in the US– we still face an appalling labor-market future. Wage growth? Please! Wage cuts will loom as an atomised, desperate labor force takes what it can get. Given that underlying socio-economic conditions were hardly healthy to begin with for those not riding the asset gravy-train, things look grim. One could even imagine large-scale street protests and/or rioting breaking out….but what am I talking about: we are already there.

Of course, with the rare exception of a dip in stocks yesterday, which was far higher up the list of today’s Bloomberg headlines than another looming payrolls disaster, none of this matters. Not only are stocks way, way up, but key FX says “risk on!” and bond yields are rising sharply too. US 10s, for example, are up from 0.54% on 9 March to 0.82% at time of writing. Yes, that’s a small move in the bigger picture; yes, the economy is new ‘reopening’ in order to protest; and yes, it’s still a level that one would never have expected to see outside the readership of this Daily or of our equally-gloomy Rates Strategy Team. Yet a new OPEC+ oil deal today aside, where is the reason for optimism that any reflation is coming in a post-virus US economy where the perennial labour vs. capital struggle is now an arm-wrestle between Sheldon in the Big Bang Theory and Dwayne ‘The Rock’ Johnson?

One would think such simple truths would be covered in the financial market press. They aren’t, for the most part: as I was told by a journalist talking to me on a separate but key global issue yesterday, no matter how interesting the facts I had presented were, the editorial line of what the story was going to be (the opposite conclusion) had been set in stone from the start. They were powerless to change the narrative.

No matter. One would think such simple truths would still be covered by financial market analysts. They aren’t, for the most part: how many have read any Marx or his intellectual protégés, from Kalecki to Minsky to Piketty, who have pointed out negative rates, financial collapse, and that inequality does not just go away by itself?

No matter. One would think such simple truths would nonetheless be reflected in financial markets themselves. OF COURSE THEY AREN’T given what central banks are doing! Yesterday the ECB offered up another EUR600bn in bond purchases that will stretch out until summer 2021. How can markets reflect fundamentals when there are no fundamentals that matter for markets above that liquidity? How can financial analysts reflect anything but that simple liquidity dynamic too? The shallower, the less-well-versed in theory, history, and reality their call is, the better it proves. Just look where central bank billions and trillions are flowing, and follow that trail: nothing else matters. This is not financial repression. It is reality repression.

It seems appropriate on another earth-shatteringly bad US payrolls day that is nonetheless likely to see further risk-on moves across ‘markets’ to recall the old adage about the Soviet economic system: “We pretend to work and they pretend to pay us”. For me there were always worrying parallels between that statement and the low pay, low productivity ‘quandary’ that OECD economies have slumped into ever since they adopted neoliberal ‘efficiency’. Yet things are now even worse. In ‘financial markets’ we can add: “We pretend to trade and they pretend to regulate.” There is no regulation: there is asset-price targeting. And there is no ‘trading’: just a reflection of the orders of the monetary Commissars ‘looking out for the good of society’.

Of course, this won’t end well. It is already ending badly. When even Elon Musk is on Twitter arguing that monopolies like Amazon are bad and need to be broken up, one might want to pay attention. It is just that ‘markets’ are no longer the signal we can look to as any kind of indicator any more than Goskomstat was a guide to what Soviet life was actually like.

Speaking of Goskomstat, the Global Times has recently blared out it is “just a matter of time” before China overtakes the US. Technically this will come in Q2 2020 given the Atlanta Now projection of a near 50% drop in US GDP – but of course this is only temporary. Most ‘market’ analysts find it hard to grasp that deeply-troubled as the US is, China’s prospects are not much brighter if an alliance of other major economies rally against it on trade, technology, capital flows, and security issues. In that kind of scenario one can realistically project Chinese GDP growth to grind down to around 2% to match that of the US, meaning that after another few years of gap-closing China levels off at around 75% of the size of the US economy – and never overtakes it before relative demographic differences then put things into reverse. How many business models and management-consultant straight-line growth projections and financial market forecasts go out of the window if that happens?

In which case, note that yesterday India and Australia signed a mutual co-operation pact to use each other’s military bases and to develop common standards on communication technology (i.e., 5G). The Global Times response to India’s invite to the upcoming, expanded G7 was already that “if India hastily joins a small circle that perceives China as an imaginary enemy, China-India relations will deteriorate.” Expect angrier retorts ahead – which have already been seen vs. Australia. Also note that today has seen the launch of #IPAC, the Inter-Parliamentary Alliance on China, “an international cross-party group of legislators to reform the approach of democratic countries to China.” This is not anything to do with the Belt and Road Initiative. It’s more the Belt and Roadblock Initiative.

Of course, it’s better for your near-term financial safety to ignore today’s Global Samizdat and keep following the official line from ‘Pravda’ or ‘Trud’. Yet please note that two days before the fall of the Berlin Wall in 1989 the UK communist newspaper The Morning Star proclaimed: “What we are seeing now is not the crisis of Socialism, but the crisis of the outdated model of Socialism….Those who are ready to bury Socialism, because of the difficulties we are going through will be disappointed. The cause of the Great October Revolution is immortal.” On the evening of the day the Berlin Wall began to collapse its headline was “GDR UNVEILS REFORMS PACKAGE”

Happy and productive Friday, Comrades!

Day ahead

Today will see German factory orders (expected -19.9%) and Canadian employment (seen -500K) ahead of that key payrolls release, where -7,500K is the consensus, taking the unemployment rate up to 19.1% and the underemployment rate to over 22%. Average hourly earnings are expected up 1.0% m/m and 8.5% y/y due to data distortions around federal handouts – but don’t expect that to last.

Just when it seemed that the record 40% rally from the March lows was coming to an end, as Treasury yields blew out and tech names rolled over on record volume, the euphoria came back with a vengeance, sending stocks around the globe and US futures surging as the delivery of both monetary and fiscal stimulus in Europe supplanted virus concerns and trade fears on the day the US is expected to report a record 19.1% unemployment rate (luckily, in “Jay’s market” trivia such as fundamentals does not matter).

On Thursday, the Nasdaq 100 became the first U.S. equity index to reclaim its all-time high, with the rebound driven partly by tech-related firms including Amazon.com Inc and Netflix. The broader Nasdaq Composite which is more closely watched than the Nasdaq 100, is just about 2% below its own record high, while the S&P 500 and Dow Jones indexes are 8% and 11% below their respective all-time highs.  The S&P 500 is on track for a third week of gains as VIX and V2X returned to the week’s lows, and the sliding dollar has fallen to the lowest since March, while Treasury yields jumped to 0.87%, rising above a key level of 0.84% that sees CTA turn short on Treasurys.

Boeing gained 4% premarket on continued optimism about a pickup in air travel a day after American Airlines Group Inc said it would boost its U.S. flight schedule next month. Vaccine maker Novavax jumped 14.9% after saying it would receive up to $60 million from the U.S. Department of Defense to fund manufacturing of its COVID-19 vaccine candidate.

European equities rallied, with the Spanish IBEX outperforming peers, rising over 2%. Banks, autos and energy names lad broad based gains across sectors, after monetary stimulus from the ECB and fiscal stimulus from Frankfurt and Berlin exceeded expectations, and reports showed that Trump administration officials increasingly expect to spend up to $1 trillion in the next round of stimulus, even as Germany reported a record -25.8% drop in Industrial Orders.

Earlier in the session, Asian stocks gained, led by energy and finance, after rising in the last session. The Topix gained 0.5%, with Fujikyu and DLE rising the most. The Shanghai Composite Index rose 0.4%, with Hunan Corun New Energy and Shangying Global posting the biggest advances. 

Markets are riding a wave of enthusiasm as investors bet on a global economy awash with stimulus, while fears of more disruptions from social unrest have also reduced in the past two days, with the largely peaceful protests against the killing of a black man in police custody waning into Friday morning and emergency curfews in many cities being lifted.

“We probably have a window of maybe three months where data are going to be continuing to improve,” Peter Chatwell, head of multi-asset strategy at Mizuho International, told Bloomberg TV. “That is going to drive a very supportive backdrop for credit spreads to keep tightening and for equities to be rallying.”

 

In rates, the sharp bear-steepening continued in Treasuries ahead of May employment report, with 10- to 30-year yields cheaper by 5bp to 6bp, front-end yields by about 1bp. 5s30s spread topped 125bp for first time since December 2016. Treasury 10-year yields around 0.87%, near cheapest levels of the day and highest since end of March; Thursday’s breach of top of narrow range in place since late March led to CTA accounts shedding long positions, which has added momentum to this week’s bear-steepening trend.

In Europe, yield curves also bear steepened with several ECB speakers commenting on the appropriateness of Thursday’s policy boost. Peripheral spreads continued Thursday’s tightening to core; Bund and Gilt futures rise off the lows with Treasuries sidelined ahead of today’s payroll report.

In FX, Bloomberg dollar index extended Asia’s decline. AUD leads G-10 peers, regaining a 0.70-handle for the first time in five months. Havens currencies including CHF and JPY lag.

In commodities, Crude futures rallied with front-month Brent rising through $41 to fresh highs for the week after OPEC+ reached a tentative agreement to extend record production cuts. Spot gold grinds sideways near $1,710/oz, base metals rally with LME lead outperforming.

The focus for traders this morning will be the U.S. jobs report, which is likely to reflect a deepening recession across the country. But despite the grim economic news, markets are continuing to a historic rally. Friday’s report from the Labor Department is likely to show the U.S. unemployment rate shooting up to almost 20% in May, a new post-World War Two record, but investors have so far shrugged off dire data on hopes that an easing of coronavirus-led lockdowns would revive business activity.

Market Snapshot

• S&P 500 futures up 1% to 3,142.00
• MXAP up 0.7% to 158.88
• MXAPJ up 1% to 512.71
• Nikkei up 0.7% to 22,863.73
• Topix up 0.5% to 1,612.48
• Hang Seng Index up 1.7% to 24,770.41
• Shanghai Composite up 0.4% to 2,930.80
• Sensex up 0.9% to 34,288.23
• Australia S&P/ASX 200 up 0.1% to 5,998.72
• Kospi up 1.4% to 2,181.87
• STOXX Europe 600 up 1.3% to 370.98
• German 10Y yield rose 1.3 bps to -0.307%
• Euro up 0.08% to $1.1347
• Italian 10Y yield fell 13.2 bps to 1.25%
• Spanish 10Y yield rose 0.3 bps to 0.559%
• Brent futures up 2.8% to $41.11/bbl
• Gold spot down 0.3% to $1,709.41
• U.S. Dollar Index little changed at 96.64

Top Overnight News from Bloomberg

• Traders are having another look at market pricing for the outlook for Federal Reserve rates. The latest improvement in risk sentiment has damped chatter about negative rates and some investors seem willing to bet on when to expect a rate hike premium appearing
• OPEC+ is set to extend production cuts to prop up the oil market after a breakthrough in high-stakes negotiations, with the alliance meeting on Saturday to sign off on the deal
• The latest round of talks between the U.K. and European Union over their future relationship is set to finish without a breakthrough, with both sides stuck after another week of difficult negotiations
• Fears of deflation justified the European Central Bank’s decision to ramp up its emergency bond- buying program, according to policy maker Pablo Hernandez de Cos
• The German economy has passed the trough of its coronavirus recession and is starting to grow again, the Bundesbank said, endorsing the government’s sweeping fiscal stimulus that should underpin the rebound. Output this year is forecast to shrink 7.1%, before bouncing back in the subsequent two years
• Austria has nearly doubled its borrowing plans in order to help cushion its economy from the worst of the coronavirus crisis. The country will now raise about 60 billion euros ($68 billion) from debt operations in 2020, an all-time high, according to the Treasury. At least 35 billion euros will be by way of government bond offerings
• The Swiss National Bank’s holdings of foreign exchange rose by a double-digit billion franc figure for a second month running, evidence of the heavy interventions to limit pressure on the currency

Asian equity markets were choppy with the region cautious as participants awaited the looming NFP jobs data and after the rally in stocks petered out for its global peers which saw Wall Street end a choppy session mixed albeit with a negative bias. ASX 200 (+0.1%) was dragged by notable weakness in tech and healthcare names but with downside in the index stemmed by resilience in financials. Furthermore, the government announced to increase rules on foreign investment into key industries which raised some questions regarding the ramifications its protectionism could have on its ties with its largest trading partner China although PM Morrison suggested the investment reforms are unlikely to increase ongoing tensions. Nikkei 225 (+0.7%) was initially lower but gradually reversed the downside amid currency weakness, while Hang Seng (+1.7%) and Shanghai Comp. (+0.4%) traded indecisively after the PBoC’s operations resulted to a CNY 450bln weekly net liquidity drain and following mixed US-China rhetoric including USTR Lighthizer expressing confidence regarding the Phase 1 deal and with the US to continue permitting Chinese passenger flights in reciprocation to a similar gesture by China, although plenty of criticism remained following the anniversary of the Tiananmen Square massacre and Hong Kong’s passage of the national anthem bill. Finally, 10yr JGBs were subdued following the resumption of the bear steepening seen in USTs, but with some of the losses in 10yr JGBs briefly retraced after prices rebounded off a floor at 151.55 and with the BoJ present in the market for nearly 1.1tln of JGBs in which it boosted purchase amounts in 5yr-10yr maturities.

Top Asian News

• Japan Household Spending Falls Most on Record Amid Pandemic
• NetEase Is Said to Raise $2.7 Billion in Hong Kong Listing
• Lawmakers in Eight Countries Form New Alliance to Counter China
• Hong Kong Dollar Sees Inflow Surge, Staring Down Capital Flight

European equity futures are on course for respectable weekly gains with Eurostoxx 50 eyeing double-digit weekly gains as we stand. The morning has seen the core bourses extending on the upside with sentiment potentially underpinned amid comments from USTR who said he feels “very good” about the Phase 1 US-China trade deal and that the report that China was not honouring the soybean purchases was false. That being said, more recent headlines from China vowed to retaliate against the US’ 33 Chinese entity list in relation to the Uygur minority population. However, details remain light – the news prompted some losses in equities, but nonetheless, Euro Stoxx 50 (+1.7%) holds onto gains of almost 2%. Desks also note that there is a significant cyclical/value bias as sectors such as autos, banks and energy all post substantial gains – with the SX7E European banking index poised to end the with over 13% higher W/W. The sectorial breakdown sees banks (+3.5%) topping the charts amid the higher yield environment and with Oil and & Gas closely following amid gains in the oil complex. Travel & Leisure meanwhile surges with some pointing to impetus form the America Air update yesterday – Air France (+12.3%), Carnival (+10.9%) trade at the top of the Stoxx 600. Broader sectors are mostly higher with cyclicals clearly outpacing defensives, while Staples and Healthcare reside in the red. In terms of individual movers – Deutsche Wohnen (+1.5%) holds onto opening gains after being tipped to replace Lufthansa (+6.0%) – whose shares see tailwind from the broader sector performance. Telefonica (+3.8%) meanwhile is underpinned amid talks of an imminent sale of its German Towers unit.

Top European News

• SNB Reserves Rose in May Reflecting Bigger Interventions
• Austria Doubles 2020 Borrowing to $68 Billion on Virus Fallout
• Billionaire-Owned Firms Tap State Aid In U.K. Loan Program
• ECB’s De Cos Says Rising Deflation Risk Warranted More Stimulus

In FX, the Antipodean Dollars have both overcome several wobbles on the way to fresh highs against their rival, with the Kiwi and Aussie now trying to establish footholds above new big figures, at 0.6500 and 0.7000 respectively. A firm rebound in risk sentiment has helped the Nzd and Aud extend their winning streaks, but the former has also gleaned impetus from upbeat comments overnight via NZ Finance Minister Robinson noting a faster recovery in the domestic economy and pick up in retail sales. Hence, the cross remains well off post-RBA peaks and pivoting 1.0750, with some mild hindrance for the Aud on strained relations with its main global trading partner and investment reforms designed to tighten the criteria for foreign entities.

• NOK/GBP – The next best majors, as the Norwegian Crown continues its bull run irrespective of more bleak data in the form of manufacturing output and GDP while perhaps drawing more encouragement from accompanying remarks from the Stats Office that economic activity appears to be improving. Eur/Nok has dipped below 10.5400 even though the Euro remains relatively strong in its own right post-ECB, and another rise in oil prices on reports that OPEC and OPEC+ are now set to meet tomorrow is no doubt keep the cross on a downward trajectory. Meanwhile, the Pound forged more gains at the expense of the Buck in Cable terms when stops were tripped at resistance just ahead of 1.2650 and more when the 200 DMA (1.2678) was breached, but hit buffers before 1.2700 despite Eur/Gbp remaining much nearer the bottom of 0.9009-0.8954 parameters awaiting a speech from EU’s Barnier after latest Brexit trade talks with the UK that are expected to end with no breakthrough, albeit apparently more constructive and useful this week per EU sources.
• CAD/EUR/JPY/CHF – All more narrowly mixed vs their US counterpart as the DXY bounces from a deeper 96.438 low to 96.849 in wake of latest Chinese warnings about countermeasures against US sanctions on firms, but with the Loonie supported by the aforementioned upturn in crude and also mega option expiry interest at 1.3500 (2.3 bn). Elsewhere, the Euro extended ECB inspired advances to circa 1.1384, ignoring more weak Eurozone data and mixed GC rhetoric, though taking heed of the China headlines, as did the Yen and Franc to various degrees when paring some declines from around 109.40 and 0.9580, though still undermined by overall safe-haven unwinding and technical impulses as Usd/Jpy breached another upside chart level (109.38 was the April 6 lower high) and Eur/Chf straddles 1.0850 after breaking back above the 200 DMA.
• EM – Mixed starts to Friday’s session and in the run up to potentially pivotal US jobs data, as the Yuan maintains bullish momentum and petro-currencies derive more traction from crude in contrast to the Lira that displays some nerves ahead of Turkey’s next ratings review at the hands of Moody’s and President Erdogan’s decision to reimpose lockdown over the coming weekend due a rise in COVID-19 cases..

In commodities, WTI and Brent front month future continue to grind higher on the final trading session of the week with a few factors at play in the energy complex. On the OPEC front, a meeting has reportedly scheduled for 13:00BST and OPEC+ for 15:00BST on June 6th, according to delegates – Russian Energy Minister Novak confirmed the date. However, early signs indicating that Mexico might have objections to extending the current OPEC+ pact – which may prove to be somewhat of a deja-vu from the April meeting. In terms of the agreement, aside from the pledge for full compliance, Saudi Arabia and Russia reportedly agreed on a preliminary 1-month extension on existing OPEC+ oil cuts, according to sources. Meanwhile, Gulf OPEC members (Saudi, UAE and Kuwait) are reportedly not discussing deeper cuts than the voluntary over-compliance of 1.18mln BPD in June. Sources also added that Saudi Arabia is set wind down on voluntary over-compliance to bring 1mln BPD of production back online. In terms of other factors – with US hurricane season looming, Tropical depression Cristobal is set to strengthen and head over to the Gulf of Mexico over the weekend – potentially shuttering the several oil refineries as it makes landfall. The upside in oil prices is also underpinned by the current risk appetite across the marketplace as prices also tracked stocks higher early-doors. WTI July reclaimed a USD 38/bbl (vs. low 37.05/bbl) while Brent breached USD 41/bbl having printed an intraday base at 39.72/bbl. Elsewhere, spot gold remains lacklustre just above USD 1700/oz and with little action ahead of the US labour market report. Copper prices meanwhile extend on upside in-line with the risk sentiment and stocks as it overlooks US-Sino difficulties for now.

US Event Calendar

• 8:30am: Average Weekly Hours All Employees, est. 34.3, prior 34.2
• 8:30am: Change in Nonfarm Payrolls, est. -7.5m, prior -20.5m
• 8:30am: Change in Private Payrolls, est. -6.75m, prior -19.6m
• 8:30am: Change in Manufact. Payrolls, est. -400,000, prior -1.33m
• 8:30am: Unemployment Rate, est. 19.1%, prior 14.7%
• 8:30am: Two-Month Payroll Net Revision
• 8:30am: Average Hourly Earnings MoM, est. 1.0%, prior 4.7%
• 8:30am: Average Hourly Earnings YoY, est. 8.5%, prior 7.9%
• 8:30am: Labor Force Participation Rate, est. 60.1%, prior 60.2%
• 8:30am: Underemployment Rate, prior 22.8%
• 3pm: Consumer Credit, est. $20.0b deficit, prior $12.0b deficit

DB’s Jim Reid concludes the overnight wrap

Following the remarkable recent rally for risk assets, the advance ran out of a little steam yesterday as economic data and news on the coronavirus acted as a reminder of the difficulties investors are still likely to face over the coming weeks and months, even in the face of yet more stimulus. On that the main news yesterday came from the ECB, who announced that they would be increasing the size of their Pandemic Emergency Purchase Programme (PEPP) by a further €600bn, which with the original €750bn announced back in March brings the total quantity of potential purchases up to €1.35tn. In addition, they announced that the horizon for net purchases will be extended from the end of 2020 until at least the end of June 2021, while maturing principal payments from securities purchased under the PEPP will be reinvested until at least the end of 2022. All-in-all this is actually a bit more than was expected by the consensus, with a majority of respondents to Bloomberg’s survey pointing to a smaller €500bn boost to purchases. DB were at €750bn.

In terms of the market response, sovereign debt rallied strongly in southern European countries. The spread of Italian 10yr yields over bunds fell by -16.7bps to 174bps, its tightest level in over 2 months, while the Spanish spread fell by -8.8bps to its tightest level in 3 months. The euro also rallied strongly, up by +0.93% against the US dollar to its highest level in nearly 3 months. That marked the 8th consecutive daily advance for the single currency, which is its longest streak of gains since 2011. Inflation expectations moved higher as well after the announcements, with five-year forward five-year inflation swaps for the Euro Area increasing +5.5bps to 1.07%, their highest level since early March.

Our European economists have more to say on the ECB (link here), but one thing they had a positive interpretation of was President Lagarde’s comments on the German constitutional court ruling. Lagarde said that she was “confident that a good solution will be found”, and noted it was up to the German government and parliament to come up with that. As far as the ECB is concerned, they’re under the jurisdiction of the ECJ rather than national courts. But Lagarde also said that the minutes of their latest meeting would show that the Governing Council debated the effectiveness, efficiency and cost/benefits of the “package of measures together”, something our European economists interpreted as referring to the entire monetary policy stance, including the PSPP that the German court ruled on. So this could be interpreted as the ECB indirectly satisfying the requirement from the German court for a new decision on the PSPP, which puts the pressure on the Bundesbank to ensure that the Bundestag’s review of proportionality is successful.

On the topic of stimulus, the Trump administration expects to spend another $1 trillion in a further round of spending to boost the economy. While Senate Majority leader McConnell has been trying to slow government expenditure in recent weeks, he has conceded that another stimulus bill may be needed of that amount, but that there are no plans to do so before the 3 July two-week recess. This would put any action at least 7 weeks away.

Today, attention will turn to the US jobs report for May, where we are once again expecting some historic milestones to be reached, albeit not in a good way. Following a record -20.537m decline in nonfarm payrolls for April, DB’s US economists write in their preview (link here) that they’re expecting a further -5.1m decline in May, with the unemployment rate soaring to 18.1%, its highest since the Great Depression in the 1930s. It is worth noting that there are substantial risks around this, and indeed the data is still likely to be messy when it comes to how to classify those affected by the coronavirus. Last month’s report saw the BLS note that many workers had been classified as employed but “not at work for other reasons”, when they probably should have been in the “unemployed on temporary layoff” category. So that could affect where the numbers come out.

Going into the jobs report, the good news is that the ADP’s report of private payrolls on Wednesday saw a far smaller decline than expected of -2.76m, rather than the -9m decline anticipated. On the other hand, yesterday’s jobless claims weren’t quite as good as hoped for, with the number of initial claims in the week through May 30 at 1.877m (vs. 1.833m expected). That’s the 9th consecutive weekly decline though, but the number still remains at nearly triple the pre-Covid record for weekly claims, which was at “only” 695k. Furthermore, the continuing claims number rose to 21.487m (vs. 20m expected), suggesting that the improvement seen the previous week didn’t mark the turning point that many had hoped for.

Overnight, it’s been another fairly mixed session for markets in the absence of any fresh newsflow. The biggest gain has been reserved for the Kospi (+0.89%) while the Nikkei (+0.20%) is also up. The Hang Seng is flat, while bourses in China are broadly down -0.25%. Futures on the S&P 500 are trading up +0.48% as we type. Elsewhere, WTI oil prices are little changed despite the news yesterday that Saudi Arabia and Russia have clinched a deal with Iraq and the cartel could meet as soon as this weekend to ratify it.

Yesterday we heard from US Trade Representative Robert Lighthizer, who said that he feels “very good” about the phase 1 trade deal with China, which was agreed to in January. He believes that China is doing enough to honour the pact during the pandemic. He cited the more than $100m of soybeans purchased by China this week, during a virtual event held by the Economic Club of New York. This refutes reports that Beijing had not been keeping up with its commitments on commodity purchases. When asked about the President’s recent remarks on the World Trade Organisation, Lighthizer said he does not favour the US pulling out of the WTO. The remarks as a whole broke from the recent war of words between the two countries over the past 3 weeks and struck a more conciliatory tone. This is good for risk assets broadly, even if it did not prop them up yesterday.

Back to markets and yesterday’s other moves, the S&P 500 fell back by -0.34% to end its run of 4 successive gains, and just its second daily loss in the last 10 sessions. In Europe the STOXX 600 also fell back -0.72%. Banks outperformed on both sides of the Atlantic however as sovereign bond yields in core countries continued to rise, while American Airlines led the S&P with a +41.10% move higher after they announced they’d be flying 55% of their July 2019 domestic capacity next month. Asian airline stocks have also rallied this morning on the back of American Airlines news. In fixed income, 10yr US Treasury yields were up +7.8bps, climbing above 0.8% for the first time since late March, and 10yr bund yields were also up +3.4bps. The dollar continued to lose ground though, falling -0.62% to be down for a 6th session running.

Finally, there wasn’t a great deal of economic data out yesterday, but the construction PMIs from Germany (40.1) and the UK (28.9) both saw a rebound from their April readings. We also had April’s Euro Area retail sales, which fell by a smaller-than-expected -11.7% (vs. -15.0% expected). From the US, the trade deficit in April came in at $49.4bn, but notably the combined value of US exports and imports was down to $352bn, its lowest since May 2010.

To the day ahead now, as previously mentioned the US jobs report for May is likely to be the main highlight. Other data out includes the Canadian employment report for May, along with German factory orders and Italian retail sales for April. It’s also the last day in the current round of post-Brexit negotiations between the UK and the EU.

As protests continue with no end in sight, marchers returned to the streets for a ninth night of demonstrations on Wednesday for what were largely peaceful demonstrations, marred by a couple of examples of police violence. According to the AP, Wednesday marked the second night that protests were “subdued”, following elevated charges against the officers involved in Floyd’s killing, as well as a start-studded memorial service in Minneapolis that featured the Rev. Al Sharpton and many of George Floyd’s family members.

According to the AP, the quieter mood was inspired by the new and upgraded criminal charges against the officers involved in Floyd’s arrest, a more conciliatory approach by police (in many areas, police marched with them); along with the realization that the burst of violence following Floyd’s killing wasn’t sustainable.

“Personally, I think you can’t riot everyday for almost a week,” said Costa Smith, 26, who was protesting in downtown Atlanta.

Still, protesters have shown no signs that the marches will stop any time soon. And with millions of unemployed Americans, we wouldn’t be surprised to see the reaction to Floyd’s killings become an entrenched movement that continues for months, like Occupy Wall Street.

On protester in NYC told an AP reporter that there are “a lot more nights to go” of marching because protesters hadn’t got what they wanted.” Floyd’s brother Terrence appeared in Brooklyn, energizing the marchers. AP reported Friday morning that the NYPD made 240 arrests Thursday, compared with 180 on Wednesday.

During the first in a series of memorials for Floyd, the Rev. Al Sharpton urged those gathered Thursday “to stand up in George’s name and say, ‘Get your knee off our necks!'”

In Texas, protesters welcomed Fort Worth officers joining the front of a march, while police in Austin also walked with dozens of members of the University of Texas football squad as they made their way from campus to the state Capitol to honor Floyd’s memory. After arriving, they all took a knee for the 8 minute 46 seconds, which symbolizes the amount of time Floyd was on the ground.

“This protest won’t just stop here,” junior safety Caden Sterns said. “To the white community…if you want change like you say you do, you must change. What I mean is, you must realize, and the oppressor must realize, you are oppressing.”

Atlanta Mayor Keisha Lance Bottoms marched with protesters downtown and told the crowd through a megaphone that “there is something better on the other side of this.”

“We are in the midst of a movement in this country,” she said. “But it’s going to be incumbent upon all of us to be able to get together and articulate more than our anger. We got to be able to articulate what we want as our solutions.”

In spite of all of these positive feelings, the evening was marred by two incidents of police violence, one of which led to the immediate suspension of two officers in Buffalo after they pushed a frail elderly citizen to the ground, causing him to start bleeding out of his ear and likely nearly killing him.

BREAKING NOW: I just confirmed, the 2 officers seen shoving the elderly man in this video have been suspended IMMEDIATELY, according to the Buffalo police commissioner. pic.twitter.com/qbTvXAAPLH

— David Begnaud (@DavidBegnaud) June 5, 2020

In Vallejho, a city in the Bay Area, an officer shot and killed a protester who was kneeling with his hands up. The officer later said he believed a hammer in the man’s pocket was a firearm, according to the Guardian.

Meanwhile, back in Minneapolis, the city council said they’re looking into a plan to “dismantle” the Minneapolis Police Department and replace it with a new “public safety” organization. One council member suggesting replacing the traditional police department with a more holistic “public safety” department geared toward violence prevention and community services. Social workers or medics could respond to situations once handled by police, she suggested, like drug overdoses, according to the Minneapolis Star Tribune.

Around the White House, the Washington Post reports that the perimeter has continued to expand with each passing night. Here’s an infographic depicting the perimeter as of Thursday evening.

Source: WaPo

Mayor Jacob Frey says he’d support “deep, structural reforms” to the department, but not complete abolition of the agency. The level of support among the council members for the abolition vote is unclear.

Whatever the case may be, we should know soon enough as the city council prepares to vote Friday on reforms related to the police department.

The Buffalo, New York Police Department has suspended two officers without pay and launched an Internal Affairs investigation after a viral video showed the cops shoving a 75-year-old protester onto a concrete sidewalk as police cleared Niagra Square during enforcement of a citywide curfew.

The man can be seen bleeding from the head following the incident.

According to the Buffalo News, the incident occurred several hours after a standoff between police in riot gear and protesters, who where blocking the street in front of City Hall.

Two members of @BPDAlerts push him – one of them gives up a name slowing down the 1080p version on YouTube

Cc: @JordanUhl pic.twitter.com/BQHqaTCnuW

— J̶O̸N̶ (@Bern4Bern) June 5, 2020

Buffalo Mayor Byron Brown – who told protesters in Niagra Square on Thursday that he will formally outlaw the use of choke holds on suspects by the Buffalo PD – said that the man was “knocked down” by officers.

A 7 Eyewitness News reporter captured video showing the aftermath of the incident. Protesters can be heard reacting to the man’s fall. The man is now in stable but serious condition at Erie County Medical Center.

7 Eyewitness News has learned Buffalo Police Commissioner Byron Lockwood has ordered the suspension of the officers involved in the incident. –WKBW

Mayor Brown issued the following statement shortly after 11 p.m.:

Tonight, after a physical altercation between two separate groups of protesters participating in an illegal demonstration beyond the curfew, two Buffalo Police officers knocked down a 75-year-old man. The victim is in stable but serious condition at ECMC. I was deeply disturbed by the video, as was Buffalo Police Commissioner Byron Lockwood. He directed an immediate investigation into the matter, and the two officers have been suspended without pay. After days of peaceful protests and several meetings between myself, Police leadership and members of the community, tonight’s event is disheartening. I hope to continue to build on the progress we have achieved as we work together to address racial injustice and inequity in the City of Buffalo. My thoughts are with the victim tonight.

Governor Andrew Cuomo weighed in as well, tweeting “This incident is wholly unjustified and utterly disgraceful.”

“I’ve spoken with Buffalo @MayorByronBrown and we agree that the officers involved should be immediately suspended pending a formal investigation.”

This incident is wholly unjustified and utterly disgraceful.

I’ve spoken with Buffalo @MayorByronBrown and we agree that the officers involved should be immediately suspended pending a formal investigation.

Police Officers must enforce — NOT ABUSE — the law. https://t.co/EYIbTlXnPt

— Andrew Cuomo (@NYGovCuomo) June 5, 2020

Really?

Investigate WHAT?

You have the video.

Fire them.

— Kassandra Seven (@KassandraSeven) June 5, 2020

The New York ACLU also weighed in, saying in a statment “The casual cruelty demonstrated by Buffalo police officers tonight is gut-wrenching and unacceptable. Suspensions and an investigation are already in order, but there is little more we have to see to know what took place.” 

Police officers cannot continue to hide behind the lie that they are protecting and serving.

Read our full statement here. https://t.co/j2qDsk48jt pic.twitter.com/9alNvHr0zI

— NYCLU (@NYCLU) June 5, 2020