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Stocks Drop 

Stocks are heading lower again following a dismal session in Europe that fed into a similarly downbeat day for Wall Street, with bears taking hold after strong jobs data and ISM services PMI sparked a selloff in bonds. The Stoxx 600 posted its steepest one-day decline since March and the major European indices are now back to their lowest in more than three months. This morning, utilities taking a hit as bond proxies; housebuilders and other property proxies in the UK weaker on house price data…FTSE 100 off half a percent in the first hour of trade and nearing the March YTD low at 7,206. 


Yields Spike 

Stocks have taken fright on higher yields and are heading for a lower week – Paris, Frankfurt and London down 3-4% for the week with short-dated yields spiking to 15-years highs across the complex. The UK 2yr gilt yield this morning is just coming off a fresh 15-year high at 5.5% whilst the benchmark US 10yr yield broke above 4%. Wall Street is also heading to finish lower in the holiday-shortened trading week; the S&P 500 down 0.9% and the Nasdaq down 0.8%, whilst the Dow is off pace by 1.4%.  


Jobs Surprise 

ADP payrolls were YUGE – coming in at +497k for the month, more than twice the forecast. No one ever pays attention to ADP but you can’t ignore this print ahead of the BLS payrolls data today, which is expected +224k from +339k in the prior month. Unemployment is seen ticking down to 3.6% from 3.7% and wage growth is expected to remain at +0.3% for the month. Yesterday’s job openings pointed to a hefty 9.8m positions available – not looking too fragile yet. We’re in good news is bad news territory again…hard to figure out why that changes but it does.  


Yen Rallies 

Wage data in Japan surprised to the upside – more press on the Bank of Japan to alter its monetary policy. Wages grew 2.5%, but inflation means real wages declined 1.2%. These are the kind of numbers that the BoJ cannot ignore – if it keeps going it will end up with way worse outcomes. The data sent JGB yields to multi-week highs and pushed the yen higher still as it reverses ferret from the 145 handle...bearish MACD confirmed, 21-day EMA coming into focus. 


Oil Gains 

Elsewhere, the dollar rallied to best in almost a month before paring gains, gold slipped as yields climbed, oil dropped hard but is much firmer this morning, tapping on a 2-week high after EIA data showed a 1.5m barrel draw on US crude inventories, with a much bigger drop in gasoline inventories than expected signalling better demand as the US driving summer cranks up. Tighter supplies, rate hikes risk...keeping the market broadly in check for now but a break is coming – could be on much tighter supply backdrop in H2 + US avoiding a recession. Feels like bears are beginning to throw in the towel and OPEC will get what it wants this time...unless rate hikes catch up and the US economy suddenly cracks. 

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