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Relentless US Payroll Gains Pose a Dilemma for the Fed

  • Non-farm payrolls soar to 339,000, beating median estimates of 195,000
  • The unemployment rate edges up to 3.7%, up from 3.4%
  • Black unemployment rate rises from historic low to 5.6%
  • Women drive prime age labor force participation gains
  • Jobs boom in professional services, government, construction, health care

May saw another big upward surprise in payroll gains, with employers adding 339,000 jobs versus the expected 195,000. The increases were widespread, with notable upticks in professional and business services, government and health care. The large April gains were revised even higher, another signal of labor-market strength. The unemployment rate also unexpectedly ticked up, to 3.7% from a decades-low 3.4% in April. That was at least in part driven by more prime-age workers entering the labor force. The surge in payrolls indicates the labor market remains robust, and may pose difficulties for Federal Reserve officials who were largely hoping to pause interest-rate increases at their June 13-14 meeting. The move up in the unemployment rate may support that decision, though. Should labor-market strength continue, they could raise rates in July. Women led the gains in prime-age participation in May. Black men, who had enjoyed historic employment gains over the past year, have now seen a reversal of that over the past two months. That could be an early sign of cracks in the labor market. NN: Forget the AI spin. The job market is blazing red hot. And so are inflationary expectations and so is inflation. Translation is the stock market is doomed and we will get 6% Fed Funds rate this summer.

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China’s services sector continues sharp rise in May

China’s services sector continued to expand further in May signaling a strong recovery, according to the latest report jointly published by S&P Global and Caixin Insight.

The seasonally adjusted headline Business Activity Index arrived at 57.1 in May, rising 0.7 index points from the prior month to mark the second-steepest expansion rate since November 2020.

Meanwhile, Composite Output Index improved by 2 index points from April to land at 55.6 in May, at the most rapid pace since the end of 2020. “Production, demand and exports all expanded … In general, it remains a prominent feature of the Chinese economy that the services sector is stronger than manufacturing,” Caixin Senior Economist Dr. Wang Zhe said in the report. NN : Did I mention China is importing record amounts of oil…. AS their economy comes back from the dead.

Japan business activity surges in May

S&P Global revealed on Monday that Japan’s service sector activity further accelerated in May to hit an all-time high in the history of the series. The jump was primarily driven by an increase in customer demand as the effects of the COVID-19 pandemic continued to wane. The seasonally adjusted figure showed the Jibun Bank Japan Services Business Activity Index landing at 55.9, rising 0.5 index points in comparison to the last month’s reading. The Jibun Bank Japan Composite PMI Output Index arrived at 54.3 in May, increasing by 1.4 index points compared to April’s figure, signaling an accelerated boost. “The upward trend looks set to continue in the near and medium term, as capacity pressures meant that outstanding business also rose at a series record rate, while business optimism held close to the record high seen in April,” S&P Global Market Intelligence Economist Usamah Bhatti commented.

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Oil prices jump over 2% after S. Arabia production cut…… Riyadh to slash oil output by another 1M bpd in July

Crude oil futures surged over 2% on Monday during early trading in Asia after Riyadh announced it will cut oil production by another 1 million barrels per day in July. Saudi Arabia’s oil output is now estimated to average 9 million barrels daily, with Minister Abdulaziz bin Salman claiming that OPEC+ is not aiming to achieve a certain price range. He also hinted that the unilateral slash may extend past July. West Texas Intermediate (WTI) for deliveries in July advanced by 2.69% to sell for $73.67 per barrel at 1:08 am CET. A minute later, Brent for settlements in August went up 2.54% to go for $77.87 per barrel.

Riyadh to slash oil output by another 1M bpd in July

Saudi Ministry of Energy announced on Sunday that Riyadh will be making a unilateral reduction in crude oil volume production, slashing another 1 million barrels per day in July, in addition to extending the voluntary production cut by 500,000 barrels per day until the end of 2024.

According to the statement, Saudi Arabia’s oil production is expected to average 9 million barrels per day, bringing the Kingdom’s voluntary production cuts to 1.5 million barrels per day,

with the aim to “supprot the stability and balance of oil markets.” The newly-announced cut will remain in place only in July, with the possibility of extending it later. The United Arab Emirates Energy Minister Suhail Mohamed Al Mazrouei also announced that the country will slash production by 144,000 barrels per day until the end of 2024. NN: Did i mention the Saudi’s want oil at least at $90 a barrel. Did i mention they will get what they want……

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OPEC+: Saudis Unveil Extra 1 Million Barrel Cut

Saudi Arabia will make an additional voluntary cut of 1 million barrels of oil a day as part of a deal struck by OPEC+ after hours of tense haggling. Saudi Energy Minister Prince Abdulaziz bin Salman unveiled the reduction in a statement, once again managing to pull off a surprise. The Saudi move is the most meaningful part of the deal, which also includes an agreement to extend voluntary cuts through 2024. The main winner from the weekend’s talks is the United Arab Emirates, which gets a boost to its quota for next year. That comes at the expense of African members who were asked to give up part of their unused quota. While they’ve been falling short of their targets, it’s still a bitter political pill for them to swallow. That’s why talks dragged on so long, including some late night sessions in Vienna hotels.

  • Saudi Arabia will make an additional voluntary supply cut of 1 million barrels a day in July
  • UAE wins with a higher quota; African countries lose unused quota space
  • Voluntary cuts extended to the end of 2024
  • Bloomberg, Reuters and the Wall Street Journal have been barred from attending the headquarters for the meeting. Reporters continue to interview delegates on the sidelines.

Saudi Arabia is to cut its production below 9 million barrels a day in July and could extend its additional voluntary cut beyond that. That would be the lowest production level for the kingdom since June 2021, when output was slowly recovering from the depths of the Covid 19 pandemic. On top of the 500,000 barrel a day voluntary cut announced in April, Prince Abdulaziz bin Salman anonunced a further 1 million barrel a day reduction for next month. Saudi Arabia is taking a voluntary unilateral cut of 1 million barrels per day in July, for one month that can be extended. It’s the most meaningful part of the deal and makes good on the prince’s warning to speculators to “watch out. The OPEC+ group is keeping official production targets unchanged for the rest of the year, with voluntary output cuts announced in April to remain in force, but to remain voluntary. Production targets for several countries have been revised for 2024, with the United Arab Emirates getting an increase of about 200,000 barrels a day in its target and Angola, Equatorial Guinea, Gabon, Nigeria, Azerbaijan, Brunei, Malaysia and Sudan all seeing their allocations cut.  The increase in the UAE’s target will lead to an increase in real barrels reaching the market, while the cuts to the targets for the others won’t take any physical barrels off the market. They will simply bring targets into closer alignment with what those countries are actually pumping. The net effect — more OPEC+ oil at the start of next year — assuming nothing changes between now and then. But let’s wait for the press conference, and more details from Saudi Arabia. The group agreed to extend the voluntary cuts it announced in April to the end of 2024, the cartel said in a statement. Russia will do the same with its voluntary cuts. Ministers Reach Deal After Hours of Talk. OPEC+ members reached a deal to extend their production-cuts agreement into 2024, delegates said, without giving further details on the size of the supply curbs. African producers had previously objected to demands that they give up some of their unused output quotas in the interests of a broader deal.. One possible outcome for today’s meeting would be to formalize the voluntary cuts announced in April — equivalent to a reduction of about 5% — and apply them to the whole group. Extending that to the remaining members of OPEC+ would yield a reduction to the overall target of 2.1 million barrels a day. But it would entail a much smaller cut, of little more than 300,000 barrels a day, from estimated May production levels. It would also still leave both Angola and Nigeria pumping about 275,000 barrels a day below their new targets.

Current target Voluntary 5% cut

extended to all

 Additional 1 million

barrel a day cut
Algeria 1,007 957 932
Angola 1,455 1,382 1,346
Congo 310 295 287
Eq. Guinea 121 115 112
Gabon 177 168 164
Iraq 4,431 4,209 4,099
Kuwait 2,676 2,542 2,475
Nigeria 1,742 1,655 1,611
Saudi Arabia 10,478 9,954 9,693
UAE 3,019 2,868 2,793
Azerbaijan 684 650 633
Bahrain 196 186 181
Brunei 97 92 90
Kazakhstan 1,628 1,547 1,506
Malaysia 567 539 525
Oman 841 799 778
Russia 10,478 9,954 9,693
Sudan 72 68 67
South Sudan 124 118 115

An additional cut of 1 million barrels a day from that new level would leave Saudi Arabia and Russia with formal targets of 9.7 million barrels a day. For the kingdom, that’s about 285,000 barrels a day below its current voluntary output target. For Moscow, it would be broadly in line with the level it says it’s pumping after its own 500,000 barrel-a-day cut, made in response to Western sanctions and price caps on its oil exports. But it would still leave production by the two big west African members well below their official quotas.

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US nonfarm payrolls jump 339,000 in May… The FED is not NOT happy

Metric Actual Median Estimate
Nonfarm payrolls +339k +195k
Unemployment rate 3.7% 3.5%
Average hourly earnings (MoM) +0.3% +0.3%

Nonfarm payroll employment in the United States surged by 339,000 in May, according to the report by the Bureau of Labor Statistics on Friday, far surpassing expectations. Professional and business services led the rise with 64,000 jobs added in May, followed by healthcare at 52,000. The average hourly earnings increased by 11 cents, or 0.3%, to $33.44 on a monthly basis, growing 4.3% compared to May 2022.

Meanwhile, the unemployment rate was up by 0.3 percentage points from April, landing at 3.7% in May. The total number of unemployed persons rose by 440,000 to 6.1 million month-on-month. The labor force participation rate was unchanged at 62.6%, and the number of long-term unemployed was also little changed from April at 1.2 million, accounting for 19.8% of the total unemployed. NN: hot Hot HOT holy shit… The FED will be raising the shit out of rates…. Forget pause forget taper.  A 6% Fed Funds rates happens before the leaves fall off the trees…..

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US Senate votes in favor of suspending debt limit…… Treasury Department will issue $700 billion in debt draining liquidity

The United States Senate followed the House of Representatives and voted in favor of the bill seeking to suspend the debt ceiling until January 1, 2025, preventing thus the country’s first-ever default. The bill received 63 votes in favor and 36 against. Out of the latter, 31 came from Republican Senators, four from the Democrats, and one from Vermont’s Bernie Sanders, who is an independent. When it comes to votes in favor, 45 came from the Democrats, 16 from the Republicans, and two from independent senators. Tennesee Senator Bill Hagerty was absent from the vote. It will now head to President Joe Biden, who will sign it and convert it into a law.

The Treasury Department will issue $700 billion in T-bills within weeks of a debt-ceiling deal, draining liquidity from markets
  • The Treasury will have to replenish its cash after the debt ceiling is lifted, Goldman Sachs said.
  • Selling up to $700 billion in T-bills to rebuild its coffers withing six to eight weeks of a debt deal.
  • Draining liquidity out of markets in a short period of time.

The Treasury Department will issue $600 billion-$700 billion in T-bills weeks after lawmakers agree to lift the debt ceiling, Goldman Sachs estimated. President Joe Biden and Republicans in Congress have  reached a deal. Goldman expects the Treasury to flood the market with T-bills, restoring its cash balance to $550 billion within six to eight weeks of the deal. On Friday, the Treasury General Account was $60.7 billion, down from $140 billion just a week prior. Overall, Goldman expects the Treasury will supply the market with more than $1 trillion of T-bills on a net basis this year.

That will pull liquidity out of financial markets. In a separate note, analysts at Bank of America recently said that would have an equivalent impact on the economy as a Federal Reserve rate hike of 25 basis points.

That comes as the banking sector is still grappling with the fallout of Silicon Valley Bank’s collapse, which led to deposits fleeing regional banks. Meanwhile, more than a year of Fed rate hikes has also drawn money from bank accounts and into higher-yielding money market funds. Goldman estimated that bank reserves would drop by $400 billion-$500 billion due to the Treasury rebuilding its cash balance, continued deposit outflows, and the Fed’s ongoing quantitative tightening program. The Treasury Department will immediately issue $170 billion in T-bills before  its cash balance shrinks further. NN BlaskMask Blog:

wallstreets days are numbered

 

 

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OPEC’s June 4th meeting Unclear……. Buffett Boosts Occidental Petroleum Stake To 24.9%

Oil prices are near their lowest levels all year, reflecting a drop in global demand. What is ahead has investors on edge—and they are betting OPEC and its allies, OPEC+, won’t come to the rescue by cutting production when they meet on Sunday. Since October, OPEC+ has reduced production by 3.5 million barrels a day, a sizable chunk of the roughly 100 million barrels that the world uses in a day. Nonetheless, the price of Brent oil, the international benchmark, has fallen from $83 a barrel before the October cut to Wednesday’s $72.78, less than 1% above its 2023 lows. The main problem has been that demand has been preceved as falling. China’s rebound from Covid restrictions hasn’t been as strong as some analysts had expected, and economies are sputtering in other parts of the world.  The other problem stems from evidence a key country in the alliance isn’t adhering to announced production cuts. Russia, which is part of OPEC+, has said it is reducing production by 500,000 barrels a day in retaliation for sanctions related to its invasion of Ukraine. Shipping vessel data tracked by Bloomberg indicate that Russia’s crude production hasn’t fallen off—in fact it appears to have risen. That raises the prospect that Saudi Arabia and other major oil players will press Russia to actually reduce production, which itself would be tantamount to a new cut. But RBC Capital Markets analyst Helima Croft doesn’t expect other OPEC members to get into a dispute with Russia over production. The last time that happened, in 2020, a supply glut led to prices dropping fast. Croft writes that OPEC has an incentive to cut production more and prop up prices, and she thinks it is more likely than not that they will. The fact that OPEC is meeting in person—as opposed to remotely—is a sign that they are predisposed to make a more active decision, she writes. It is also clear the market isn’t betting on that outcome. Eventually, OPEC’s hand may be forced regardless—though it could take even lower prices to force the cartel to get more aggressive.  “The oil market is not pricing in additional OPEC production cuts, but ironically, the lower prices go, the more likely OPEC will be to announce a cut,” writes Raymond James analyst John Freeman.

Buffett Boosts Occidental Petroleum Stake To 24.9%

Warren Buffett’s Berkshire Hathaway has bought more shares in Occidental Petroleum, boosting its stake in the company to some 24.9%, according to a regulatory filing. Berkshire Hathaway paid a total $275 million for the new package of Oxy shares. Following these purchases, the investment company’s stake in Oxy is worth some $13 billion. Warren Buffett has been raising his holding in Occidental for about a year now. This sparked speculation that he might be considering a takeover but Buffett dismissed the speculation saying he had no intention of buying out the oil major. To date, Berkshire is Oxy’s largest shareholder. Besides the purchase warrants, the company owns $10 billion worth of Oxy preferred stock, which carries an 8% dividend.

NN BlackMask Blog:

The Smartest guy in town is Investing in OIL

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China’s manufacturing sector hits 11-month high in May… What China Slow Down…… Japan’s manufacturing sector back to growth in May

China’s factory activity swings to surprise growth in May, Caixin PMI shows

China’s factory activity unexpectedly swung to growth in May from decline, a private sector survey showed on Thursday, driven by improved production and demand, helping struggling firms that have been hit by slumping profits. The Caixin/S&P Global manufacturing purchasing managers’ index, or PMI, rose to 50.9 in May from 49.5 in April, above the 50-point index mark that separates growth from contraction. The reading surpassed expectations of 49.5 in a Reuters poll, a stark contrast to a deeper contraction activity seen in the official PMI released on Wednesday. China’s recovery from its strict Covid curbs has been fragile and uneven, with economic indicators for April showing imports, factory gate prices and property investment all falling. “We need more time to see whether the improvement would be sustained, but it is a piece of good news for the Chinese economy,” Zhou Hao, economist at Guotai Junan International, said in a note. “Further policy support is still required to boost domestic demand, we reckon a 10 bps MLF rate cut in June,” he added. It’s too early to give up on the Chinese recovery, says China Beige Book’s CEO Leland Miller

The manufacturing subindexes showed factory output rose at the fastest clip in 11 months while new orders including new exports expanded in May.

“Current economic growth lacks internal drive and market entities lack sufficient confidence, highlighting the importance of expanding and restoring demand,” said Wang Zhe, Senior Economist at Caixin Insight Group. Further monetary policy easing is expected by some economists. “The central bank will likely cut the reserve requirement ratio by 25bps to maintain financial stability, in our view,” said ANZ in a research note on Wednesday. “The likelihood of frontloading the rate cut is also rising.” The Caixin PMI is believed to focus on more export-oriented and small firms in coastal regions and is compiled by S&P Global from responses to questionnaires sent to purchasing managers in China. NN: China is in a vast reopening… Even if the spin AI doctors are trying to convince you of a vast china slow down. Not true!! They are purchasing record amounts of oil. And they are consuming it… Did I mention its a binary oil trade?

Japan’s manufacturing sector back to growth in May

The activity in Japan’s manufacturing sector saw a return to growth in May, with the Jibun Bank Manufacturing Purchasing Managers’ Index (PMI) rising from April’s 49.5 and coming in at 50.6, S&P Global said in its newest report. The document underscored a general improvement in business conditions and increased confidence within the sector. It stressed that May observed the fastest strengthening in output levels in 2023 and the first rise since June 2022. Additionally, the report also warned about a further decline in purchases and a possible shortage of semiconductors. On the other hand, it noted generally improved access to materials. “Hopes of a reduced squeeze on operating margins, alongside rising confidence regarding the broader economic outlook, underpinned the strongest output growth expectations among manufacturing firms since the start of 2022,” S&P Global Market Intelligence Economics Director Tim Moore commented.

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Oil Snaps Three-Day Rally After Russia Says OPEC+ Will Stay Put

LONDON, May 31 (Reuters) – Oil prices fell by over 2% on Wednesday on a stronger U.S. dollar and as weak data from top oil importer China raised demand fears. Brent crude futures for August delivery were down $1.75, or 2.37%, to $71.96 a barrel at 1151 GMT. U.S. West Texas Intermediate crude (WTI) fell $1.90, or 2.74%, to $67.56. Both benchmarks fell by more than 4% on Tuesday. Brent’s July contract , which expires on Wednesday, and the U.S. benchmark were on track for monthly declines of more than 9% and 12%, respectively. China’s manufacturing activity contracted faster than expected in May on weakening demand, with the official manufacturing purchasing managers’ index (PMI) down to 48.8 from 49.2 in April. The outcome lagged a forecast of 49.4. Further pressure came as the U.S. dollar rose to its highest in over two months, making commodities more expensive for buyers holding other currencies and weighing on oil demand. The U.S. dollar index , which measures the greenback against six major peers, saw support from cooling European inflation and progress on the U.S. debt ceiling standoff, which will advance to the House of Representatives for debate on Wednesday. The dollar could add to recent gains if Friday’s U.S. May non-farm payrolls number is stronger than expected and raises the probability of the Federal Reserve raising rates again in June.

Market players are preparing for the upcoming June 4 meeting of OPEC+ – the Organization of the Petroleum Exporting Countries and allies including Russia.

Mixed signals by major OPEC+ producers on whether or not the group will decide to further cut oil production have sparked recent volatility in oil prices. Despite the latest pullback in prices, HSBC and analysts do not expect OPEC+ to announce further cuts in the upcoming meeting. HSBC said on Wednesday that stronger oil demand from China and the West from the summer onwards will bring about a supply deficit in the second half of the year. “The most likely action is inaction,” said PVM oil market analyst. NN: This is nothing more then pre OPEC meeting posturing.

 

 

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Oil Holds Deep Slump…… Oil continues falling, down over 1%

Oil Holds Deep Slump on Weak Demand Signals Ahead of OPEC+ Meet
  • Persistent concerns around Chinese demand hang over market
  • WTI trades near $69 a barrel after closing 4.4% lower Tuesday

Oil held its biggest decline in four weeks on signs of weaker demand and sufficient supply ahead of an upcoming OPEC+ meeting. West Texas Intermediate traded near $69 a barrel after settling 4.4% lower on Tuesday from Friday’s close. China’s manufacturing activity showed more signs of weakening in May, adding to concerns over the outlook for demand from the world’s biggest crude importer. The US dollar also rose, making commodities priced in the currency more expensive for international investors.

Oil Holds Slump as Demand Concerns Take Hold | There's increasing pessimism over China's economic recovery

“Markets are worried that China’s commodity demand is weakening more quickly than anticipated,” said Vivek Dhar, director of mining and energy commodities research at Commonwealth Bank of Australia. “Views that OPEC+ may not look to cut oil production” also weighed on prices, he added. OPEC+ is scheduled to meet over the weekend to discuss the group’s output policy, and most market watchers expect the coalition to keep production unchanged. Fundamentals don’t support the case for curbs, but a weak macroeconomic environment does, according to Standard Chartered Plc. RBC Capital Markets LLC also said a “lean cut” could be considered. Oil is down around 14% this year as China’s lackluster economic recovery and tighter monetary policy from the Federal Reserve weighed on the demand outlook. More recently, concerns around the US debt ceiling have added to bearish sentiment, although there are signs of a possible resolution. The prompt spread for WTI and Brent — the gap between the two nearest contracts — are holding in contango, when nearer futures trade at discounts to longer-dated ones. North Sea dated-to-frontline swaps, another gauge of physical market health, are at their lowest in over two months.

Oil continues falling, down over 1%

Crude oil prices kept their losing streak on Wednesday after plunging 4% on Tuesday, reaching its lowest point since May 4. Uncertainties persisted over the United States debt ceiling deal, with a vote in the House of Representatives likely to happen today. Meanwhile, China’s manufacturing sector remained in contraction territory in May, indicating a slow demand recovery. West Texas Intermediate (WTI) for settlements in July dropped 1.60% and went for $68.21 per barrel at 5:59 am ET. Brent for the same month’s deliveries sank 1.73%, selling for $72.17 per barrel at the same time. NN: Here we go …again !