We begin with Friday's US employment report. The number of jobs created in January was below consensus but the market interpreted the figures as "hawkish" (potentially providing some ammunition for the Federal Reserve to continue raising rates). Short-term rates rose in response (treasuries and rate futures fell).

Fed Funds futures declining implies expected fed funds rate rising (Source: ‏barchart)

Markets were especially spooked by rising wages: from 2% to 2.5% per year. It's not clear however if this qualifies as "wage pressures". 

Another trend "spooking" the markets is the convergence between the unemployment rate and NAIRU (as the headline unemployment rate falls below 5%). NAIRU is the rate of unemployment below which inflation supposedly begins to rise.

However, the NAIRU trend can be misleading because the declines in some broader measures of unemployment have stalled. Here is U-6 for example.

We also see the average duration of unemployment remaining elevated.

The improvements in US labor markets therefore have been uneven.

One can see the markets' lack of confidence in the jobs report in the flattening of the treasury curve on Friday. 

Source: @SoberLook

Other than the nasty equity market selloff, several indicators pointed to significant jitters in the market.

1. Deutsche Bank CDS continued to widen (as discussed Friday).

Source: @MattGarrett3

2. Gold prices rose sharply.

Source: barchart

3. High-dividend shares saw a massive outperformance over the last few weeks.

Source: Stockcharts.com

Speaking of equity markets, here are several trends to watch.

1. Related to the above, US utilities are outperforming.

Source: Stockcharts.com

2. US "value" shares outperformed "growth" over the past couple of days.

Source: ‏Ycharts.com

3. Related to the Deutsche Bank comment above, European financials continue to underperform. Comments reminding us of 2011 and even 2008 have been circulating in the social media and the blogosphere. Folks out there love a good financial crisis.

Source: ‏Ycharts.com

4. A useful chart from Morgan Stanley below shows the breakdown of equity returns by region/country and the components of performance.

Source: Morgan Stanley, h/t Josh

5. The next chart shows which sectors contributed to the volatility this year in both the S&P 500 and the Russell 2000 (small cap index). 

Source: BAML, h/t Josh

6. US small cap shares have been pummeled since last September (chart below shows underperformance vs. S&P500). It's no longer about interest rates rising. Instead some are suggesting this is due to tightening in the credit markets for smaller firms.

Source:  stockcharts.com

In the broader corporate lending market there is little evidence of deceleration of credit expansion. Corporate loan balances hit a record last week, exceeding $2 trillion for the first time.

While loan balances to smaller firms by banks are not readily available, lending by smaller banks (who presumably lend mostly to smaller firms) show a similar trend. Perhaps we are going to see this leveling off in the next few weeks. Of course we know that BDCs and middle-market CLOs (shadow banking) are out of the market, creating a real problem for the more leveraged firms. This could be a big opportunity for private credit funds who have capital.

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Very leveraged firms who used to have access to the bond markets, no longer do. There is some activity for better quality names, especially in syndicated leveraged loans (second chart below).

Source: @forbes, @LCDnews

Now let's look at a few developments in the energy markets.

1. US wholesale gasoline futures remain below $1 per gallon.

Source: barchart

Retail prices across the US averaged below $1.80 per gallon - something we haven't seen since the brief period of extremely low prices in 2008.

2. The drop in US oil rig count was larger than in previous weeks. The oil markets yawned. 

Source: Investing.com

3. It's worth bringing up this fact once again in light of the recent attempts by some oil producers to stabilize prices. Russia has now passed Saudi Arabia as China's leading oil supplier. How is that market share grab working for the Saudis?

Source: @vexmark, h/t Jake

In Japan the 10-year government bond yield hit 3 basis points on Friday. Amazing.

China's foreign reserves fell nearly $100 billion last month to lowest since May 2012. The decline was largely expected as models showed significant outflows. Will this continue? The big fear out there is that Beijing may try to preserve the reserves by letting the RMB depreciate further.

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By the way, the Hong Kong banking system is quite exposed to Mainland China. That's in part what makes some investors in Hong Kong quite uneasy.  

Source: Morgan Stanley

In some emerging economies we are seeing the latest spectacular currency devaluations continue to generate inflationary pressures. Here is the CPI for Brazil and Colombia, which is above analysts' forecasts for both countries.

Source: Investing.com

Source: Investing.com

The Baltic Dry index fell below 300 as the dry bulk shipping industry implodes. Anyone wants to buy a ship for scrap or shipping debt for pennies on the dollar?

Source: stockcharts.com

Source: shippingwatch.com

Finally, we have a couple of economic updates for North America.

1. Canadian unemployment rate is moving higher. Nothing to see here, move on ...

2. The Atlanta Fed GDP tracker (GDP Now) shows a surprisingly strong US GDP forecast for Q1. Given the tight financial conditions we've been seeing recently, this is likely to move lower.

Source: @AtlantaFed

3. This next chart shows US exports and the trade-weighted US dollar. Exports are likely to fall even further as the recent dollar strength makes its way through the global economy. Can the US really afford an even stronger currency that could result from further rate hikes this year?

Source: @SoberLook

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

1. According to Bloomberg, "Americans ate 1.3 billion chicken wings this weekend". The chart below shows chicken wing prices.

Source: @business

2. Here are the latest GOP nomination odds in the betting markets (this includes data after the NH debate).

Source: @pivit

3.  Overturned convictions across the US. What's up with Texas?

Source: @StatistaCharts, h/t Jake

4. We've shown this chart before, but given the occasion, it's worth revisiting: Most watched sports championship finals.

Source: @reddit, h/t Jake

5. Fed's chairperson's height and the corresponding interest rates.

From our friend Sam.