Greetings,

We begin with the United States where wholesale inventories posted the biggest gain in 10 months.

Goldman's economists raised their Q2 US GDP forecast to 3.2% in response to the higher than expected inventories build.

Source: Goldman Sachs

This 3.2% GDP growth forecast is inconsistent with the latest Markit PMI report (discussed a couple of weeks back).

Source: @MarkitEconomics 

Who is right? The Atlanta Fed's GDPNow model is forecasting 2.5% and the NY Fed Nowcast is at 2.4% - which is closer to Goldman's forecast.

Source: @AtlantaFed

Source: @NYFedResearch 

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Turning to the US jobs market, Macquarie blames the weather for the terrible US payrolls report last Friday.

Source: Macquarie

Source: Macquarie​

Most analysts are not buying this argument because other labor market indicators also point to a slowdown. Falling temp help activity, for example, tends to usher in weakness in the overall labor market. But what if Macquarie is correct? What if the June payrolls report ends up being strong, raising the probability of a July rate hike? The markets are not prepared for this scenario.

Source: Citi

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Indeed, the fixed income markets are pricing in an economic slowdown, as the treasury curve continues to flatten. The 10yr-2yr treasury spread fell below 90 bps on Thursday.

Source: @SoberLook, h/t @ReutersJamie

As discussed yesterday, the 10yr treasury is probing a key support level.

Amid collapsing global yields, investors were all over the US 30-year auction. Take a look at the auction history.

Turning to Canada, the nation's house price appreciation has accelerated.

This development is making the BoC uneasy.

Source: ‏CBC/Radio-Canada

Source: ‏CBC/Radio-Canada

Risks around the EU referendum in the UK remain top of mind for global investors. Here is Citi's comment on Brexit odds.

Source: Citi

There seems to be a big difference between online and phone-based Brexit polling results - demonstrating the challenges associated with forecasting the outcome. 

Source: Citi

In the Eurozone, Greek unemployment is slowly drifting lower. A quarter of the nation is still without work - similar to peak US unemployment during the Great Depression (in 1933). Sadly, Greek youth unemployment is still above 50%.

German government bond yields are pushing to record lows. Here is the 5yr yield.

Speaking of falling bond yields, below is the Swiss 30y government bond. Is the whole Swiss yield curve going negative?

Next, we have the 20yr and the 10yr JGB yields - also hitting record lows.

Related to the above, Japanese investors love US investment-grade corporate bonds.

Source: UBS

1. Turning to China, the nation's fixed asset investment is now driven by the government, perpetuating the long-standing dependence on investment. It's hard to see how Beijing can exit this stimulus without a serious hit to growth.

Source: Macquarie

2. China's overseas investment activity is taking off. Is some of this driven by the rising demand to move money out of the country? Whatever the case, many US communities are benefitting from this inflow of capital.

Source: Macquarie

Moreover, China's outward direct investment is expected to continue growing at a good clip.

Source: Macquarie

3. China’s corporate bond issuance continues to grow, ushering in a wave of corporate defaults. For many investors it's unclear what rights they have as a creditor in a bankruptcy scenario and what (if anything) can be recovered from these distressed assets.

Source: @WSJGraphics

In other EM developments, the weak US payrolls report triggered a broad-based rally in bonds and currencies across EM (discussed yesterday). Here are the currency and rate moves since June 2.

Source: Credit Suisse

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Following up on yesterday's comment regarding Poland's Swiss-franc-denominated mortgage restructuring proposal, here is an overview from HSBC.

Source: ‏ HSBC​

Next, we look at the latest developments in commodities markets.

1. Crude production disruptions are easing. Will the oil rally continue?

Source:  @FT

2. Here is another one of those dislocations - this is between oil and EM equities.

Source:  BofAML

3. US natural gas prices shot up on Thursday amid smaller than expected inventory increases.

Source:  ‏@barchart

Source:  ‏Investing.com

As an aside, Colorado apparently has enormous amounts of natural gas.

Source:  ‏WSJ

4. Copper looks weak. 

Source: @barchart

5. Milk futures rose over 5% on Thursday. Amazing.

Source: @barchart

6. China's soy meal futures (DaLian Commodity Exchange) rally is unprecedented. Demand for pig feed and weaker crops in South America seem to be the culprit.

Source: @barchart

1. In credit markets, we have yield and spread charts for US HY bonds.

2. The Merrill Lynch US HY Total Return Index makes a new high. It's a long way from the Jan-Feb recession scare. Is the rally a bit overdone here?

3. The single-name corporate CDS market is nearly dead as dealers cut back on making markets. Corporate CDS did not in any way contribute to the financial crisis - but the baby got thrown out with the bathwater.

Source: FT

4. Oilfield services defaults continue to accumulate.

Source:  ‏@business

5. Money managers' allocation to corporate bonds hits another record.

Source: @tracyalloway, (H/T Bloomberg's Rob Elson)

1. In the equity markets, the chart below shows the S&P Midcap 400 enterprise value to EBITDA ratio. By that measure, the midcap market looks stretched.

Source: ‏@JPCompson 

2. According to Bloomberg, "global investors are fleeing U.S. stocks at a record pace".

Source: ‏@business

Finally, we look at some high-profile activity in the muni markets.

1. In a highly unusual bipartisan effort, the US House put together a package that addresses Puerto Rico's debt restructuring.

Source: CNBC

Peurto Rico's bonds moved higher in response.

Source: @SoberLook, S&P

2. Illinois bonds got downgraded to Baa2/BBB+, the worst rating of any state bonds in years. And the blame game begins.

 Source: ‏@markets 

Source: Chicago Tribune

3. Overall, munis are in high demand in this environment. Here is a HY muni ETF (HYD) over the past year.

Source: Ycharts.com

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

1. US VP nominations odds (via @PredictIt_).

2. Your parents were right when they told you not to jump off the top of the monkey bars.

Source: ‏‏ ‏@FiveThirtyEight, @JmBadalamenti  

3. Enough nonsense about Harvard.The overall US higher education system looks quite different from the way the media portrays it.

Source: @FiveThirtyEight, @JmBadalamenti

4. Education spending per student (by state).

Source:  ‏@uscensusbureau

5. Everyone is leaving London except young people.

Source: @paul1kirby, @ft

Have a great weekend!