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We begin with the energy markets where the focus has been on the larger than expected US crude inventory draw. However, that drop in US crude oil in storage showed up as an increase in gasoline inventories. This is not as bullish as some originally thought.
Markets also digested the US production decline of about 9% from the peak (reached a year ago).
Source: @SoberLook, EIA
Brent crude traded above $50/bbl for the first time since November as traders want to take it higher.
Source: @barchart
While this crude oil rally feels unstoppable, it's important to note the current cost curve (below). It suggests that above $50/bbl, a significant additional production could kick in. Unless demand picks up, there is a natural cap in the mid-50s. The second chart below shows the breakdown of the cost curve. 

Separately, here is an indication of the areas most affected by weak oil prices.
Source: MarketWatch
Some have asked why Texas isn't red in the chart above. The state, of course, is economically diversified allowing it to withstand the energy shock. However, we see Houston residential construction market, for example, starting to slow.
1. Continuing with commodity markets, corn futures recover, though remain highly volatile.
Source:  ‏@barchart
2. The sugar rally continues. By the way, the softs/agricultural commodities gradual recovery will soon begin making its way into the headline CPI.
Source: ‏@barchart​
3. The Shanghai steel rebar futures speculative frenzy comes to an end (as China's traders look for another market to gamble in).
Source: ‏@barchart
4. China's imported soybean prices jump to (nearly) a 2-year high.
Source: ‏@barchart
As a result of this increased China demand, US soy meal futures are up nearly 5% on Wednesday.
Source: ‏@barchart
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Next, we turn to emerging markets, starting with some data on Brazil.

1. The credit crunch in Brazil continues as loan balances shrink sharply - for four consecutive months now.
2. As discussed before, Brazil's confidence indicators seem to be improving in May as a result of the change in the government. Green shoots?
Source: ‏@lisalexanderson 
3. The other dynamic providing some tailwind to Brazil's economy is the weak currency boosting the nation's trade surplus.
Source: Goldman Sachs
4. In other emerging markets, the Nigerian stock market rallies on devaluation expectations. Bank shares surge. Devaluation, in this case, would be considered a form of stimulus.
The FX forward markets are pricing the naira falling sharply within a year (the market is pricing in the devaluation).
Source: @BloombergEM, @Emeleonu,  @PaulWallace123
5. Across all emerging markets, corporate leverage is now the highest in nearly 20 years.
Source: Deutsche Bank
1. Let's now shift to the Eurozone, where the German Ifo business-climate index beats expectations in May. So far there has been no evidence of Brexit concerns in Germany. This would indicate a fairly steady GDP growth.
2. Germany, however, is losing labor competitiveness as unit labor costs outpace other nations. Over time, this will create a drag on the GDP growth.
Source: Credit Suisse, @joshdigga
3. Germany is more exposed to demand shock in emerging markets than most Eurozone nations. Of course, the nation would also benefit if EM economic growth picks up.
Source: Credit Suisse, @joshdigga
4. Greek 10-year government bond yield temporarily dropped below 7% on the Eurogroup bailout deal.
Source: @_DavidGoodman, @LukanyoMnyanda
5. Spain's PPI deflation (YoY) has been the worst since the financial crisis, lasting significantly longer.
6. Italy's largest bank, UniCredit fired its CEO. Investors cheered as Italian banks rally.
7. Euro area savings continue to rise while investment remains weak. Negative rates make this situation especially painful.
Source: Credit Suisse, @joshdigga
In the UK, the Brexit probability is collapsing in the betting markets. It seems that the undecided voters will swing the vote toward "stay".
Source: @PredictWise
The pound is recovering in response to lower Brexit risk.
Source: ‏@barchart
Has the Brexit uncertainty already taken its toll on the UK's economy? The nation's economic surprise index remains weak.
Source: Deutsche Bank, @joshdigga
The Australian dollar is drifting lower as rate differential with the US shrinks. Australian bond yields are near the lows while US short term rates are on the rise in response to the Fed.
Source: ‏@barchart
1. Speaking of the Fed, in the United States the probability of summer rate hikes continues to rise. The central bank is expected to fine-tune its guidance shortly to avoid major surprises. Given the rally in risk assets (especially the equity markets) in the past couple of days, it seems that the markets are OK with this rate hike (for now).
Source: @jbjakobsen
2. Note that the US financial conditions have eased above the level during the Fed's last hike in December. This removes a potential hurdle (which existed earlier in the year) to raise rates this summer.
Source: Deutsche Bank
3. Below is another reason the Fed wants to hike rates. 
Source: Deutsche Bank
4. Moreover, house prices are rising at over 5% per year, which is unsustainable given wages growing at half that rate. Will the rate increases slow US house price appreciation?
Source: @SoberLook
5. There is a potential stumbling block for the Fed's planned rate hikes, however: persistently slow US growth. The latest US service sector PMI was quite disappointing, tracking Q2 growth of only 0.7% (annualized). Just take a look at the commentary below from Markit.
Source: @MarkitEconomics
Source: @MarkitEconomics
6. It's worth mentioning that the Markit PMI tracking 0.7% GDP growth is inconsistent with the Atlanta Fed's GDPNow, which is tracking 2.5%. Note that Markit was right in calling weak growth early in the first quarter.
Source: @AtlantaFed
7. In other US developments, US labor productivity growth (over a 5-year period) is running at close to all-time lows (discussed before). Yesterday's data on weak Capex is one of the key reasons for this. US firms would rather hire cheap labor than try to make existing workers more efficient (which requires investment).
Source: Deutsche Bank, @joshdigga​
8. Below is a helpful chart from the NY Fed on US household debt. Student debt and to a lesser extent auto debt have been the key drivers of the overall growth in consumer credit.
Source: NY Fed
Separately, several readers have asked about the trend in US wage income as a percentage of the overall gross domestic income (GDI). Here it is.
Source: Credit Suisse, @joshdigga
Finally, let's cover a few trends in the equity markets.

1. Investors love "low vol" equity baskets these days - for example SPLV (from ProShares). The AUM of this ETF jumped recently as nervous investors try to limit portfolio volatility. But is it going to continue outperforming going forward? Will it hold up under rising rates? 
2. Similarly, may are loading up on volatility products such as VXX (which attempts to replicate VIX). Waiting for that volatility to show up will be painful as the contango (rolling of VIX futures) eats into the NAV. It's a bet that the Fed's next action will cause markets to go into a tailspin as they did earlier this year.
Source:  ‏@MktOutperform
3. The US forward dividend-per-share (DPS) growth expectations continue to decline.
Source: Jefferies
4. US shares saw significant outperformance over the European counterparts in the past five years. The Eurozone crisis and the resulting shock to the banking system didn't help. Do European shares offer a good relative value trade now? Perhaps.
Source: @FTMarkets
From our sponsor: 

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

1. Biomass electricity generation in the US by region (biomass is typically scrap lumber, various crops, manure, etc.)
Source: ‏EIA
2. The decline in life insurance usage in the US.
Source: @business 
3. US economic confidence surveys seem to be politically biased. Are the results linked to who is in the White House at the time? Or is this divergence due to economic differences between "blue" and "red" states?
Source: @JmBadalamenti, @GallupNews
4. 80% of people killed by lightning are men.
Source: @paul1kirby 
5. The last chart shows the share of the population living in extreme poverty over time. This is a remarkable achievement.
Source: ‏@AEI
From our sponsor: 
Thanks to Josh@NickatFP, @sellputs@MattGarrett3, Jake Badalamenti, and for helping with research for the Daily Shot.

We would also like to thank the Federal Reserve Bank of St. Louis for the incredible job they have done providing data and graphics to the public. Here is the credit and legal notice related to all FRED charts: FRED® Graphs ©Federal Reserve Bank of St. Louis. All rights reserved. All FRED® Graphs appear courtesy of Federal Reserve Bank of St. Louis.
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