Tomorrow Is Going To Be Huge

Tomorrow is going to be huge.

At 8:30 AM ET we get the Non-Farm Payrolls report for May.

Analysts expect 163K vs. 165K last month.

The unemployment rate is expected to be unchanged at 7.5%.

This will be the most closely watched report in some time.

For one thing, the market is the most wobbly it's been in quite some time. The 5%+ greater decline from the recent peaks is the worst drawdown since last Autumn.

And everyone is Fed obsessed, and wondering when Bernanke & Co. will start "the taper."

Plus, we got some weak data this week, so there are some newfound economic concerns.

We'll of course be covering the number, and its ramifications, LIVE when it comes out.

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ABEGEDDON: Yen Surging As Markets Violently Turn Against Japan

One of the big stories in global markets today is how the long-U.S. dollar, short-Japanese yen trade seems to be completely unwinding.

The dollar is currently trading around ¥96.30 to the yen and is down 2.9% on the day after hitting a low of ¥95.89 earlier.

Per Bloomberg TV's Sara Eisen, that's the biggest single-day drop in the currency pair in 3+ years.

It seems like the market has not been re-assured by recent rumblings out of Japan, where the "Abenomics"-fueled rally in stocks has come to a halt in recent weeks.

Nikkei 225 futures are down a whopping 4% from today's close already in after-hours trading in Japan.

If those prices hold up through Friday's close on the Nikkei, Japan will have already declined 20% from its May 22 peak, officially entering a bear market.

On Wednesday, Japanese Prime Minister Shinzo Abe unveiled the most critical part of the experimental economic stimulus program being devised in Japan: details on structural reforms.

The Japanese stock market, which has been surging as the yen has tanked, reacted negatively to the news, plummeting 3.8% in a single day.

Meanwhile, U.S. stock markets have turned negative this afternoon. The S&P 500 is currently trading around 1603, down 0.4%. Earlier, it crossed below 1600, hitting an intraday low of 1598.

And, like the yen, the euro is rallying big against the dollar. Right now, it's trading around 1.3270, up 1.4%.

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ZOOM! State Income Tax Receipts Rose 17.6 Percent In First Quarter [CHART]

Good news for state budgets: State personal income tax collections grew 17.6 percent in the first quarter of 2013, compared to the same period a year earlier. That's the strongest growth in over six years, according to a new report from the Rockefeller Institute of Government at SUNY-Albany.

Josh Barro/Business Insider, data from Rockefeller Institute

This is going to take pressure off state budgets. But there are two big caveats.

First, the national rise is heavily driven by a huge income tax increase that California implemented in January. California's personal income tax receipts soared 52 percent (which is why California now has a budget surplus); for the rest of the country, receipts were up 9 percent, which is still strong but not as eye-popping.

Second, some of the big drivers of the national strength were temporary. Federal income tax increases for 2013 encouraged wealthy people to shift their income into 2012, for example by realizing capital gains. This boosted both state and federal tax revenues for the last two quarters and will likely do so again for the current quarter -- but not forever.

The story is similar at the federal level. A one-time boost in tax receipts helped push the federal budget deficit way down for 2013, but the improvement expected in future years is much more modest. Similarly, states should be mindful that part of this revenue boost won't last forever, and they shouldn't make new long-term spending commitments based on it.

Even with all those caveats, these tax data do provide promising signs that the economy is improving. Sales tax receipts were strong in the second quarter, too, up 6 percent -- tied for the strongest growth in the last six years.

Josh Barro/Business Insider, data from Rockefeller Institute

Unlike the income tax change, the boost in sales tax collections was not significantly driven by changes in tax rates or other one-time factors; it's a bona fide indicator that consumers are spending more, and that government finances are likely to continue getting healthier.

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$70.3 TRILLION: US Household Net Worth Just Hit An All-Time High

The Federal Reserve just released its quarterly Z.1 report – known as the "flow of funds" – which documents changes in U.S. household net worth.

In the first quarter of 2013, household net worth rose $3.003 trillion to a record $70.3 trillion. In the fourth quarter of 2013, household net worth only increased (an upward-revised) $1.397 trillion.

Around $2.3 trillion of the increase in household net worth in Q1 owes to rising asset and real estate prices.

Below is a quick summary of the contents of the report:

Household net worth – the difference between the values of households’ assets and liabilities – was $70.3 trillion at the end of the first quarter of this year, about $3 trillion more than at the end of 2012. In the first quarter, the value of corporate equities and mutual funds owned by households expanded $1.5 trillion and the value of residential real estate owned by households increased about $784 billion.

Domestic nonfinancial debt outstanding was $40.6 trillion at the end of the first quarter of 2013, of which household debt was $12.8 trillion, nonfinancial business debt was $12.9 trillion, and total government debt was $14.9 trillion.

Domestic nonfinancial debt growth was 4.6 percent at a seasonally adjusted annual rate in the first quarter of 2013, about ¼ percentage point less than the pace for 2012 as a whole.

Household debt edged down at an annual rate of 0.6 percent in the first quarter. Home mortgage debt contracted 2.3 percent, about the same as the decline in 2012. Consumer credit rose at an annual rate of 5.7 percent, slightly less than the increase in 2012.

Nonfinancial business debt rose at an annual rate of 5.3 percent in the first quarter, after a 6 percent increase in 2012. As in recent years, corporate bonds accounted for the largest increase.

State and local government debt rose at an annual rate of 1.9 percent in the first quarter, after declining slightly in 2012.

Federal government debt rose at an annual rate of 10.3 percent in the first quarter of 2013 after a 10.9 percent increase last year.

Click here for the full report >

Business Insider/Matthew Boesler, data from Bloomberg

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DRAGHI SELL-OFF WORSENS: Peripheral Eurozone Sovereign Bonds Are Getting Destroyed

The selling in peripheral euro area bond markets is picking up pace following ECB President Mario Draghi's monthly press conference, before which the central bank elected to leave interest rates unchanged.

Italian and Spanish 10-year government bond yields are both up 23 basis points to 4.36% and 4.65%, respectively.

Portuguese bond yields are up 24 basis points to 5.95%, and Greek bond yields are 10 basis points higher to 9.17%.

"It seems odd that peripheral yields would act so badly to improving growth prospects for next year unless of course spreads relative to Germany closed too quickly in the first place," said Miller Tabak's Andrew Wilkinson in an email to clients following the presser. "Keep an eye on German bund yields, which if they reach above last week’s highs, could sandbag stocks by acting in the same heavyweight fashion as the recent recovery rally in the Japanese yen."

The chart below, http://www.twitter.com/cigolo, shows the sell-off in Italian government bond futures post-Draghi.

Click here for a complete summary of what Draghi said at his presser >

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Mortgage Refinance Applications Are Crumbling

Mortgage refinance applications have been taking a hit recently.

This morning's MBA purchase applications showed that refinance index was down 15% for the May 31st week.

The refinancing index is down four straight weeks, and was down 12% the previous week.

Refinance applications tends to be more sensitive to a rise in mortgage rates.

The MBA 30-year fixed mortgage rate climbed from 3.59% in the first week of May to 4.07% in the first week of June. The decline in refinance activity reflects the rise in mortgage rates, Ed Stansfield, chief housing economist at Capital Economics explained in an email interview. 

There are three key reasons to watch this data.

First, despite the recent sharp rise, mortgage rates are still at low levels. So the impact on refinance activity shows that both the housing market and overall economic confidence are still "fragile" and the the recovery is dependent on the loose monetary policy.

Second, is the impact on consumer spending, which Stansfield doesn't think will be "large."

Third, for those with adjustable rate mortgages (ARM) the rising interest rates have been a bigger blow. "This could offset some of the benefits of falling unemployment on delinquency rates, though again I would not really expect this effect to be large based on the rise in mortgage rates seen so far."

But how significant is it?

"In terms of its significance, in my view, it is less of a concern than if home purchase approvals had fallen to a similar degree – they have been softening too, but not by as much," Stansfield said. "After all, home purchase approvals are a better gauge of the strength of the demand for housing than the number of people who are switching from one mortgage deal to another."

Bottomline: Stansfield expects the housing market to continue to recover but says this data shows that the recovery "may not proceed in a straight line."

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