Farmers & Merchants Bank

Debt Ceiling Poised to Reach Conclusion

The debt ceiling issues appear to be in the final stages as the House passed a bill. The long, fear driven campaign saw credit default swaps on the U.S. surge to
three times any previous peak. A Senate passage is expected quickly and then we have a deluge of Treasury issuance. Normally a large issuance of Treasuries is
a drain on liquidity and a headwind to equities. We also have signs of liquidity in China falling materially and thus the passage of a debt ceiling bill may not be an
all clear for equities.

Economic Data Turns Down

Economic data has started to weaken across the board.

 The Citi Economic Surprise Index for Major Economies has fallen sharply over the last two months.
 China data has been especially weak.
 The Chicago Purchasing Managers’ Index and Institute for Supply Management had a sharp drop in the month of May.
 40% of commodities are down 40% from their 52-week high, a clear sign of demand weakness.
But employment continues to hold up as ADP employment change was well above expectations. Will Friday add to the record streak of nonfarm payroll’s coming
in ahead of expectations? The current consensus is 195,000 and we will find out Friday morning.