Wednesday, June 1, 2011

Markets tumble as private payroll growth slows

Stocks sank taking Dow down 126, decliners over advancers 5-2 & NAZ fell 22. Bank stocks led the way down, taking the Financial Index to its lowest level since Dec.

S&P 500 FINANCIALS INDEX

Value	2089.34
Change	-4.757 (-2.2%)

The Alerian MLP index fell almost 2 to the 365s & has been lumbering along after bouncing off its 350 low 2 weeks ago. The REIT fell 3½ off the 2011 high reached yesterday & junk bond funds were flattish. Treasuries rose, pushing 10-year note yields below 3% for the first time in 2011 as US firms added fewer jobs in May than expected & manufacturing expanded at the lowest pace in more than a year. Oil & gold did little although oil is holding above $100, an indication of gas prices heading north again.

JPMorgan Chase Capital XVI (AMJ)

Treasury yields:

U.S. 3-month	0.051%
U.S. 2-year	0.445%
U.S. 10-year	2.978%

CLN11.NYM

....Crude Oil Jul 11

...101.86

...

0.84

(0.8%)

GCM11.CMX...

Gold Jun 11

.......1,534.80

.....1.10

(0.1%)

Photo: Bloomberg

Private-sector payroll growth slowed sharply in May, coming in far below expectations, to the lowest level in 8 months. The ADP Employer Services report showed private employers added a only 38K, while Apr private payrolls were revised down to an increase of 177K. Expectations had been for a gain of 175K. This data comes ahead of the gov much more comprehensive labor market report on Fri, which includes public & private jobs. That is expected to show a rise in nonfarm payrolls of 180K, slowing from a gain of 244K in the prior month. Private payrolls are expected to come in at 205K. In all fairness, the report from ADP has a mixed record this year for predicting figures in the gov report.

ADP: U.S. Added Fewer Workers in May

Manufacturing activity in the US expanded at the slowest pace in 20 months, a sign that a sharp rise in energy prices is hampering economic growth. The Institute for Supply Management, said that its index of manufacturing activity fell to 53.5% in May from 60.4% in Apr. While that marked the 22nd straight month of growth, the decline was the biggest since 1984. The overall increase followed a tiny 0.1% rise in Mar & pushed construction spending to an annual rate of $765B, up just 0.5% from an 11-year low of $761B in Feb. Although manufacturers in most industries reported growth in May, all said they felt squeezed by the rising costs of fuel, chemicals, metals & other inputs. High prices for oil & other commodities have also dampened consumer spending, which has led to less demand for factory goods. 3 industries contracted (printing; furniture, & food, beverage, tobacco) which are closely linked to spending by consumers.

U.S. Manufacturing Index Decreased in May

General Motor US sales fell 1.2% in May when it offered fewer deals to customers, selling 221K vehicles led by smaller, more fuel-efficient models. GM blamed the drop mainly on a decision to cut sales to rental car companies by 16% compared with a year earlier. However sales to individual buyers rose 9%, led by sales for the new Chevrolet Cruze compact & Chevrolet Equinox crossover vehicle. This is the first report from an auto company & analysts expect total US sales fell 4% from last May. The stock fell 59¢ to $31.22 & is below the IPO price of $33.

GM May U.S. Vehicle Sales Decline 1.2%, Missing Estimate of 1.5% Increase

General Motors Company (GM)

Photo: Bloomberg

Greece & a team of EU/IMF/ECB inspectors are set to conclude talks tomorrow on a medium-term fiscal plan including the gov's progress toward meeting budget targets. Inspectors must decide whether to release €12B the country needs next month to avoid a default. Discussions on a new package that would meet Greece's needs up to 2014 are also taking place. The new package, expected to total €65B, could involve a mixture of collateralized loans from the EU & IMF, & additional revenue measures, with unprecedented intrusive external supervision of Greece's privatization program. Germany said that it expected the talks to be completed by the end of this week, or possibly early next week. A report said that the IMF would not pay its share of the bailout at end-Jun, but would take part in a new program for Greece. European officials are holding talks in Vienna to sketch out options for bailout II, with private sector participation still under discussion to help relieve the country of its massive debt burden. Confusion reigns, but the outlook is fuzzy at best.

EU Considers Sweeteners for Greek Debt Extension

The new month is starting on a glum note. The economic data released today should not be a great surprise as prior signals suggested the economic recovery is sputtering. Of little notice, last night the House had a test vote on a plan to raise the debt ceiling & it was turned decisively. That ceiling must be raised by the end of next month or we'll have huge problems. Meanwhile the Greek drama continues to play out. Dow is up YTD, but has been going nowhere for about 2 months. .