Dow dropped 103, decliners over advancers 2-1 & NAZ lost 18. The MLP index sank 6+ to the 442 & the REIT index rose fractionally in the 315s. Junk bond funds drifted lower & Treasuries fell, taking the yield on the 10 year Treasury over 2.2%. Oil hit a new high for the year (see below) & gold was flattish, still under 1200.
AMJ (Alerian MLP Index tracking fund)
Productivity in the US fell in Q1, triggering the largest back-to-back decline in more than 2 decades & pushing up worker costs as the economy almost stalled. The measure of employee output per hour decreased at a 1.9% annualized rate after a revised 2.1% drop in Q4, according to the Labor Dept. That matched the forecast. Expenses per worker increased at a 5% pace, more than estimated. The harsh weather, port-related delays, stronger dollar & drop in oil costs that brought the economy to a near-halt in Q1 had less effect on employment, hurting efficiency & profits. The lack of business investment in new technology may also mean productivity will continue to languish, & limit the economic expansion’s potential. The last time efficiency fell in 2 consecutive qtrs was in 2006 & the average 2% decrease over the past 2 qtrs was the biggest since 1993. Unit labor costs, adjusted for efficiency gains, were forecast to rise 4.5%. They climbed 4.2% in the prior qtr. Adjusted for inflation, hourly earnings rose at a 6.2% rate, the most since Q4-2012. Year-over-year, efficiency increased 0.6% which compares with an average 2.8% advance per year from 1995-2000 (the strongest period for productivity). Slowing efficiency prevents economic growth from gaining momentum in the longer term. The pace at which an economy can expand without stoking inflation reflects the rate of growth of the labor force plus how much each worker can produce. Weaker productivity means any advance in GDP will also be restrained in coming years.
ECB officials are debating tighter rules for the liquidity that Greek lenders rely on for survival, according to leakers, a move that underscores the fragility of the country’s financial system. The Governing Council is discussing whether to raise discounts on the collateral Greek banks pledge in exchange for emergency funding. Governors will also review how much more Emergency Liquidity Assistance (ELA) to offer Greek banks. With access to capital markets shut & deposits flowing out of their vaults, Greek banks depend on ELA to stay afloat. While it is unlikely for the ECB is unlikely to demand higher haircuts without a green light from Europe’s politicians, the debate shows how concerned some central bankers are about Greece’s solvency 100 days after Prime Minister Tsipras came to power. Greece had clouded the outlook for bailout talks yesterday, which some officials had said were making progress, when a gov official said no deal would be possible until the European Commission & the IMF reduce the number of red lines they’re demanding. Those remarks accelerated a sell-off in the country’s stocks and bonds.
Oil prices rose more than a dollar to 2015 highs, as a month-long rally gained further impetus from a fall in US crude stocks & conflict in the Middle East. Industry group the American Petroleum Institution (API) said yesterday that US crude oil stocks fell for the first time this year, giving a lift to oil prices. The API said that overall stocks fell 1½M barrels while stocks at the key delivery point of Cushing, Oklahoma, fell by 336K barrels. Conflict in Yemen continued after witnesses said planes from a Saudi Arabia-led coalition struck Yemeni towns overnight, following mortar attacks from Iran-allied Shi'ite Houthi rebels. While Yemen is only a small oil producer, it sits on key shipping routes & any conflict involving its neighbour Saudi Arabia, the world's leading oil exporter, shakes the market. In Libya, protests have stopped crude flows to the eastern port of Zueitina. Libyan output is currently below 500K barrels per day, 1/3 of what the country pumped before 2010. Iran's said that it would not take part in nuclear talks if threatened with military force as Iran & world powers try to meet a Jun 30 deadline for a final deal. Any breakdown in talks with the West & Iran would prolong any possible return of Iranian crude exports at full throttle, denying the market additional oil.
Dow Jones Industrials
AMJ (Alerian MLP Index tracking fund)
| CLM15.NYM | ...Crude Oil Jun 15 | ...61.88 |  ...1.48 | (2.5%) |
| GCK15.CMX | ...Gold May 15 | ....1,193.80 | ...0.60 | (0.1%) |
Productivity in the US fell in Q1, triggering the largest back-to-back decline in more than 2 decades & pushing up worker costs as the economy almost stalled. The measure of employee output per hour decreased at a 1.9% annualized rate after a revised 2.1% drop in Q4, according to the Labor Dept. That matched the forecast. Expenses per worker increased at a 5% pace, more than estimated. The harsh weather, port-related delays, stronger dollar & drop in oil costs that brought the economy to a near-halt in Q1 had less effect on employment, hurting efficiency & profits. The lack of business investment in new technology may also mean productivity will continue to languish, & limit the economic expansion’s potential. The last time efficiency fell in 2 consecutive qtrs was in 2006 & the average 2% decrease over the past 2 qtrs was the biggest since 1993. Unit labor costs, adjusted for efficiency gains, were forecast to rise 4.5%. They climbed 4.2% in the prior qtr. Adjusted for inflation, hourly earnings rose at a 6.2% rate, the most since Q4-2012. Year-over-year, efficiency increased 0.6% which compares with an average 2.8% advance per year from 1995-2000 (the strongest period for productivity). Slowing efficiency prevents economic growth from gaining momentum in the longer term. The pace at which an economy can expand without stoking inflation reflects the rate of growth of the labor force plus how much each worker can produce. Weaker productivity means any advance in GDP will also be restrained in coming years.
Productivity Fell in First Quarter as U.S. Labor Costs Rose
ECB officials are debating tighter rules for the liquidity that Greek lenders rely on for survival, according to leakers, a move that underscores the fragility of the country’s financial system. The Governing Council is discussing whether to raise discounts on the collateral Greek banks pledge in exchange for emergency funding. Governors will also review how much more Emergency Liquidity Assistance (ELA) to offer Greek banks. With access to capital markets shut & deposits flowing out of their vaults, Greek banks depend on ELA to stay afloat. While it is unlikely for the ECB is unlikely to demand higher haircuts without a green light from Europe’s politicians, the debate shows how concerned some central bankers are about Greece’s solvency 100 days after Prime Minister Tsipras came to power. Greece had clouded the outlook for bailout talks yesterday, which some officials had said were making progress, when a gov official said no deal would be possible until the European Commission & the IMF reduce the number of red lines they’re demanding. Those remarks accelerated a sell-off in the country’s stocks and bonds.
ECB Considers Tighter Noose on Greek Banks
Oil prices rose more than a dollar to 2015 highs, as a month-long rally gained further impetus from a fall in US crude stocks & conflict in the Middle East. Industry group the American Petroleum Institution (API) said yesterday that US crude oil stocks fell for the first time this year, giving a lift to oil prices. The API said that overall stocks fell 1½M barrels while stocks at the key delivery point of Cushing, Oklahoma, fell by 336K barrels. Conflict in Yemen continued after witnesses said planes from a Saudi Arabia-led coalition struck Yemeni towns overnight, following mortar attacks from Iran-allied Shi'ite Houthi rebels. While Yemen is only a small oil producer, it sits on key shipping routes & any conflict involving its neighbour Saudi Arabia, the world's leading oil exporter, shakes the market. In Libya, protests have stopped crude flows to the eastern port of Zueitina. Libyan output is currently below 500K barrels per day, 1/3 of what the country pumped before 2010. Iran's said that it would not take part in nuclear talks if threatened with military force as Iran & world powers try to meet a Jun 30 deadline for a final deal. Any breakdown in talks with the West & Iran would prolong any possible return of Iranian crude exports at full throttle, denying the market additional oil.
Oil Bulls Drive U.S. Crude Prices Higher
Reality is sinking in & the markets don't like what they see. Extending Greek debts is very much in question. Everybody shudders at what might happen if Greek does not get another bailout. Higher priced oil is affecting investment thinking. Those productivity figures are difficult for many to appreciate, but their message is grim for the economy going forward. Dow is off almost 500 from its recent record & more selling is coming.
Dow Jones Industrials
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