Wednesday, June 3, 2015

Markets attempt to go higher on hopes for another Greek bailout

Dow climbed 64 (but 100 below its AM high), advancers barely ahead of decliners & NAZ added 22.  The MLP index dropped a very big 7+ to the 426s (close to the lows for 2015) & the REIT index was off 4+ to the 314s (where it was in early Nov).  Junk bond funds were mixed to lower & Treasuries lost ground with the 10 year Treasury yield jumping 10 basis points to 2.37% (an 8 month high).  Oil is back under 60 & gold drifted lower.

AMJ (Alerian MLP Index tracking fund)

CLN15.NYM....Crude Oil Jul 15....59.73 Down ...1.53  (2.5%)

Live 24 hours gold chart [Kitco Inc.]

The US economy expanded in the past 2 months, even as manufacturers in some regions took a hit from a stronger dollar & a slowdown in energy-related investment, according to a Federal Reserve report.  4 of 12 Fed districts reported “moderate” growth, & 3 others described the expansion as “modest,” according to the Beige Book, which is based on reports gathered from early Apr to late May by regional Fed banks.  Elsewhere, the pace of growth varied from “mixed” to “slight.”  Growth slowed in the Dallas Fed district.  The report offers central bank officials, who next meet Jun 16-17, anecdotal evidence about the state of the economy as they consider when to raise interest rates for the first time since 2006.  “Manufacturing activity generally held steady or increased over the reporting period,” the central bank said.  A stronger dollar crimped industries including steel, with Fed banks in Boston, Cleveland, Chicago, Minneapolis & Dallas “noting its negative impact on export sales or capital investment in segments with significant overseas exposure.”  Employment levels “were up slightly across districts,” while “slight growth in wages was reported by most districts.”  “Most districts reported an uptick in retail spending, and outlooks were positive, with retailers expecting continued sales growth in 2015.”  Today’s Beige Book was prepared by the Dallas Fed based on information collected on or before May 22.

Fed Beige Book: Economy Expands in U.S.

US businesses added new workers at very modest clip in May, according to an employment survey released today as manufacturers cut payrolls.  Private payrolls increased 201K jobs in May, according to the payroll processor Automatic Data Processing & forecasting firm Moody's Analytics.  Economists expected ADP would report a stronger number of 215K jobs added last month.  The Apr ADP increase was revised down to 165K from 169K, a number that also had been below expectations.  On Mon, the Institute for Supply Management reported its May surveys of manufacturers showed a small pickup in factory payrolls.  Yesterday, software company Intuit said it estimated small business hiring accelerated last month.  Small firms added 25K new jobs in May up from 15K added in Apr.  Economists expect the BLS on Fri will report May nonfarm payrolls (including gov positions) increased 225K jobs, not much different from the 223K slots created in Apr.  The May unemployment rate is projected to hold at 5.4%.  According to ADP, small businesses remain the engine of job growth.  Firms employing between 1-49 workers added 122K new workers.  Medium-size businesses with payrolls of 50-499 workers added 65K employees & large firms with 500 or more employees hired only 13K workers.  But manufacturing cut 5K jobs last month.  The service sector hired 192K new employees & construction payrolls increased 27K slots.

Private Sector Adds More Jobs than Expected

German Chancellor Angela Merkel said she’s working all out to reach a deal with Greece, while European leaders moved to end the 4-month standoff before the country’s bailout program lapses.  As head of the biggest country contributor to Greece’s €240B ($268B) rescue, Merkel stepped in to unblock the stalemate at finance minister level as ECB pres Mario Draghi called for a “strong agreement” to resolve the deadlock.  “Everyone is working -- whether in the bilateral or trilateral telephone talks that the French president and I are leading -- to help reach a conclusion within the agreed timeframe for the completion of the program,” Merkel said.  “We’re working on that with high intensity.”  The Greek gov said today it will put off making a €305M ($339M) loan payment to the IMF due Fri if not confident of a deal with creditors by Mon.  That is a thinly veiled threat of a disorderly default, & may be a sign that Greece doesn't have the money.  Greece's cliffhanger situation now depends on Prime Minister Tsipras's reaction to the creditors’ final offer, which he’ll receive in Brussels tonight from European Commission pres Jean-Claude Juncker.  A Dutch newspaper reported that the proposal allows Greece to lower its primary fiscal surplus (excluding debt payments) to less than 1%, not far from Greece’s 0.8% demand.  Since both sides ultimately want a deal, this may prove sufficient for a final-hour compromise allowing talks on other substantive issues, including pensions, taxes and labor market flexibility, to go on.

Signals from economic data are indecisive & chances are the jobs data on Fri will also give an unclear message.  The Greek debt mess drags on, difficult to make any sense out of the goings on or where any discussions will lead.  Today's "rally" was not impressive with market breadth that does not inspire confidence.  Dow remains above 18K & NAZ just inches from setting a new record.  However high yield sectors like MLPs & REITs are trading lower because they are fighting for investor attention.  These are troubled times in troubled markets for the stock market.

Dow Jones Industrials

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