Friday, June 5, 2015

Markets fluctuate as jobs data increases chances for interest rate hike

Dow crawled up 3, decliners over advancers 4-3 & NAZ also rose 3.  The MLP index rebounded 2+ to the 421s & the REIT index lost 3 to the 311s.  Junk bond funds drifted lower & Treasuries rose.  Oil sold off again (see below) & gold continued sliding lower.

AMJ (Alerian MLP Index tracking fund)

CLN15.NYM....Crude Oil Jul 15...57.00 Down ....1.00  (1.7%)

GCM15.CMX...Gold Jun 15.....1,164.10 Down ...10.80  (0.9%)

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Payrolls climbed in May by the most in 5 months & worker pay accelerated, showing companies were upbeat about the US economy’s prospects after an early-year slump.  The 280K advance exceeded the forecast & followed a revised 221K Apr increase, according to the Labor Dept.  The median called for a 226K gain.  The unemployment rate crept up to 5.5% as more people entered the labor force, while hourly earnings rose from a year ago by the most since Aug 2013.  Such job gains show corp managers are convinced the economy is regaining its footing following a Q1 that was beset by temporary headwinds including a labor dispute at western US ports.  A dwindling in the ranks of the unemployed would be consistent with forecasts the Federal Reserve will raise its benchmark interest rate later this year.  Employment accelerated in May at automakers, local gov agencies, retailers & temporary-help agencies.  Restaurants, hotels & builders also boosted headcounts.  Average hourly earnings increased 0.3% from the prior month & were up 2.3% from May 2014, exceeding the average gain since the current expansion began 6 years ago.  Revisions to prior reports added a total of 32K jobs to overall payrolls in Apr & Mar.  The participation rate, which indicates the share of working-age people in the labor force, increased to 62.9% from 62.8% in Apr.  Employment at gov agencies rose 18K, mostly due to increased hiring at municipalities.  Automakers took on another 7K workers, while builder payrolls rose 17K.  Retailers hired a net 31K workers & employment in leisure & hospitality jumped 57K.  Payrolls at temporary-help agencies climbed 20K.  The average workweek for all employees held at 34.5 hours.

U.S. Payrolls Jump More Than Forecast as Rate Rises to 5.5%

OPEC extended its campaign to restrain rival producers by continuing to pump oil into a global supply glut.  The 12 nations kept their combined daily production target at 30M barrels after meeting in Vienna, in line with expectations.  Crude oil fell, extending this week’s decline to 5.9%.  The Organization of Petroleum Exporting Countries’ decision signals intensifying competition for market share among global producers & more pain for US shale drillers, who already idled a record number of rigs.  It should also keep a lid on energy costs for consumers & help keep inflation in check.  The global supply glut in oil is diminishing, said UAE Oil Minister Suhail Mohammed Al Mazrouei.  The UAR., along with Kuwait & Qatar, backed Saudi Arabia’s strategy at the last meeting.  The current ceiling has been in place for more than 3 years, making it the most enduring quota in the group’s 55-year history.  OPEC pumped 31.58M barrels a day in May, exceeding its quota for a 12th consecutive month.  Saudi Arabia is deploying the most rigs in at least 2 decades & operating with the lowest spare production capacity in about 3 years.  The battle for market share among global producers has just started.  Iran’s Zanganeh said his nation would increase production by 1M barrels a day within months of sanctions lifting.  Indonesia said it was seeking to rejoin OPEC, 7 years after rising reliance on imports prompted the nation to withdraw from the group.  The move would help to strengthen ties between oil producers & consumers, Indonesian Energy Minister Sudirman Said said.

OPEC to Maintain Current Oil Output

The warning by Nikos Filis, the parliamentary spokesman for Greece’s ruling Syriza party, that the country might delay paying €300M ($337M) to the IMF if Greece didn’t soon have a deal with creditos wasn’t taken seriously enough.  Last night, that’s exactly what Greece did.  Debtors are allowed (but rarely invoke) the option of packaging several payments into one.  Now Greece must pay €1.5B by the end of Jun.  The move is both pragmatic & threatening.  Greece buys itself more time to continue the psychological warfare playing out with the IMF, the European Commission, & ECB.  But the delayed payment also shows a dangerous readiness to go to the wire.  Greek stocks & bonds are down & the prime minister has scheduled a call with Russian pres Putin, who has tempted him with aid if nothing works out with Europe & the IMF.

Greece Wants It All

The  jobs report was strong enough to raise the odds that the Federal Reserve will start increasing rates sooner, maybe even later in Jun.  The jobs number was good & there is enough strength in the economy to give those guys the courage to take this step.  Oil is losing its upward momentum & may slide further with more "cheating" on production by OPEC countries looking to increase revenue.  Then there is the Greek drama which will drag on to month's end at a minimum.  But popular stock averages remain close to record highs.  This disconnect has lasted for months.

Dow Jones Industrials

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