Thursday, June 4, 2015

Markets tumble as Greece defers IMF payment due tomorrow

Dow dropped 170 finishing near the lows, decliners over advancers more than 3-1 & NAZ lost 40.  The MLP index sank an enormous 7+ to the 418s, close to its yearly lows, & the REIT index did little in the 314s.  Junk bond funds drifted lower & Treasuries rallied after 6 weeks of selling.  Oil is now back to 58 & gold went down again.

AMJ (Alerian MLP Index tracking fund)

CLN15.NYM....Crude Oil Jul 15....57.98 Down ...1.66  (2.8%)

Live 24 hours gold chart [Kitco Inc.]

Greece became the first country to defer a payment to the IMF since the 1980s as its game of brinkmanship with creditors goes down to the wire.  With Prime Minister Tsipras getting ready to address parliament tomorrow after receiving a list of creditors’ demands, the step underscores the state of the country’s shriveling finances.  While intl officials have reported some progress in recent days, German Chancellor Merkel said “we’re still far from reaching a conclusion.”  The current phase of Greece’s crisis is nearing its conclusion as the country runs out of money after 4 months of deadlock.  Stocks & bonds have whipsawed this week amid a flurry of political activity starting with a late-night meeting in Berlin between euro leaders & the IMF on Mon.  Greece rejected the latest proposal from the intl creditors, with the Finance Ministry saying the plan “can’t solve the riddle” & an agreement requires “immediate convergence of the institutions to more realistic” proposals.  Tsipras, who met European Commission pres Jean-Claude Juncker yesterday, will address the Greek parliament tomorrow evening with the euro region pressing for an agreement to be wrapped up by Jun 14.  A European official said Greece will study the offer from its creditors & come back to them on Mon.  A few hours ago, Greece told the IMF it would delay a debt payment of about $339M (€301M) due tomorrow, submitting a request to the fund to bundle payments totaling about $1.7B due this month into one lump-sum payment.  “The Greek authorities have informed the fund today that they plan to bundle the country’s four June payments into one, which is now due on June 30,” the IMF spokesman said.  “Under an Executive Board decision adopted in the late 1970s, country members can ask to bundle together multiple principal payments falling due in a calendar month.”  Only one country, Zambia, has used the procedure to bundle payments, which happened in the mid-1980s.

Greece Defers IMF Payment, Merkel Warns Crisis Is Far From Over

Hydraulic fracturing has contaminated some drinking water sources but the damage is not widespread, according to a landmark US study of water pollution risks that has supporters of the drilling method declaring victory & foes saying it revealed reason for concern.  The draft analysis by the Environmental Protection Agency (EPA), released after 3 years of study, looked at possible ways fracking could contaminate drinking water, from spills of fracking fluids to wastewater disposal.  “We conclude there are above and below ground mechanisms by which hydraulic fracturing activities have the potential to impact drinking water resources,” the EPA said in the report.  But, “we did not find evidence that these mechanisms have led to widespread, systemic impacts on drinking water resources.”  The study represents the most comprehensive assessment yet of the safety of fracking, a technique that has led to a boom in domestic oil & gas production but also spawned persistent complaints about pollution.  Fracking involves the injection of water, sand & chemicals underground to break apart shale rock & free trapped oil or gas.  Thomas Burke, the EPA’s top science adviser, said that given thousands of wells drilled & fracked in the last few years, “the number of documented impacts on groundwater resources is relatively low.”  Still, it’s not accurate to say that there have been no cases of contamination, he said.  “There are instances where the fracking activity itself” led to water pollution, he said.  The American Petroleum Institute (API), an industry trade group, said the study was a validation of the safety of fracking & added that existing oversight from state regulators is working.  “Hydraulic fracturing is being done safely under the strong environmental stewardship of state regulators and industry best practices,” the API said.  “The process of fracking itself is one risk factor. But in fact it’s not the biggest one,” said Mark Brownstein, VP of the Environmental Defense Fund.  “Ongoing physical integrity of the wells and handling the millions of gallons of wastewater coming back to the surface after fracking, over the lifetime of each well, are even bigger challenges.”  Another environmental group, Earthworks, said EPA analysis points to the need for regulation.  The EPA analyzed more than 950 sources of information.  The study included an analysis of industry-backed disclosures of the chemicals used in fracking, case-studies of local communities where homeowners feared their water wells were contaminated and a review of well construction.

EPA Study of Fracking Finds 'No Widespread, Systemic' Pollution

Nonfarm productivity in the US fell more sharply than previously thought in Q1, leading to a jump in labor-related production costs, a trend that could spur a rapid increase in inflation.  Productivity dropped at a 3.1% annual rate instead of the previously reported 1.9% rate, according to the Labor Dept.  That was the first back-to-back fall in productivity since 2006.  Economists had expected that productivity, which measures hourly output per worker, would be revised to show it falling at a 2.9% rate.  The decline mirrors the economy's dismal performance in Q1, when output shrunk at a 0.7% rate.  Given that temporary factors contributed to the decline in output, the drop in productivity could be overstated & a rebound is likely in H2.  Still, weak productivity suggests that the economy's potential growth could be lower than the 1.5- 2.0% pace that is being predicted.  Muted productivity growth, if sustained, raises the risk of a more rapid pick-up in inflation that would require more aggressive interest rate increases than the Federal Reserve & financial markets are currently anticipating.  Productivity rose only 0.3% from a year ago.  Workers put in slightly fewer hours in Q1.  Hours increased at a 1.6% rate instead of the previously reported 1.7% pace.  With output declining at a 1.6% pace, unit labor costs increased at an upwardly revised 6.7% rate in Q1, the fastest pace since Q1-2014.  Unit labor costs were previously reported to have increased at a 5.0% rate.  Unit labor costs rose at a 1.8% pace compared to Q1-2014, a sign that wage inflation is benign for now.  Compensation per hour increased at a 3.3% rate in Q1, instead of the previously reported 3.1% pace.

US productivity plunges in Q1; unit labor costs surge

More dark clouds are gathering over the stock market.  After months of negotiations which have gone nowhere, Greece is running out of time to stay current with its bloated debt load.  The stock market is very worried about its ability to get an extension on its borrowings.  Mon looks to be an important deadline & this time the lenders may demand payment, or else!!!  Dow is back under 18K, around where it has been for months, & down almost 400 from its recent record.

Dow Jones Industrials

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