Daily Market Commentary for June 6, 2012
To compensate some financial firms that lost money after the exchange operator botched their trades during the initial public offering of Facebook Inc. (FB:NASDAQ), Nasdaq OMX Group Inc. outlined plans for a 'one-time' payout of approximately $40 million.
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Dennis Lockhart, President of the Atlanta Federal Reserve Bank on Wednesday said a move to extend the Federal Reserve's Operation Twist program remains an option on the table. The Fed's $400 billion Twist program, to extend the maturity of the central bank's balance sheet, is now set to expire at the end of June 2012. Lockhart expressed more worry about the economic outlook, saying that risks to the economy 'are gathering'. Lockhart said that he saw a higher probability of a negative influence on the U.S. economy coming from Europe than at the last Federal Open Market Committee meeting in April. Lockhart said his baseline forecast was for a continued, modest growth and if this no longer looks realistic, further Fed action 'will certainly need to be considered'. The Fed must 'maintain a state of readiness' to respond to financial and economic instability should the need arise.
As expected, the European Central Bank left its key lending rate unchanged at 1% as investors look to Mario Draghi for clues to the institution’s next move amid intensifying fears over Spain’s banks as well as the potential implications of a Greek exit from the euro.
On Wednesday, European officials announced that they are considering a rescue program for Spain that would aid the country's banking sector and at the same time, impose limited conditions on the government. The proposed plan would require few extra austerity measures beyond actions already agreed to with Brussels and could see Madrid avoid monitoring by international lenders. Unidentified German officials said a deal was in the works to allow Spain to receive funds that would allow it to recapitalize its banks without having to adopt economic reforms imposed from outside. Although Germany rejects calls to allow Europe's bailout funds to directly recapitalize banks, Berlin is open to allowing aid to flow without forcing Madrid to agree to strict reform programs put in place for Greece, Portugal and Ireland.
The Labor Department reported on Wednesday that, productivity of U.S. workers and businesses fell more sharply in the first three months of 2012 than originally reported, based on an updated reading issued by the government. Original estimates from the Department estimated that productivity fell 0.5% in Q1 however, revised numbers put the decline at 0.9%. The drop in productivity stemmed from a decline in the amount of goods and services produced, known as output, and a slight increase in the amount of hours that employees worked. Output was revised down to a 2.4% increase from 2.7% while increase in hours worked was revised up to 3.3% from 3.2%. Unit-labor costs climbed 1.3% in Q1 instead of 0.9% as originally reported. Unit-labor costs reflect how much it costs a business to produce one unit of output, such as a ton of steel or a crate of dry goods. Hourly compensation rose 0.4% in Q1 instead of 1.5% as initially reported. Real hourly wages fell 2.0% in Q1, more than double the earlier estimate of a 0.9% decline. Falling productivity usually means companies have to hire more workers to increase output and keep unit-labor costs steady. The U.S. created only 69,000 jobs during the month of May and 77,000 during the month of April, downshifting after having averaged an increase of 252,000 new jobs from December through February. The high jobless rate means workers have little leeway to seek higher wages or switch jobs. When productivity rises, workers and companies both tend to benefit most in the long run. Higher productivity makes businesses more profitable and allows them to pay their employees higher wages and salaries.
The Federal Reserve said on Wednesday in its latest reading of economic conditions that the U.S. economy continued to grow at a 'moderate' pace over the last two months, with only one district reporting slower growth. The Philadelphia region was the only one reporting slower economic activity. The Fed has used the phrase 'moderate' to describe the economy in every Beige Book report since Autumn 2011.
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