U.S. Markets Boast Record Highs Despite Negative Productivity Results

Nonfarm productivity unexpectedly fell for the third quarter in a row, posting a decline of 0.5 percent, matching the longest streak of negative figures since the inception of the report.  Even with the uninspiring data, the S&P 500 and Nasdaq touched record highs today, paced by the healthcare and technology sectors.  In addition, the CBOE’s Volatility Index touched its one year low, down nearly 2% to 11 before recovering later in the day.  The drop in market “fear index” is viewed as a reflection of the consecutive, strong jobs reports as well as easing monetary policies.  Going forward, analysts are confident that the market shocks that last accompanied such VIX levels when China devalued their currency will not occur this time around.  

In hopes to control volatility abroad, foreign central banks continue to provide accommodative monetary policies.  The Bank of England hinted that additional easing may be required as the yields on 10- and 30-year bonds fell to record lows.  Additionally, in Raghuram Rajan’s last meeting as Governor of the RBI, the Indian central bank held repo rates steady at 6.5% in order to combat rising food prices in the country over the past few months.  Later this week, analysts also predict the Reserve Bank of New Zealand to lower its benchmark rate to an all-time low of 2%.

All three major US stock indexes are up close to .25% for the day, while the Treasury and swap curves are flattening, with 30y yield/rates falling 5-7bp.  Brent and WTI crude prices ended a two-day rally, down roughly 0.75% and 0.50%, respectively