Productivity Improves, but Long Bonds and Shipping Stay Under Pressure

This report is based on intraday data as of 11:56 AM ET and does not reflect closing prices. Markets may have moved since publication.

Revisiting Yesterday’s View

Yesterday’s view was that the U.S. was developing a late-cycle split of fewer hires without lower prices. Today’s low claims, the smallest monthly layoff total in two years, and stronger productivity weaken the case for an imminent labor-market break. Yet the 30-year Treasury rose to 5.20% and physical Hormuz traffic fell again, shifting the main narrative from simple stagflation to supply-side improvement coexisting with an elevated long-horizon risk premium.

Core Judgment

Stronger productivity and low claims keep the U.S. in a window of resilient growth and easing labor costs, but they have not dislodged the 30-year Treasury from 5.20%. With Kpler Hormuz traffic down to two vessels and no tankers, energy risk has been discounted by diplomacy, not physically repaired.

Macro and Geopolitical Analysis

The labor data reject the idea that a layoff wave has arrived, but they do not show renewed hiring momentum. Initial claims for the week ended August 1 were 199,000, below the 202,000 estimate, and the four-week average fell to 198,750. Continuing claims, however, rose by 24,000 to 1.801 million. Challenger reported 33,429 announced layoffs in July, down 46% year over year and the lowest in two years, while announced hiring plans rose 47% from June. Companies are reshaping roles and limiting new demand without broadly severing existing employment relationships.

AI’s labor impact still looks more like structural migration than aggregate collapse. Challenger attributed 33% of July’s announced layoffs to AI, but technology, aerospace, and autos also contributed substantial hiring plans. That is consistent with low initial claims. The more important warning is the rise in continuing claims: displaced workers may be taking longer to find their next role even while the overall layoff total remains low.

Productivity has opened a genuine supply-side route to disinflation. Q2 nonfarm business productivity rose at a 1.4% annualized rate, above the 0.6% Reuters estimate, as output grew 1.7% while hours rose only 0.3%. Unit labor costs increased 1.3%, below the 2.1% estimate, and were up just 1.4% over four quarters. If output continues to outrun hours, price pressure can ease without requiring a demand recession.

The report was not unambiguously positive. Real hourly compensation fell at a 3.1% annualized rate in Q2, while labor’s income share declined to a series low of 52.9%. If efficiency gains flow mainly into profits rather than real income, they can lower unit costs in the short run but weaken consumer resilience later. June wholesale sales fell 3.0% as inventories edged up 0.2%, another sign that demand did not strengthen in parallel; because sales were not adjusted for price changes, that release alone does not confirm recession.

The Fed’s problem is therefore no longer simply growth versus inflation, but whether productivity can improve faster than prices become entrenched. Lisa Cook said she was prepared to raise rates if necessary and shifted her balance of risks toward inflation; she cited headline PCE inflation of 3.7% and core inflation of 3.3%. Mary Daly was more cautious, emphasizing limited corporate pricing power and the possibility that supply shocks fade. Today’s releases argue for patience, not a declaration of victory, and the August payroll and CPI reports will test whether productivity relief can outweigh energy and service-price pressure.

The diplomatic framework for Hormuz has not yet become an insurable shipping corridor. Kpler recorded only two vessel transits on August 5, down from eight the previous day, with no oil tankers. MarineTraffic counted at least 10 vessels over a different 24-hour window. The discrepancy makes the exact daily count unreliable, but both readings remain far below the prewar norm of roughly 130–140 vessels per day.

Iran and Oman have agreed on coordinates for two-way lanes but have not released a final joint announcement, while the U.S. opposes an arrangement that preserves Iranian control. A tanker also reported two explosions near Kumzar on August 6; no one was injured and the vessel was safe, but insurers still lack a run of uneventful transits. An agreement headline can move oil within hours, whereas shipping schedules, insurance, and vessel traffic require days of evidence.

The downstream shock has already spread from crude into agricultural inputs. CF Industries estimates that the conflict has removed roughly 4.0–4.5 million metric tons of tradable urea and about 1 million metric tons of ammonia from Middle Eastern supply. The region normally provides 35–40% of globally traded urea and 25–30% of traded ammonia. This is a company estimate rather than an independent tally, but it shows why freight and supply risks have not disappeared even with oil still down 8.0% over five days.

Devil’s Advocate: Higher productivity, lower unit labor costs, and low initial claims may signal that the U.S. is entering a noninflationary expansion, while a workable Hormuz agreement could arrive within days. A named agreement taking effect, insurance returning, tanker traffic recovering for several days, service prices cooling, and real income turning positive would trigger the Kill Switch for the current elevated-risk-premium thesis. Diplomatic language or one quarter of efficiency gains is not enough.

Bond Market

The Treasury curve did not rise uniformly; it twisted steeper. The 2-year yielded 4.20%, the 10-year 4.66%, and the 30-year 5.20%, taking 2s30s to 100bp while 10s30s stood at 54bp. Relative to yesterday’s similarly timed public snapshot, the 2-year was about 5bp lower, the 10-year about 3bp higher, and the 30-year about 2bp higher. Productivity relief reduced near-term policy pressure but did not reduce long-run fiscal, inflation, or duration risk.

The 30-year has now remained above 5% for five observed trading days, which matters more than today’s small move. Bid-to-cover ratios of 2.68 and 2.74 at the 4- and 8-week bill auctions indicate adequate demand at the front of the curve, but say little about appetite for duration. The 3-, 10-, and 30-year auctions on August 11–13 will be the real test of the Fiscal Dominance narrative.

Japan did not join the U.S. long-end move today. The 10-year JGB yield eased to 2.813% and the 30-year to 3.966%, while the 2-year remained at 1.569% with an RSI of 79.3. The U.S. long end’s refusal to respond to better productivity and Japan’s front end continuing to price policy normalization both point to a higher global floor for risk-free rates, rather than a conventional synchronized Risk-Off move.

Sector Spotlight

Energy / Fertilizer: shipping risk returned to intraday pricing. Oil rose 2.2% intraday to $76.90 and OXY gained 5.26%, even as crude remained down 8.0% over five days. The high-beta reaction looks more like a correction for the collapse in strait traffic than confirmation of a renewed full-scale escalation. CF Industries reported a 51.5% Q2 gross margin and 57% year-over-year growth in adjusted EBITDA, yet declined 1.31%, suggesting that strong profitability and the Middle Eastern supply gap were already substantially expected; shipping access and gas prices remain the next tests.

AI / Semis: capacity evidence strengthened while performance became more dispersed. ARM gained 5.20% as SoftBank disclosed that cumulative shipments of Arm-based data center CPU cores had reached 1.5 billion. Sandisk also reported 51% sequential revenue growth and an 84.6% GAAP gross margin, offering hard evidence on NAND demand and pricing. DELL fell 3.10% while MSFT’s RSI reached 81.8, indicating that the AI capex cycle remains strong but valuation is increasingly separating by contracts, capacity, and execution speed.

Power: long-term contracts improved visibility, while the near-term reaction stayed restrained. CEG reported adjusted EPS of 2.55 versus consensus estimates of 2.34–2.36 and raised full-year guidance to 11.50–12.50. New nuclear agreements covering 920MW for 15–20 years further confirmed data-center and corporate load demand. CEG was nearly flat intraday, implying that the next re-rating depends more on Calpine integration, outage days, and profit delivery than on another single contract announcement.

What to Watch

August 6, 5:30 PM ET — Alberto Musalem: Watch whether he echoes Cook’s inflation-first stance. Explicit discussion of higher rates would pull near-term expectations toward the elevated long end; greater emphasis on productivity and unit labor cost improvement would support a continued curve twist.

August 7, 8:30 AM ET — July payrolls; VST results later that day: Payroll growth well below the roughly 80,000 survey range alongside resilient wages would reinforce the split between cooling employment and sticky prices. A synchronized slowdown in jobs and wages would make the productivity-led disinflation signal more credible. VST must use load, contracts, and profitability to show that electricity demand is translating into current operating results.

August 7 — Hormuz mediation checkpoint: Treat only named signatories, executable lane rules, restored insurance, and sustained tanker traffic as valid signals. Without insurance provisions, even another oil reversal would not demonstrate that the physical constraint has cleared.

August 11, 4:30 PM ET — API; August 12, 10:30 AM ET — EIA: Watch imports, commercial crude, distillates, and refinery utilization. If strait traffic remains depressed while U.S. inventory buffers shrink, energy risk will feed back into inflation expectations. Improving imports and product inventories together would finally give the diplomatic discount physical support.

August 11–13, 1:00 PM ET — U.S. Treasury 3-, 10-, and 30-year auctions: Focus on long-end bid-to-cover ratios, indirect demand, and auction tails. Weak demand after the productivity improvement would make yields above 5% a clearer reflection of fiscal supply and term premium rather than near-term growth data.

Risk Disclaimer

This article is public market commentary and personal research notes. It does not constitute investment advice.