Tuesday, December 7, 2021

Markets extend yesterday's rally as investors reassess omicron risk

Dow rose 492 (with selling in the last hour), advancers over decliners about better than 3-1 & NAZ jumped an outstanding 461.  The MLP index added 2+ to the 175s & the REIT index advanced 6+ to the 488s.  Junk bond funds remained in demand & Treasuries were sold during the stock market rally.  Oil gained 2+ to the 71s & gold went up 6 to 1786 (more on both below).

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Pfizer (PFE) CEO Albert Bourla said the omicron variant of the virus that causes Covid-19 appears to be milder than previous strains, but also seems to spread faster & could lead to more mutations in the future.  “I don’t think it’s good news to have something that spreads fast,” Bourla said.  “Spreads fast means it will be in billions of people and another mutation may come. You don’t want that.”  White House chief medical advisor Dr Anthony Fauci said reports over the weekend from South Africa suggest omicron is not as severe as initially feared, while noting that more data is needed to fully assess the risk posed by the variant.  Bourla cautioned that it is difficult to draw definitive conclusions from the wave of infection in South Africa right now.  Just 5% of South Africans are over the age of 60 & younger people normally have milder cases of Covid.  However, many people in South Africa are also HIV positive, which would presumably lead to more severe disease from Covid, he added.  He expects the number of confirmed omicron cases to surge from dozens to Ms over the next few weeks.  The stock went up 24¢.
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Pfizer CEO says omicron appears milder but spreads faster and could lead to more Covid mutations

Reps may help Dems lift the debt ceiling after all — in their own way.  GOP congressional leaders have said for months that they will not vote with Dems to raise the debt limit & snuff out the threat of a first US default.  Top lawmakers may have found a new way for Dems to hike the borrowing cap before Dec 15, the estimated date when the Treasury will no longer be able to pay its bills.  The process would be complicated & carry risks.  If the House & Senate can pull it off, Congress would quash the risk of a default that could wreak havoc on the global economy & stock markets.  The strategy would tie the effort to raise the debt limit to a bill designed to prevent automatic Medicare spending cuts set to take place at the end of the year.  Lawmakers would pass a provision in the health-care bill that would allow the Senate to increase the debt ceiling one time with a simple majority vote.  Under the plan, at least 10 Reps would have to vote to allow Dems to hike the borrowing limit on their own.  Then Dems, who hold a majority in the 50-50 Senate thru VP Kamala Harris’ tiebreaking vote, could raise the debt ceiling in a separate vote without GOP support.  The House Rules Committee is set to consider a version of the Medicare bill that includes the debt-limit language.  The full House could pass it as soon as tonight.  If both chambers of Congress pass the legislation & Pres Joe Biden signs it, Dems can then hold separate votes to hike the debt limit.  The plan would raise the borrowing ceiling by about $2T, enough to carry the US thru the 2022 midterms, a source said.  Senate Majority Leader Chuck Schumer expressed confidence that Congress would stave off a default — without specifying how it would do so.

Democrats’ new plan to raise the debt limit will rely on some help from Republicans

The omicron Covid-19 variant that has prompted global travel restrictions & fresh vaccine mandates since its discovery in southern Africa last month has now been found in 50 countries & 19 states across the US, CDC Director Rochelle Walensky said.  “While we are still working to understand the severity of omicron as well as how it responds to therapeutics and vaccines, we anticipate that all of the same measures will at least, in part, provide some protection against omicron,” Walensky said & reiterated her call to get vaccinated.  Jeff Zients, who's leading the White House’s Covid response efforts, said vaccinations have surged with roughly 12.5M shots administered over the last week — 7M of which were booster shots.  “That’s the highest weekly total number of shots since May,” he said.  “So we’re now vaccinating people in numbers we haven’t seen since the spring.”  White House chief medical advisor Dr Anthony Fauci said scientists should have some data by the middle of next week that shows how well today's vaccines stand up to the new variant, which contains dozens of mutations that generally make it more contagious.

Omicron has spread to more than 50 countries and 19 U.S. states, CDC says

Gold futures settled higher, with prices for the most-active contract at their highest since Nov 26.  Recent spikes in gold invited a little profit-taking among existing owners but new buyers continue to enter the precious metals markets, taking a position in physical bullion ahead of the New Year.  The long-term appeal of precious metals as a portfolio & currency hedge still looks solid on the financial risks.  Feb gold rose $5 to settle at $1784 an ounce. 

Gold futures mark highest finish in over a week

Oil futures climbed with US prices settling at their highest in almost 2 weeks.  Traders view the omicron variant of COVID as a less virulent threat & expect global economic growth to be only marginally impacted.  Traders anticipate a robust holiday season for driving global economies.  Jan West Texas Intermediate crude rose $2.56 (3.7%) to settle at $72.05 a barrel, the highest front-month contract finish since Nov 24

Oil futures settle higher, with U.S. prices at their highest in nearly 2 weeks

Even with selling in the last hour, stocks had an outstanding 2 day rally.  The tech sector on NAZ was especially strong today.  However Congress coming up with last minute fixes for any budget matter is always worrisome.  A great many people, especially in DC, don't understand math & now they are slopping around mind boggling sums of money.  Raising the debt ceiling is a monumental task & asking those guys to manage it prudently is asking a lot!!

Dow Jones Industrials








Markets climb again as omnicron variant fears ease

Dow shot up 576, advancers over decliners about 10-1 & NAZ surged 446.  The MLP index gained 4+ to the 177s & the REIT index jumped 7+ to the 488s (record territory).  Junk bond funds traded higher & Treasuries slid lower in price.  Oil recovered 3+ to the 72s & gold added 4 to 1784.

AMJ (Alerian MLP index tracking fund)

CL=FCrude Oil72.19
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GC=FGold   1,779.90
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The US trade deficit narrowed sharply in Oct, falling from a record high as exports surged, gov data showed.  The Commerce Dept said the gap between what the US buys from other countries & what it sells to them plunged by 17.6% to $67.1B.  That's a $14.3B drop from Sep, when the trade deficit hit a record $81.4B.  It marked the first time since Jul that the trade deficit shrank.  Exports soared 8.1% to $224B– the highest on record – as some congestion in ports & warehouses cleared.  The increase was boosted by stronger outbound shipments of industrial supplies like crude oil.  Imports, meanwhile, rose 0.9% to $291B, the highest monthly total on record as Americans continued to buy more foreign-made goods like cars, cellphones & industrial supplies.  The overall trade deficit thru Oct surged by $162B, a 29.7% increase compared to the year-ago period.  The surge reflects pent-up consumer demand for goods after the coronavirus pandemic forced large swaths of the economy to shut down last year.  Exports increased $315B (17.9%) while imports increased $477B (20.7%).  The US goods & services deficit with China hit $28.3B in Oct – down from the $36.5B recorded in the previous month.   Exports increased $2.8B to $13.8B, while imports decreased $400M to $422B.  Experts say that as COVID-19 cases continue to fall & supply-chain disruptions begin to abate, the US trade deficit should begin to improve – though it may remain elevated thru the end of the year.

US trade deficit shrinks in October as exports rebound

The politics of small business owners is similar to the politics of the majority of Americans in one major way: it's become hyper-partisan.  But as Pres Biden's approval rating among entrepreneurs slips to an all-time low & Main Street confidence reverses to near its all-time low set Q1 when Biden's presidency began, it's not only Reps who are downbeat about the pre's handling of the economy.  The latest CNBC|Momentive Small Business Survey shows a decline in small business confidence & Biden's approval rating, with respondents who identify as independents primarily responsible for the downshifting & concerns about inflation a major influence over the data.  Concerns about the labor shortage remain high, but even more small business owners are seeing higher prices & supply chain disruptions, according to the survey: 75% of small business owners say they are experiencing higher supply costs, up from 70% in Q3 & 58% are experiencing supply chain disruptions, up from 55%.  Inflation tops the list of concerns, with 34% of small business owners citing it as the biggest risk to their business, followed by supply chain disruptions (23%) & Covid (17%).  The survey was conducted Nov 10-16 among 2078 self-identified small business owners, which was before news of the omicron variant.  Just 34% of small business owners now approve of the way Joe Biden is handling his job as pres, down from 40% in Q3 (it had been 43% in Q1).  Most of that decrease was among independents: 33% now approve of Biden, down from 51% in Q3.  Among Reps (9%) & Dems (89%), there was minimal movement in approval qtr over qtr.  Small business confidence remains extremely partisan.  The Small Business Confidence Index for Dems is 62, versus 35 for Reps.  Twice as many Reps as Dems who own small businesses (40% vs. 20%) say inflation is their top concern.  But just 22% of small business owners say the Biden Administration has been good for small businesses, while 62% say it has been bad for small businesses.  And among independents, 59% say Biden has been bad for small businesses, while 60% of independent small business owners say Biden has been bad for the economy.

Latest sign of President Biden’s inflation problem is on Main Street

Treasury yields were higher, as concerns eased slightly around the omicron Covid variant.  The yield on the benchmark 10-year Treasury note rose more than 1 basis point to 1.45% & the yield on the 30-year Treasury bond added less than a basis point to 1.762%.  Yields move inversely to prices & 1 basis point is equal to 0.01%.  Investors are keeping an eye on further developments around the omicron variant.  White House Chief Medical Advisor Dr Anthony Fauci said that the initial data on the variant is “encouraging,” though he cautioned that more information is needed.  In addition, investors are also monitoring the Federal Reserve’s plans to tighten monetary policy.  Comments by Fed officials suggest the central bank is likely to decide to double the pace of its taper to $30B a month at its Dec meeting next week.  Initial discussions could also begin as soon as the Dec meeting about when to raise interest rates & by how much next year.  US Q3 productivity fell 5.2% in the 3rd qtr for its biggest quarterly drop since 1960, the Labor Dept reported.  That was compared to the estimate of a 5% drop.

Treasury yields edge higher as omicron variant fears ease

Back to back surges in the Dow, don't see that to often.  And tech stocks are in demand on NAZ.  Again, all news is thought of as good while negative news is ignored.  However economic problems which are numerous have not evaporated & higher interest rates are around the corner.

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Monday, December 6, 2021

Markets advance on hopes for a strong holiday selling season

Dow rebounded 646 (not far from the highs), advancers over decliners 3-1 & NAZ climbed 139.  The MLP index crawled up to the 173s & the REIT index jumped 8+ to the 481s.  Junk bond funds edged higher.& Treasuries continued to be sold heavily while stocks were being purchased.  Oil recovered 3+ to the 69s & gold was off 4 to 1779 (more on both below).

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Live 24 hours gold chart [Kitco Inc.]




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The gov could run out of cash to pay its bills in just a few weeks if Congress fails to raise the federal debt ceiling, according to a new analysis from a think tank.  The forecast from the Bipartisan Policy Center shows the "X Date" – the day when Treasury Secretary Janet Yellen runs out of maneuvering room to prevent the US from broaching the debt ceiling – will take place sometime between Dec 21 - Jan 28.  "Those who believe the debt limit can safely be pushed to the back of the December legislative pileup are misinformed," Shai Akabas, the center's director of economic policy, said.  "Congress would be flirting with financial disaster if it leaves for the holiday recess without addressing the debt limit."  If the US failed to raise or suspend the debt limit, it would eventually have to temporarily default on some of its obligations, which could have serious & negative economic implications.  Interest rates would likely spike & demand for Treasuries would drop; even the threat of default can cause borrowing costs to increase.  Once the US runs out of money, Treasury would be unable to meet about 40% of all payments due in the several weeks that follow, according to the analysis.  "How Treasury would operate in such an environment is unclear," it said.  "Prioritization and delayed payments are two possibilities, but substantial uncertainty exists about operationalizing them."

The US government could run out of cash to pay the bills before Christmas

FedEx (FDX) forecasts will be its busiest day of the 2021 holiday season.  “We’ve seen a lot of people actually starting their Christmas shopping in the month of October, which is fundamentally different than we have seen traditionally in the past,” Ryan Kelly, VP of global e-commerce at FedEx said.  “What you see is a lot of messaging about shop and ship early, pulling sales forward, pulling promotions forward. A lot of retailers have really leaned into that this year.”  In Oct, FDX delivered approximately 96% of packages on time compared with 99% for UPS (UPS) & 99% for the US Postal Service.  On-time delivery above 95% is considered a sign of an efficient network, especially with 70% of e-commerce being delivered to homes, which is generally more time-consuming & less profitable than business delivery.  FDX estimates it will deliver 100M more packages this year than it did from Black Friday - Christmas in pre-pandemic 2019 & 10% more than the record 2020 season during Covid.  Kelly said the growing many leading retailers has reduced strain on shipping networks. “Some of the best retailers out there are really leaning into their retail stores. They have deployed inventory in those stores, it improves transit and lowers cost if a retailer leverages that localized inventory.”  The stock went up 4.19.
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FedEx sees another year of record holiday deliveries with Monday its busiest day

Pres Joe Biden will warn Russian leader Vladimir Putin that the US is prepared to impose severe economic countermeasures if Moscow carries out an attack on Ukraine, a senior administration official said.  The video call, set for tomorrow, will happen against a backdrop of amped-up tensions triggered in part by an alarming deployment of Russian troops & defense equipment along the country's border with Ukraine.  “These movements are consistent with the planning that we see underway for a military escalation in Ukraine,” the official said.  “We have had intensive discussions with our European partners about what we would do collectively in the event of a major Russian military escalation in Ukraine,” the official added.  “We believe that we have a path forward that would involve substantial economic countermeasures by both Europe and the United States that would impose significant and severe economic harm on the Russian economy, should they choose to proceed.”

Biden set to warn Putin of ‘substantial’ economic punishment if Russia attacks Ukraine

The US announced a diplomatic boycott of the 2022 Winter Olympics in Beijing, a move that had garnered bipartisan support from critics of China's human rights record.  While US athletes will still participate, Pres Biden's administration will not send any official representation to the games, given China's “ongoing genocide and crimes against humanity in Xinjiang and other human rights abuses,” White House press secretary Jen Psaki said.  Psaki was referring to China's reported treatment of Uighur Muslims in that northwestern territory, which has been declared a genocide both by Biden & the administration of former Pres Trump.  “The athletes on Team USA have our full support. We will be behind them 100 percent as we cheer them on from home. We will not be contributing to the fanfare of the games,” Psaki added.  “U.S. diplomatic or official representation would treat these games as business as usual in the face of the [People’s Republic of China’s] egregious human rights abuses and atrocities in Xinjiang, and we simply can’t do that,” she continued.  “We will continue to take actions to advance human rights in China and beyond.”  The move, which was expected, was preemptively criticized by China’s Foreign Affairs Ministry spokesman Zhao Lijian.  “It is a travesty of the Olympic spirit, it is political provocation, and an offense to the 1.4 billion Chinese people” he said.  “If the U.S. is insistent on going down the wrong path, China will take necessary resolute and countermeasures,” Zhao added.  The Chinese gov under Pres Xi Jinping has been condemned by dozens of countries over its actions in Xinjiang, as well as its crackdown against pro-democracy protesters in Hong Kong in 2019 & 2020.

U.S. diplomats will boycott Beijing Winter Olympics over human rights abuses 

Gold futures posted a modest decline, as a pickup in Treasury yields & the $ helped to dull appetite for the precious commodity, which has been held in check by uncertainties about the spread of omicron & Federal Reserve policies.  The most active Feb gold contract lost $4 to settle at $1779 an ounce, following a weekly decline of a smidgen for the most-active contract.  Gold also shot up around 1.2% on Fri.  Gold rose to end last week as a weaker-than-expected jobs report was seen as unlikely to derail the Fed's plan to reduce, monthly, market-supportive purchases of Treasuries & mortgage-backed securities, with the report leading a flight to assets perceived as safe.  However, the prospects of higher rates have weighed considerably on gold prices.  In today's dealings, the 10-year Treasury note was yielding 1.437%, up from 1.342%, while the $ was up 0.2%, as gauged by the ICE US Dollar Index.  Meanwhile, investors await the consumer-price index data due out Fri.

Gold ends lower Monday as inflation, Fed interest-rate outlook remain in focus

Crude-oil prices settled with a gain of nearly 5%, as concerns surrounding the omicron variant of coronavirus that causes COVID-19 eased a bit.  Other factors, including a move by the Saudis to raise crude prices for some buyers & rising tensions in the Middle East, helped to shift some focus away from the pandemic.  Recent reports have offered some cause for optimism about the new strain's potential impact on the economy.  The US's top medical adviser Anthony Fauci said that omicron didn't appear to produce a “great deal of severity” in cases, aligning with some early research that indicates that infections tend to be milder compared against other variants.  Meanwhile, Saudi Arabia increased its prices of Arab Light oil over the weekend for Jan that it sells to Asia & US by up to a 2-year high.  West Texas Intermediate rose $3.23 (4.9%) to settle at $69.49 a barrel after the US benchmark produced a weekly loss of 2.8% on Fri.  Prices today ended the session at their highest in a week.  In electronic trading after the settlement, the front-month WTI contract touched highs above $70.  Feb Brent crude, the global benchmark, rose $3.20 (4.6%) to settle at $73.80 a barrel, the highest finish since Nov 29.  Prices last week lost 2.4%, based on the front-month contract.  Last week, both WTI & Brent notched 6 straight weekly declines, marking the longest such streak since 2018

Oil settles at highest in a week, up nearly 5%, as omicron fears ease

The Fed's next monetary policy moves, in the face of the dual concerns of rising inflation & the Omicron variant, have become a central focus for investors.  The Dow began the day with a strong climb & the buyers kept coming for the entire session.  All news is treated as good & negative thoughts were dismissed.  Additionally, stocks were oversold recently.  Nov inflation news is coming at week's end & that could be sobering.

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