Thursday, March 1, 2018

Markets bounce back, awaiting Powell's second testimony

Dow recovered 93, advancers over decliners about 3-2 & NAZ added 10.  The MLP index gained 1 to 358.  Junk bond funds were mixed & Treasuries inched higher.  Oil lost 1+, taking it near 60, & gold gave back 13 to 1305.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil60.62
-1.02  -1.7%

GC=FGold  1,306.70

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Federal Reserve Chairman Jerome Powell is trying to do: pull off an unparalleled soft landing of a US economy with a rock-bottom unemployment rate.  Powell, who delivers his 2nd round of semi-annual testimony to Congress today, told lawmakers on Tues the next 2 years will be “good” ones for the economy.  If he's right, he'll be at the controls when the current US expansion becomes the longest on record.  It’s what comes afterward that has investors worried.  The concern: The Fed could end up crashing the US into a recession as it jacks up interest rates to prevent the labor market & the economy from overheating.   In his appearance this week before the House Financial Services Committee, Powell opened the door to the Fed raising rates 4 times this year as he acknowledged stronger economic growth may prompt policy makers to rethink their plan for 3 hikes.  Stocks have fallen in the 2 days since his testimony & futures early today pointed to further declines.  The yield on the 10-year Treasury note was 2.83%, 4 basis points lower than it was before Powell's testimony was released on Tues.

Powell Shoots for Soft Landing That’s Eluded Seasoned Fed Chiefs

Stocks slid & the $ gained as investors braced for Senate testimony by Jerome Powell, whose comments riled markets earlier this week.  Treasuries pared an earlier gain as inflation data matched expectations.  The S&P 500 was lower one day after tumbling more than 1%.  In Europe, the Stoxx 600 Index slumped as some earnings missed estimates & manufacturing data showed mounting signs growth momentum may have peaked.  Gold fell to its lowest level this year & crude retreated.  Traders are on edge before Powell's 2nd day of Congressional testimony after his comments on Tues about the strength of the economy opened the door to speculation that the Fed plans to quicken the pace of monetary tightening, a move investors worry could derail growth.  Elsewhere, the £ was flat after the EU published a draft Brexit treaty, squaring off with Prime Minister Theresa May.  The Australian $ dropped after business investment unexpectedly fell in the final 3 months of last year.

Stocks Resume Slide, Market Awaits Powell Remarks: Markets Wrap

US factories expanded in Feb at the fastest rate since 2004, indicating sustained strength in manufacturing as demand remains solid, figures from the Institute for Supply Management showed.  Factory index climbed to 60.8 (est 58.7) from 59.1 in prior month (readings above 50 indicate expansion).  Employment gauge jumped to a 4-month high of 59.7 from 54.2.  The measure of new orders eased to 64.2 from 65.4 while order backlogs climbed to 59.8 from 56.2.  Prices-paid index rose to 74.2, the highest since 2011, from 72.7.  The latest advance extends a series of healthy readings in the survey-based measure of manufacturing that’s being fueled by improving global economies & firm business investment.  It also comes on the heels of a late-year pickup in consumer spending, which advanced in Q4 at the fastest pace in more than a year.  The purchasing managers group's gauge of export orders was the strongest since 2011.  While orders & production were a touch weaker in Feb than the prior month, the readings are nonetheless robust.  The report showed factories are having some difficulty keeping up with demand.  The ISM index of order backlogs climbed to a 13-year high.  Delivery times also lengthened in Feb, with a measure reaching the 2nd-highest level since 2010.  That may help explain the rise in the group's gauge of manufacturing employment, which posted its largest month-over-month gain in more than 2 years.  In addition to firmer overseas & domestic sales, corp optimism is getting a lift from the recent tax-cut law & reduced regulation.  The ISM report showed 15 of 18 manufacturing industries indicated growth last month, led by printing, primary metals & machinery.  Production index dropped to 62 in February from 64.5 & a measure of export orders jumped to 62.8 from 59.8, marking a 4th straight advance (longest such stretch in 6 years).

Manufacturing in U.S. Expands at Fastest Pace Since May 2004

Buyers returned in the last hour, bidding up stocks.  Trading is choppy as everybody is waiting for Powell's comments shortly.   This is the start of a new month, but traders are very nervous, especially about the future of interest rate hikes.

Dow Jones Industrials

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