Markets seesaw in very choppy trading

Dow fell 469 with selling into the close, decliners & advancers were even, & NAZ rebounded 72.  The MLP index was off 4+ to the 154s & the REIT index fell 4+ to the 383s.  Junk bond funds went up & Treasuries remained in heavy demand taking the yield on the 10 year Treasury down to 1.467%.  Oil gave back almost 2 to the 61s & gold plunged 49 to 1726 (more on both below).

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The decline in Covid-19 cases reported in the US since early Jan may be flattening, a concerning shift as highly transmissible variants threaten to exacerbate infections, the head of the Centers for Disease Control & Prevention said.  “Over the last few weeks, cases and hospital admissions in the United States have been coming down since early January, and deaths have been declining in the past week,” CDC Director Dr Rochelle Walensky said.  “But the latest data suggest that these declines may be stalling, potentially leveling off at still a very high number.”  The nation is now reporting a daily average of 73K new cases over the last week, a slight uptick compared with a week ago, according to data compiled by Johns Hopkins University.  The US peaked at close to 250K cases per day in early Jan following the winter holidays.  The recent shift may be a sign that new, highly transmissible variants of the coronavirus are beginning to take hold, Walensky said.  One variant, known as B.1.1.7 & first found in the UK, is expected to become the predominant strain by mid- to-late Mar, experts have predicted.  The B.1.1.7 variant appears to account for roughly 10% of new Covid-19 cases in the US, up from just 1% a few weeks ago, Walensky added.  However, some states have more cases of the highly transmissible variant than others.  Top US health officials have warned in recent weeks that the variants could reverse the current downward trajectory in infections in the US & delay the nation’s recovery from the pandemic.  The head of the federal health agency said states shouldn't begin to lift restrictions on businesses & gatherings given the direction of cases & high level of viral spread.  “I want to be clear: Cases, hospital admissions and deaths all remain very high, and the recent shift in the pandemic must be taken extremely seriously,” Walensky said.

CDC director warns recent decline in U.S. Covid cases may have stalled as variants spread

The number of confirmed cases of the coronavirus-borne illness COVID-19 climbed above 113M, amid a flurry of positive vaccine news & as a regulatory advisory committee gathered to review Johnson & Johnson's (JNJ), a Dow stock & Dividend Aristocrat, vaccine candidate for a possible emergency use authorization.  There are high hopes that the Food & Drug Administration's (FDA) advisory committee team of experts will vote that the benefits of JNJ's vaccine outweigh the risks, as it is expected to greatly enhance the global effort to get jabs in arms.  The vaccine is a one-dose regimen, unlike the ones that have already been granted emergency use which require 2 doses weeks apart.  It also comes without the refrigeration requirements that make administering doses tricky.  The FDA said earlier this week that the JNJ dose does not appear to have safety issues.  The stock fell 4.75 (3%).
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Global COVID cases top 113 million as FDA committee meets to vote on J&J vaccine

The Chicago Business Barometer, a measure of business conditions in the Chicago region softened to 59.5 in Feb from a strong 63.8 reading in the prior month, according to MNI Market News International.  The Jan reading was the highest since Jul 2018.  The forecast had expected the index to slip, but only to 61.  Any reading above 50 indicates improving conditions.  The index, known in market shorthand as the Chicago PMI, is the last of the regional manufacturing indices before the closely-watched national ISM data for Feb is released on Mon. The national ISM index fell to 58.7 in Jan from a revised 60.5 in the prior month, the 8th straight month the headline index was above the 50% break between expansion & contraction. 

Chicago factory performance retreats in February after hitting highest level since 2018

The US trade deficit in goods widened to $83.7B in Jan from a revised $83.2B in the prior month, the Commerce Dept said.  It was the 2nd highest gap on record.  Imports of goods such as consumer electronics rose 1.1% to $219B in Jan.  Goods imports were up 8.2% compared to a year earlier.  Exports rose 1.4% to $135B were down 0.7% compared with one year ago.  An advanced look at wholesale inventories, meanwhile, showed a 1.3% gain in Jan.  And an early look at retail inventories showed that category down 0.6%.  Auto inventories fell a sharp 1.4% in the month.  A fuller report on the US trade deficit that includes services such as tourism & finance will be issued next week.  The US usually has a strong surplus in services because of tourism, but the sector has suffered during the pandemic.

U.S. trade deficit widens slightly in January, second highest on record

Gold futures fell for a 4th straight session to suffer the biggest monthly loss in over 4 years, as a dramatic rise in gov bond yields undercut demand for the precious metal, pulling prices down to their lowest finish since Jun.  The metal extended its slide as a perkier $ combined to provide a further drag, with gold for Apr delivery off $46 (2.6%) to settle at $1728 an ounce, the lowest finish since last Jun.  Gold based on the most-active contract saw a weekly decline of 2.7% & a loss of 6.6% for the month, which was its largest monthly fall since 2016.  Yesterday, the 10-year benchmark Treasury note, touched a yield near 1.54% intraday, compared with 1.34% last Fri.  A firmer $ today, with the buck up 0.8% was also weighing on bullion.   Vaccine rollouts & hope for a bounce back from the COVID-19 pandemic in H2 has been one of the key drivers of the improved outlook for the economy and for the selloff in bonds, with prices falling as yields rise.  US data released today showed that the Chicago Business Barometer, a measure of business conditions in the Chicago region, softened to 59.5 in Feb from a strong 63.8 reading in the prior month.  However, the final reading of consumer sentiment in Feb inched up to 76.8 points from 76.2 earlier in the month, according to a survey produced by the Univ of Mich.

Gold prices book lowest close since June and steepest monthly drop in four years

Oil futures settled sharply lower, with a rise by the $ & jitters ahead of next week's meeting of OPEC & its allies prompting the US crude benchmark to pull back from a 22-month high.  The US contract, however, still gained nearly 18% for the month, to tally a 4th-consecutive monthly climb.  OPEC+ ministers are scheduled to meet on Mar 3 & 4 to discuss production curbs.  The elephant in the room is what Saudi Arabia will do with regard to its unilateral output cut of 1M barrels per day in Feb & Mar.  The rise in oil prices may stir calls to loosen the curbs, driven in part by fears US shale producers & others will increase output in response to stronger prices and take market share from OPEC+ members.  West Texas Intermediate crude for Apr fell $2.03 (3.2%) to settle at $61.50 a barrel, after posting its highest front-month close since May 1, 2019 yesterday.  Prices ended nearly 18% higher for the month.  The front-month global benchmark Apr Brent crude contract expired at the end of the trading session.  The contract settled at $66.13, down 75¢ (1.1%) for a monthly gain of 18%.  May Brent crude, which is now the front month, lost $1.69 (2.6%) at $64.42 a barrel.

Oil futures settle lower, but U.S. benchmark logs a monthly gain of nearly 18%

The chart below tells the story in Feb for the Dow & NAZ.  They rose in the first few days of the month followed by the averages trending sideways.  The news on the vaccine front is good, but over the short term eyes are watching the goings on for the stimulus bill which faces an uncertain future next week.

Dow Jones Industrials

Markets struggle on fears of rising interest rates

Dow declined 337 (but off early lows), decliners over advancers 2-1 & NAZ went up 75 following recent selling.  The MLP index dropped 4 to the 154s along with weakness in the oil market & the REIT index was fractionally lower to the 387s.  Junk bond funds crawled higher & Treasuries continue to be in demand.  Oil fell 1 to the 62s & gold plummeted 45 to 1730

AMJ (Alerian MLP index tracking fund)

CL=F Crude Oil 62.12   -1.41 -2.2%

GC=F Gold    1,728.70 -46.70 -2.6%

 

 

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Bouncing back from months of retrenchment, America's consumers stepped up spending by a solid 2.4% in Jan in a sign that theeconomy may be making a tentative recovery from the pandemic recession.  The report from the Commerce Dept also showed that personal incomes, which provide the fuel for spending, jumped 10% last month, boosted by cash payments most Americans received from the gov.  The Jan spending increase followed 2 straight monthly spending drops that had raised concerns that consumers, who power most of the economy, were hunkered down, too anxious to travel, shop & spend.  Last month's sharp gain suggests that many people are growing more confident about spending, especially after receiving $600 checks that went to most adults last month in a federal economic aid package.  The gov also reported that inflation by a measure preferred by the Federal Reserve rose a moderate 0.3% in Dec.  That left prices up 1.5% over the past 12 months, well below the Fed's 2% target.  Concerns that a strengthening economy will accelerate inflation have sent bond yields surging.  Yesterday, the yield on the 10-year Treasury note moved above 1.5% — a level not seen in more than a year & far above the 0.92% it was trading at only 2 months ago.

US consumers rebound to boost spending 2.4% as income jumps

The economy grew at a slightly faster pace in the final 3 months of 2020 than first thought, ending a year in which the overall economy shrank more than it had in the past 7 decades.  Gross Natioinal Product — the broadest measure of economic health — grew at an annual rate of 4.1% in Q4, up from an initial estimate of 4% growth, the Commerce Dept reported.  The revision does alter the nation's annual GDP which shrank 3.5%, the largest decline since 1946 when the US demobilized after World War II.   However, economists believe 2021 will see a significant rebound, helped by further gov stimulus, more widespread distribution of vaccines & continued low-interest rate policies from the Federal Reserve.  Some expect GDP growth in the current qtr could top 9% & for the year, economists are forecasting GDP growth perhaps as high as 6%. That would be the fastest annual GDP growth since the economy expanded 7.2% in 1984 when Ronald Reagan was pres.  The new forecasts represent a significant rebound in optimism in the past month as coronavirus cases have started to come down, sparking a big jump in retail sales.

Government revises fourth quarter GDP up slightly to 4.1%

Americans are still unsure how rapidly the US economy will recover from the pandemic & restore Ms of jobs that have been lost even as the rate of vaccinations speeds up, a new survey showed.  The final reading of consumer sentiment in Feb inched up to 76.8 points from 76.2 earlier in the month, according to a survey produced by the Univ of Mich, matching the forecast.  The overall consumer sentiment index is still 25 points below its precrisis peak, however.  The index of current conditions was unchanged at 86.2 vs. the preliminary Feb reading & down slightly from Jan.  Hopes for a stronger economy later in the year were also muted.  A forward-looking gauge on what consumers expect 6 months from now edged up to 70.7 from 69.8 earlier in the month, but it was still below Jan's mark of 74, the weakest reading in 3 months.  The biggest decline in optimism occurred among households with incomes below $75K a year.  They are facing more financial stress during the pandemic than upper-income Americans who are more likely to work in jobs that can be performed remotely.  The economy got a shot in the arm in Feb, literally, from a rising number of people getting coronavirus vaccinations.  Even more helpful were expanded unemployment benefits & another round of stimulus checks for most families totaling up to $600.  The increasing pace of vaccinations & another nearly $2T in federal stimulus that's set to be approved in the next month will keep the momentum going & should give Americans more reason for optimism in the coming months.

Consumer sentiment improves slightly in late February, but Americans still have big doubts about the economy

Investors are nervous to see the dramatic increase in interest rates during recent months.  Additionally, the bloated relief bill looks to be shaky assuming it gets to the Senate.  Consumer spending data for Jan did not stimulate demand for stocks & the Dow is back to where it was on Feb 4 (shown below).  

Dow Jones Industrials

 

Markets fall as yield on the 10 year Treasury rises to 1.49%

Dow tumbled 559, decliners over advancers a huge 7-1 & NAZ plunged 478.  The MLP index fell 3+ to the 158s & the REIT index dropped a very big 7+ to the 387s.  Junk bond funds declined along with stocks & Treasuries were heavily sold, taking the yield on the 10 year Treasury up 11 basis points to 1.49% (not seen in more than a year).  Oil edged higher in the 63s & gold sank 24 to  1773 (more on both below).

AMJ (Alerian MLP Index tracking fund)

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The 10-year Treasury yield briefly topped the 1.6% level today, hitting its highest level in more than a year.  The yield on the benchmark 10-year Treasury note climbed was trading at 1.49%, up about 10 basis points on the session.  The yield on the 30-year Treasury bond rose to 2.29%.  Yields move inversely to prices.  The 10-year traded as high as 1.614% during the session, which was the highest level since Feb 14, 2020.  Some traders described the jump above 1.6% as a “flash move,” & yields quickly fell back to near 1.5%.   The move higher in rates is unnerving investors fearing it could be driven by inflation rather than economic recovery.  The 10-year yield ended Jan at 1.09% & closed 2020 well under 1%.  So it's moved more than a ½ percentage point in under 2 months, quite rapid for the bond market and relative to rates at these historically low levels.  The move marked the first time the 10-year has traded above 1.5% since Feb 21, 2020.  Market-based measures continue to show signs of inflation pressures.  Though consumer prices were up just 1.4% from a year ago in Jan, recent indicators of retail sales, durable goods purchases & service sector prices have shown inflation in the pipeline.  The 5-year breakeven rate, an indicator of the bond market's expectations for inflation, rose to 2.38% yesterday, its highest level since before the financial crisis in 2008.  Still, policymakers continue to downplay the possibility of troublesome inflation ahead as the US recovers from the Covid-19 pandemic.  “We could have a surge in spending as the economy reopens. We don’t expect that to be a persistent longer-term force, so while you could see prices move up that’s a different thing from persistent high inflation, which we do not expect,” Federal Reserve Chair Jerome Powell said during a Senate committee hearing yesterday.

The 10-year Treasury yield jumps above 1.6% in a rapid move, unnerving investors

Gold futures tallied a 3rd straight decline as gov bond yields extended their climb to the highest level in a year, raising the opportunity cost of owning nonyielding gold over sovereign debt.  A rise in bond yields, with the 10-year Treasury note advancing to above a psychological threshold at around 1.5%, has put pressure on stocks & gold, forcing investors to reassess the relative value of owning either asset against the backdrop of richer rates from risk-free Treasuries.  Gold for Apr fell $22 (1.3%) to settle at $1775 an ounce, following losses in each of the past 2 sessions.  Yesterday, prices marked the first finish below $1800 since Fri.  2 days of congressional testimony from Federal Reserve Chair Jerome Powell, as part of regular semiannual hearings helped to placate markets yesterday.  Powell told the House Financial Services Committee that the Fed will maintain ultralow interest rates and continue hefty asset purchases until “substantial further progress has been made” toward its employment & inflation goals, echoing what he said on Tues in front of the Senate Banking Committee.  Powell emphasized that the central bank's efforts to get the economy back to normal from the COVID-19 pandemic are “likely to take some time” to achieve.  Progress on vaccination rollouts & boosters for virulent variants of the deadly disease are also helping to support a bullish outlook for the economy in H2, which adds to pressure on bond prices, which fall as yields rise.  Data today showed that orders for durable goods—products meant to last at least 3 years — rose 3.4% in Jan, the biggest increase in 6 months.  The US economy, meanwhile, expanded at an annual 4.1% pace in Q,4-2020 instead of 4%.

Gold marks third straight session decline as 10-year Treasury yields tap 1.5% 

Concerns that the Federal Reserve could be repeating mistakes that led to an explosion of inflation in the late 1970s don't take into account that the central bank has a 2% inflation target, St Louis Fed Pres James Bullard said.  Last week, former Treasury Secretary Larry Summers recently said the central bank is facing “inflationary pressures of a kind we have not seen in a generation” & is making a mistake for promising to keep interest rates low.  “The Fed failed in the 1970s. And I think if the Fed wants not to fail, they are going to have to start recognizing the reality of those challenges and that is going to mean a significant change in their tone,” Summers said.  The consumer price index rose over 13% in 1979.  It has been a cautionary tale for the central bank ever since.  Former Fed Chair Paul Volcker pushed interest rates almost up to 20% to bring inflation under control.  Asked for comment, Bullard said that his view of the 1970s is that the Fed had little credibility & there was a debate over whether inflation was even the central bank’s responsibility.  “That’s completely different from the inflation-targeting era that began in the 1990s and continues today,” Bullard said.  In 2012, the Fed formally adopted a 2% longer-run inflation target.  “So I have a hard time mapping anything that’s going on now back to what was happening in the 1970s,” Bullard added.  Some economists are concerned that strong growth in money supply aggregates last year & early in 2021 could lead to higher inflation.  Bullard said the theory that money aggregates lead to inflation also assumes such growth will continue.  But under the Fed's 2% inflation target, the central bank is saying that it is going to act in such a way in the future that will keep inflation under control, he noted.  Bullard said that all 3 leading theories economists use to forecast inflation trends — money growth, higher fiscal deficits & strong growth — are pointing higher.  “No matter which of those three theories is your favorite as far as causes of inflation, all three are pointing to higher inflation in 2021,” he continued.  But the Fed will be less preemptive to hike rates at the first “whiff” of inflation pressure, Bullard said.  Inflation has been running at a 1.6% rate since 2012 so the Fed could miss on the “high side” by a ½-a-percent for some time & still achieve its 2% average inflation target, he said.  Bullard said the recent rise in the 10-year Treasury yield “is appropriate” given the improving growth outlook & rising inflation expectations.  He noted that the 10-year yield has not reached its pre-pandemic levels.  Asked if the Fed would begin to slow down its bond-buying purchases this year, Bullard said it was too soon the speculate.  “I gave a rosy outlook today… but I would definitely want to see whether this materializes or not before getting into any adjustments to policy,” Bullard said.  “I just think we’re going to have to see the further progress before we even start that conversation,” he added.  The Fed has said it will continue to purchase at least $120B of bonds & mortgage-backed securities each month until there has been “substantial progress” in meeting is goals of a healthy labor market & steady 2% inflation.

Fed’s Bullard dismisses concern of a repeat of the late-1970s inflation fiasco

Oil futures were mixed, with the US benchmark posting its highest close in nearly 22 months, while global benchmark Brent crude suffered its first loss in 4 sessions.  Speculation that major oil producers next week will discuss a potential increase in production levels put pressure on Brent, after 3 straight days of gains lifted it to 13-month highs.  Signs of a recovery in energy demand, following upbeat US economic data, as well tighter domestic oil supplies, provided some support for US oil.  West Texas Intermediate crude for Apr rose 31¢ (0.5%) to settle at $63.53 a barrel.  That was the highest front-month contract finish since May 1, 2019.  During the session, prices had also spent time trading lower, touching a low of $62.65.  The front-month Apr Brent crude, which expires tomorrow, lost 16¢ to $66.88 a barrel, while the most-active May Brent crude contract fell 7¢ to close at $66.11 a barrel.  OPEC & its allies (OPEC+) will gather next week & are expected to make a decision on production quotas that would likely take effect in Apr.  A report said OPEC+ may discuss a production increase of 500K barrels a day when the group meets.  OPEC+ will hold a committee meeting on Mar 3, followed by the main decision-making gathering Mar 4.

U.S. oil benchmark closes at a nearly 22-month high, while Brent crude suffers first loss in 4 sessions

Stocks traded lower as a rapid rise in Treasury yields spooked equity investors.  With the longer term bull markets, yields were not getting much attention.  But now they are & investors are worried about the future.  The Dems will be pushing their almost $2T relief package tomorrow which should be the major driver for stocks.

Dow Jones Industrials