Dow plunged 346, decliners over advancers better than 3-1 & NAZ sank 274. The MLP index went up 2+ to the 168s & the REIT index fell 3+ to the 374s. Junk bond funds slid lower & Treasuries were heavilty sold, taking the yield on the 10 year Treasury up 7 basis points to 1.54%. Oil soared 2+ to the 64s & gold was off a big 18 to 1697 (more on both below).
AMJ (Alerian MLP Index tracking fund)
![Live 24 hours gold chart [Kitco Inc.]](https://www.kitco.com/images/live/gold.gif?0.2180338269244485)
Federal Reserve Chair Jerome Powell said that he expects some inflationary pressures in the time ahead but they likely won't be enough to spur the central bank to hike interest rates. “We expect that as the economy reopens and hopefully picks up, we will see inflation move up through base effects,” Powell said. “That could create some upward pressure on prices.” Markets reacted negatively to Powell's comments, with stocks sliding & Treasury yields jumping. Some investors & economists had been looking for him to address the recent surge in rates, with a possible nod toward adjusting the Fed's asset purchase program. The Fed currently is buying $120B a month in Treasuries & mortgage-backed securities. Recent market chatter has revolved around the central bank potentially implementing a new version of “Operation Twist,” in which it sells short-term notes & buys longer-dated bonds. According to Fed officials, the central bank is far from any action to try to influence the long end of yields, despite expectations. Powell instead reiterated past statements he has made on inflation in saying that he doesn't expect the move up in prices to be long lasting or enough to change the Fed from its accommodative monetary policy. He did note that the rise in yields did catch his attention, as have improving economic conditions. “There’s good reason to think that the outlook is becoming more positive at the margins,” he said.
Fed Chairman Powell says economic reopening could cause inflation to pick up temporarily
The central bank likely won’t raise its policy rate until 2023, said Philadelphia Fed Pres Patrick Harker. In an interview, Harker was asked about the bond market starting to price in the first Fed rate hike next year. “I can only speak for myself… I’m not looking at a hike anytime in 2022,” Harker said. “I mean we’ve got a long ways to go.” “There is so much uncertainty still in the economy. Let’s climb out of this pandemic and then see where we go,” he said. Harker forecast economic growth at 4% in 2021, with the unemployment rate falling to around 5% from its 6.3% level in Jan. Harker said inflation will come in at a 1.7% annual rate, still below the Fed's 2% longer-run target. “We are climbing out of this situation, it is going to be bumpy,” he added. Harker said his forecast only assumed a $900B stimulus package. Asked if he was worried that the larger package under consideration in Congress would lead to overheating, Harker said he saw no signs that inflation is running out of control. If inflation rises slightly above 2%, that is “more than acceptable,” he said. Asked if the Fed might need to push down longer-term interest rates, Harker said the Fed has its asset-purchase program & yield-curve control as tools if needed. But Harker displayed no willingness to take any additional easing steps. “At this point, I am firmly committed to holding where we are. When you are in the middle of the crisis, the fewer things you can change, the better,” he said.
Fed’s Harker sees no interest-rate hikes until 2023
Gold futures declined, with bullion settling at its lowest in 9 months, pressured by a strong rise in the $ & strength in Treasury yields. During a webinar, Federal Reserve Chair Jerome Powell said he would be concerned about a disorderly move in the bond market, but suggested that hadn't yet had a material impact on financial conditions. Against that backdrop, the $ moved up nearly 0.7% & headed for a weekly climb of 0.7%, while gold was heading for a weekly slide of 1.9% based on the most-active contract. Gold for Apr lost $15 (0.9%) to settle at $1700 an ounce, after trading as low as $1691. Prices based on the most-active contract marked their lowest settlement since Jun 5 after they lost 1% yesterday. Commodity dealers also digested economic reports with the number of new applications for US unemployment benefits rising slightly to 745K last week, signaling the economy is still a long way from recovering all the jobs lost during the coronavirus pandemic. The monthly jobs report will be released by the Labor Dept tomorrow.
Gold settles at 9-month low as Powell’s comments help strengthen the dollar, bond yields
Oil futures rallied, with US prices posting their highest finish since 2019 after OPEC & its its allies said they will rollover current production cuts to the end of Apr. The group (OPEC+) approved a “continuation of the production levels of March for the month of April.” Russia & Kazakhstan, however, will be allowed to boost production by 130K & 20K barrels per day, respectively, “due to continued seasonal consumption patterns,” it said. Saudi Arabia also extended its voluntary output cut of 1M barrels per day, which was due to expire at the end of Mar, thru the month of Apr. During the press conference, Saudi Arabia's Minister of Energy Prince Abdulaziz bin Salman said the Saudis will “gradually phase” back in the 1M barrels per day it has cut from its own production. West Texas Intermediate crude for Apr rose $2.55 (4.2%) to settle at $63.83 a barrel, registering the highest front-month contract finish since Apr 2019. May Brent crude, the global benchmark, rose $2.67 (4.2%) at $66.74 a barrel. That was the highest settlement since Feb 25. Crude had also rallied yesterday after it was reported that OPEC+ would consider rolling over existing curbs thru Apr.
U.S. oil prices log highest finish since 2019 as OPEC+ agrees to extend production curbs
The thought of higher interest rates is making investors nervous. Meanwhile, back in DC, the Senate is working on the stimulus package so it can get passed. They are talking about limiting payments to some of the upper income people & that is not going over well with progressives. The Dow has pulled back to where it was a month ago while NAZ is back to where it was 2 months ago. Tech stocks have lost their darling status.
Dow Jones Industrials
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