Markets fall after Fed keeps rates near zero but notes rising inflation

Dow declined 164, advancers over decliners 3-2 & NAZ was off 39.  The MLP index gained 4 to 179 & the REIT index slid back to the 427s.  Junk bond funds fluctuated & Treasuries inched higher in price.  Oil climbed higher in the 63s & gold added 1 to 1789 (more on both below).

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The Federal Reeserve said that it would maintain ultra-low interest rates & reaffirmed its commitment to other easing policies even as the economjic recovery from the coronavirus pandemic rapidly strengthens.  The central bank, as widely expected, held the benchmark federal funds rate at a range between 0%-0.25%, where it has been since Mar 2020, when COVID-19 forced an unprecedented shutdown of the nation's economy.  Since Jun, the Fed has also been purchasing $120B in bonds each month, a policy known as "quantitative easing" that's designed to keep credit cheap.  Policymakers unanimously pledged to maintain the current policy stance until "labor market conditions have reached levels consistent with the Committee's assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time."  Fed Chair Jerome Powell has previously said these conditions are unlikely to occur this year & economic projections from the last meeting show that most officials expect rates to remain near zero thru 2023.  About 7 of the 18 Fed officials at the meeting said they expect to start lifting rates in 2022 or 2023 -- an increase from Dec, when just five forecast a rate hike.  But officials acknowledged that the economic outlook has brightened drastically in recent months as vaccination rates have increased, business restrictions have eased & more Americans venture out to shop, eat at restaurants & travel.  On top of that, Pres Biden in Mar signed into law a sweeping relief plan that will pump another $1.9T into the nation's economy.  "Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened," the FOMC said.  "The sectors most adversely affected by the pandemic remain weak but have shown improvement."  Nevertheless, the Fed reiterated that the path of the economy ultimately depends "significantly on the course of the virus, including progress on vaccinations."   There are still roughly 8.4M fewer jobs than there were before the pandemic struck & the jobless rate remains at 6%, well above the ½-century low it sat at last Feb.  Although inflation has risen recently, policymakers called the uptick "transitory" & noted that it's running consistently below the Fed's 2% target.  "The ongoing public health crisis continues to weigh on the economy and risks to the economic outlook remain," the statement added.  It marked a slight improvement from the Mar statement, when policymakers said the health crisis "poses considerable risks to the economic outlook."

Fed keeps interest rates near zero even as US economic recovery heats up

India reported a record daily death toll as total Covid-19 fatalities crossed the 200K mark.  Gov data showed at least 3293 people died over a 24-hour period.  Overall cases also rose by a record 361K reported infections, marking India's 7th consecutive day of over 300K new infections.  The country's total number of Covid cases is just below 18M while the death toll stands at 201K.  Recent media reports, however, suggest the daily fatality number may be under-reported.  So far in Apr alone, the South Asian nation has reported more than 5.8M new cases, sending the country's health-care system to the brink.  The intl community responded with promises to send India desperately needed aid.  The US said it would send raw materials required for the South Asian country to manufacture AstraZeneca's  (AZN) vaccine.  India has so far administered more than 145M vaccine doses.  But, as of yesterday, only around 23.9M people have received their 2nd doses.

India reports record new fatalities, official Covid death toll tops 200,000

Gold futures registered a back-to-back loss, pressured by a rise in Treasury yields, then made only modest moves after the Federal Reserve left benchmark interest rates unchanged & said it would continue with its asset purchases.  10-year yields continued to head higher after the Fed news, with the 10-year Treasury note moving back above 1.64%.  Higher yields can be a drag on gold & other commodities because it raises the opportunity cost of holding assets that don't offer a yield.  A stronger $ can be a negative because it makes commodities priced in the currency more expensive to users of other currencies.  Gold for June traded at $1774 an ounce in electronic trading shortly after the Fed statement.  The contract fell $4 to settle at $1773 an ounce ahead of the news.  That was the lowest most-active contract finish since Apr 19.  Prices were flattish yetersday. 

Gold settles lower as Treasury yields rise, then modestly react to the Fed statement

The US trade deficit in goods rose in Mar for the 3rd month in a row & hit another record high, but the upsurge mostly stems from the American economy recovering faster than other countries.  The advanced trade gap in goods climbed 4% to $90.6B in Mar, the Census Bureau said.  An advanced look at wholesale inventories, meanwhile, showed a 1.4% increase in Mar & an early look at retail inventories revealed a 1.4% decline.  Imports of goods jumped 6.8% to a record $232B in Mar.  Americans are buying more goods generally during the pandemic & foreign producers of food, drinks, consumer electronic, autos & industrial supplies have all been big beneficiaries.  Exports increased 8.7% to $142B.  Exports have recovered more slowly than imports because the economies of other countries haven't recovered as rapidly as the US & the result has been softer demand for US goods.  The gov will release overall trade numbers for Mar next week, but the size of the trade deficit is generally tied to changes in exports & imports of goods.  Trade patterns involving services rarely change much from month to month.  A higher deficit subtracts from GDP, the official scorecard for the US economy.  Trade is one of the few areas that has been a relative weak spot in terms of GDP, but strong consumer & business spending have easily offset the drag.  The gov tomorrow is expected to report that GDP surged 6.5% in Q1.

Soaring U.S. trade deficit in goods hits record high – but there’s a silver lining

Oil futures climbed to score their highest finish in 6 weeks, a day after OPEC & its allies stuck with plans to continue gradually easing production curbs, signaling confidence in the demand outlook despite a surge in COVID-19 cases in India.  Prices extended their gains after a US gov report revealed a modest weekly increase in domestic crude & gasoline supplies, along with data showing a significant rise in implied demand for gasoline from a year ago.  West Texas Intermediate (WTI) crude for Jun rose 92¢ (1.5%) to settle at $63.86 a barrel.  Front-month Jun Brent crude, the global benchmark, rose 85¢ (1.3%) to $67.27 a barrel.  Jul Brent crude, the most actively traded contract, added 91¢ (1.4%) at $66.78 a barrel.  Based on the front-month contracts, both WTI & Brent registered the highest settlements since Mar 17.  Prices for both benchmarks gained more ground after a weekly report on petroleum supplies from the Energy Information Administration (EIA).  The report revealed that over the past 4 weeks, motor gasoline product supplied, a proxy for demand, has climbed by 67.5% from the same period a year ago, to average 8.9M barrels a day.  US crude inventories edged up by 100K barrels last week, the EIA said.  The forecast a decline of 200K barrels for crude stocks, while the American Petroleum Institute reported a 4.3M-barrel rise.  The EIA data also showed crude stocks at the Cushing, Okla, storage hub climbed by 700K barrels for the week.  Total oil production, however, edged down by 100K barrels to 10.9M barrels per day.  Yesterday, prices for oil also rose.  OPEC & its allies (OPEC+) decided, during a surprise meeting, to stick with a plan to gradually relax output curbs beginning next month.

Oil prices end at 6-week high on OPEC+ decision, signs of stronger demand

The Fed said what was expected although the mention of rising inflation bothered some investors.  An attempted rally late in the session failed in the last hour when sellers returned.  Biden will speak this evening & contents of his talk have been leaked.  He wants to spend more which will aggravate the rising deficit even though the economy is doing well.  Rising inflation is out there.  The increasing case load in India is becoming scary because it endangers the global economy.

Dow Jones Industrials