Dow dropped 138, decliners over advancers 2-1 & NAZ sank 184. The MLP index fell 2 to the 176s & the REIT index was steady in the 465s. Junk bond funds slid lower & Treasuries were in heavy demand related to the chaos in Afghanistan. Oil lost 1+ to the 66s & gold rose 11 to 1789.
AMJ (Alerian MLP index tracking fund)
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Shifting policy views amid unexpected economic data have opened the door for the Federal Reserve to announce in Sep a decision to taper its assets purchases & begin the reduction in buying a month or so after. Interviews with officials along with their public comments show growing support for a faster taper timeline than markets had expected a month ago. Those changing views follow the strong jobs data of the past 2 months along with higher inflation readings. Fed Governor Christopher Waller & Fed bank Pres's Eric Rosengren, Robert Kaplan & Jim Bullard have publicly called for a Sep taper. Atlanta's Raphael Bostic supported beginning the taper sometime between Oct & Dec, suggesting he could also favor a Sep announcement. The group is not known for being hawks, & in fact, some were among those making the earliest calls for historic Fed action to support the economy at the beginning of the pandemic. The Fed could yet delay the decision to the Nov meeting if the Aug jobs data is weak, the delta variant sparks a new round of economic lockdowns or inflation readings ease off. But stronger-than-expected inflation data this past week & forecasts that it could remain high into next year have bolstered support for the earlier taper announcement. Markets have also shifted expectations, giving the Fed leeway to act sooner. Respondents to the CNBC Fed Survey in Jul pegged Nov as the announcement month & Jan as the beginning of the taper. But a poll last week found Sep to be the new consensus. Fed Chair Jerome Powell has generally been more dovish than some members of his committee have become, though he has not spoken since the recent data came out. Powell has offered some hints that he could be persuaded to go earlier. While he has insisted that the bulk of inflation would be temporary, he also said, “We have to take seriously the risk case, which is that inflation will be more persistent.”
There’s growing support within the Fed to announce the tapering of bond purchases in September
China released economic data for Jul that showed slower-than-expected growth as the world's 2nd-largest economy battled floods & a resurgence of Covid-19. The slowdown was particularly apparent in individual Chinese consumer spending, despite authorities’ efforts to build up consumption as a driver of economic growth. The data showed consumers cut back on spending across the board, whether it was on big-ticket items like cars or lower-cost products like cosmetics that can be bought through online e-commerce platforms. Retail sales rose by 8.5% in Jul from a year ago, lower than the forecast 11.5%. Auto-related sales, the largest component of retail sales by value, was the only category to decline in Jul, down 1.8% year-on-year. The cosmetics sector was one of the slowest-growing categories, & sales grew just 2.8% in Jul from a year ago, versus growth of 13.5% in Jun. Online sales of physical consumer goods rose by 4.4% in Jul, far below an average of about 21% for the past 5 years. Bruce Pang, head of macro & strategy research at China Renaissance, attributed the sharp drop in online sales to massive shopping promotions in Jun, which were followed by logistics disruptions amid Covid-19 travel restrictions, floods & typhoons in Jul.
China’s online shopping growth plunges to just 4% in July
Treasury yields fell, with investor focus on minutes from the Federal Reserve's latest meeting, due to be published on Wed. The yield on the benchmark 10-year Treasury note fell nearly 5 basis points to 1.248% & the yield on the 30-year Treasury bond gave up almost 4 basis points, falling to 1.909%. Yields move inversely to prices & one basis point is 0.01%. Treasury yields fell sharply on Fri, after data showed US consumer confidence fell in Aug to its lowest point since 2011. Investors' focus this week will likely be on the Fed's latest meeting minutes, as they search for any clues as to when the central bank might start paring back its asset purchases. Auctions are due to be held today for $51B of 13-week bills & $48B of 26-week bills.
Treasury yields start the week lower with Fed meeting minutes in focus
Dow Jones Industrials
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