Tuesday, November 30, 2021

Markets sell off after Powell's omicron and inflation warnings

Dow dropped 652 with selling into the close, decliners over advancers 5-1 & NAZ declined 245.  The MLP index fell 3+ to the 173s & the REIT index dropped a big 9+ to the 469s.  Junk bond funds continued to be sold along with stocks.& Treasuries remained in very heavy demand taking the yield on the 10 year Treasury down an enormous 9 basis points to 1.44%.  Oil fell 3+ to the 66s & gold was off 8 to 1777 (more on both below).

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Federal Reserve Chair Jerome Powell acknowledged that he now expects high inflation to continue into the middle of 2022, stating that the gov should no longer push what had been a recurring slogan of it being "transitory."  During a hearing before the Senate Banking Committee, Powell noted that when the Fed says "transitory," they do not mean it as just referring to how long inflation will last, as the average person might expect.  Still, he said it is time to stop using the word.  "So I think the word transitory has different meanings to different people," Powell told Sen Pat Toomey,. "To many, it carries a time, a sense of short-lived. We tend to use it to mean that it won't leave a permanent mark in the form of higher inflation. I think it's probably a good time to retire that word and try to explain more clearly what we mean."  Powell claimed later that the Fed will not sit idly by& let inflation continue to climb indefinitely.  "We will use our tools to make sure that higher inflation does not become entrenched," he said.  In the Carter administration, the Fed jacked up interest rates as a means of combating inflation, which ultimately worked.  Powell admitted that the Fed was wrong in its prediction of how long the current high inflation will last & that they now believe it will continue well into 2022.  "I think we can now see certainly through the middle of next year," Powell said, adding that "forecasting is not a perfect art, as you may have noticed."  Sen John Kennedy certainly noticed.  "I realize that no one is clairvoyant but I think it’s fair to say that the experts who have been advising you about the future rate of inflation have pretty much the same credibility as those late night psychic hotlines you see on TV," he said.  Powell then explained that the ongoing supply chain issues plaguing the nation have thrown a wrench into their projections.  "So, I think what we missed about inflation was the we didn't predict the supply side problems. And those are highly unusual and very difficult, very non-linear, and it's really hard to predict those things," he added.  "But that's really what we missed. And that's why all of the professional forecasters had much lower inflation projections."

Powell admits Fed got it wrong on inflation, won't push 'transitory' narrative

As Americans bought gifts during the peak Thanksgiving shopping weekend, the discovery of the omicron variant made headlines & prompted action by public health officials.  National Retail Federation CEO Matt Shay said that the coronavirus strain could shake up spending patterns this holiday season & direct more $s toward electronics, toys, apparel & other items instead of vacations & movie tickets.  “We know, unfortunately, that when the variants have had a real impact on the economy, the goods side of the economy has actually benefited from that because people change behavior away from the experience side of the economy and spend more time and more dollars engaged in the goods side of the economy,” he added.  Holiday sales are expected to grow to an all-time high of $843-$859B of sales in Nov & Dec, which represents growth of 8.5-10.5% this year.  The trade group reiterated its rosy forecast for the holiday season.  Experience-based gifts — such as travel vouchers, restaurant gift cards & spa days — are expected to make a comeback this year as more Americans feel comfortable getting out again.  About 43% of consumers said they were planning to splurge on experiences & service gifts this holiday season, according to a survey of roughly 1500 US consumers in Aug by consulting firm Accenture.  The trend was more pronounced among younger generations, with 53% of millennials & 50% of Gen Z saying they were planning to spend on experiences.  Shay said the trade group feels confident about consumers' appetite to spend, despite the new variant.  He said the backdrop of the pandemic looks very different this holiday season, since more Americans are fully vaccinated.  “We think there’s a reason to be aware, a reason to follow the kinds of protocols we have been following all along about safe practices and getting vaccinated, but there’s not a reason to panic,” he continued.

Omicron fears could shift spending away from experiences, trade group says

White House chief medical advisor Dr Anthony Fauci said that 226 cases of the highly mutated omicron Covid-19 variant have been detected across 20 countries so far, but US officials haven't confirmed a case in the states yet.  The variant, which first emerged in South Africa about a week ago, has more than 30 mutations to the spike protein alone.  That's the key part of the virus that allows it to bind to human cells & infect the body.  It also makes scientists worry that it could evade vaccine protection or may be far more infectious than the already highly contagious delta variant that's caused a surge in cases across globe in recent months.  “This mutational profile is very different from other variants of interest and concern, and although some mutations are also found in delta, this is not delta,” Fauci told reporters.  “These mutations have been associated with increase transmissibility and immune evasion.”  There are several other mutations to the virus that scientists haven't seen before & don't know how they will change how the virus behaves or spreads, he added.

Fauci says omicron has already been found in 20 countries, but not yet in U.S.

Gold prices ended lower as comments from the head of the Federal Reserve suggested that the central bank might speed up tapering of its monthly asset purchases when it meets next month.  Federal Reserve Chair Jerome Powell told lawmakers that it would be appropriate for policy makers to consider speeding up the wind-down of the central bank's monthly asset purchases when they meet next month, prompting further declines in benchmark US stock indices.  Prices for the precious metal had been trading higher in the wake of some downbeat comments on the vaccine fight against the new COVID variant from Moderna's (MRNA) CEO, which prompted a decline in US stock market & raised the appeal of haven gold.  But the selloff in US stocks intensified, likely prompting some investors to sell gold to cover margin calls.  The most active Feb gold contract fell $8 (0.5%) to settle at $1776 an ounce, after trading as high as $1811 during the session.  Based on the most-active contracts, prices lost 0.4% for the month of Nov.  Gold futures also got a temporary boost after data revealed that the Chicago Business Barometer, also known as the Chicago PMI, fell to 61.8 in Nov from 68.4 in the prior month.  It is the lowest reading since Feb.  The index of consumer confidence also dropped to 109.5 from 111.6 in Oct, the Conference Board reported.  It was the 4th decline in the past 5 months.

Gold settles lower on Powell testimony amid concerns about omicron

Oil futures fell sharply, suffering their worst monthly decline since Mar 2020, with prices under renewed pressure after the chief executive of Moderna (MRNA) warned that vaccines are likely to be less effective against the omicron variant of the coronavirus that causes COVID-19.  West Texas Intermediate (WTI) crude for Jan fell $3.77 (5.4%) to settle at $66.18 a barrel.  Prices based on the front month fell nearly 21% for the month & also settled at the lowest since Aug 23.  Global benchmark Jan Brent crude, which expired at the end of the trading session, dropped $2.87 (3.9%) to end at $70.57 a barrel — down over 16% for the month.  Feb Brent, which is now the front-month futures contract, lost $3.99 (5.5%) to $69.23 a barrel.  Front-month WTI & Brent crude futures marked their biggest monthly net & percentage declines since Mar 2020 — the same month the World Health Organization declared the start of the COVID-19 pandemic.  WTI crashed below zero $s a barrel in Apr 2020.  Crude futures tumbled, alongside a renewed global fall in equities, after MRNA said that existing vaccines will likely be less effective against the omicron variant discovered late last week in southern Africa.  Oil dropped sharply Fri, with the US benchmark plunging 13%, after the discovery of the variant in southern Africa, with several countries moving to restrict flights from the region.  Crude bounced in Mon trade, but ended the session with modest gains before coming under renewed pressure.  The price drop & accompanying worries about the variant's effect on travel & activity are seen putting pressure on OPEC+ to pause monthly increases in oil production that would have lifted output by another 400K barrels a day in Jan.  OPEC+ is also weighing its response to the US decision last week to release 50M barrels of crude from its Strategic Petroleum Reserve — a move that was accompanied by releases in 5 other countries, including China & India.  OPEC is scheduled to hold technical meetings tomorrow & Thurs, ahead of the OPEC & a non-OPEC ministerial meeting, also planned for Thurs.

Oil prices suffer steepest monthly decline since March 2020

After yesterday's modest recovery, the Dow finished down 370 in the first 2 days of this week.  Dreary news, from the Fed tapering in its bond buying program to fears about the virus fighting back hard, is spooking investors.  Lower oil prices gives a mixed message.  Consumers like that but it also spells trouble for the economic recovery.  The Dow dropped 1365 in Nov & is back to where it was in May (on the way up).  More tough times lie ahead for the stock market.

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Markets drop as new virus variant rattles investors

Dow tumble 500, decliners over advancers better than 5-1 & NAZ decline 217.  The MLP index was off 3+ to 173 & the REIT index fell 3+ to the 475s.  Junk bond funds slid lower & Treasuries are in heavy demand.  Oil dropped 3 to 67 & gold pulled back 5 to 1779.

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CL=FCrude Oil 67.49
  -2.46 -3.5%





































GC=FGold   1,809.40
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Federal Reserve Chair Jerome Powell is set to tell Congress that the omicron variant could threaten the U.S. labor market and cloud the inflation forecast.  "The recent rise in COVID-19 cases and the emergence of the [omicron] variant pose downside risks to employment and economic activity and increased uncertainty for inflation,"  Powell wrote in prepared remarks that he will deliver before the Senate Banking Committee.  "Greater concerns about the virus could reduce people's willingness to work in person, which would slow progress in the labor market and intensify supply-chain disruptions."  Stocks suffered the worst drop of the year on Fri after the World Health Organization named omicron a "variant of concern."  Markets rebounded yesterday, as the Dow rose 0.7%.  Inflation concerns have roiled investors & consumers in recent months as prices for Americans shot up 6.2% in Oct compared to the same month in 2020, the highest 12-month jump since 1990, according to the Labor Dept.  Powell said that while the Fed expects inflation to slow down over the next year, the US could continue seeing high inflation in 2022.  "It is difficult to predict the persistence and effects of supply constraints, but it now appears that factors pushing inflation upward will linger well into next year," Powell wrote.  The Fed announced earlier this month that it will start tapering its $120B in monthly bond purchases by $15B a month, which would reduce some of those inflation pressures.

Powell to tell Senate virus may threaten job market, cloud inflation forecast

Consumers logged online yesterday & spent $10.7B, marking a 1.4% decrease from year-ago levels, according to data from Adobe Analytics.  This year's tally marks the first time that Adobe has tracked a slowdown in spending on major shopping days.  Adobe first began reporting on e-commerce in 2012, & it analyzes more than 1T visits to retailer websites.  Despite the slowdown, Adobe expects the entire holiday season will see record-breaking e-commerce activity, as shoppers spread out their $s over more days.  So far, from Nov 1 thru Cyber Monday, consumers in the US have spent $110B online, which is up 11.9% year over year.  And on 22 of those days, consumers purchased more than $3B worth of goods, another new milestone.  Adobe anticipates digital sales from Nov 1 - Dec 31 will hit $207B, which would represent record gains of 10%.  Last Cyber Monday, retailers rang up $10.8B in sales on the web, as more people stayed home & avoided shopping in stores due to the ongoing coronavirus pandemic, marking a record day for e-commerce purchases in the US.  The slight deceleration in online spending follows a similar pattern that played out on Thanksgiving day & on Black Friday this year, as shoppers appeared to have spread out their dollars onto more days rather than squeezing their shopping into “Cyber Week.”  Some of that behavior has been encouraged by retailers, including e-commerce behemoth Amazon (AMZN), that have been touting Black Friday style deals since Oct.  Retailers rang up $8.9B in sales online on Black Friday, down from the record of about $9B spent on the Friday after Thanksgiving a year earlier.  On Thanksgiving day, consumers spent $5.1B on the internet, flat from year-ago levels.  Stores were also a little less crowded on key shopping days this year versus pre-pandemic times, as retailers gave consumers less of a reason to line up outside the mall in the wee hours of the morning.  Shopper traffic on Black Friday was up 47.5% compared with year-ago levels, but was still down 28.3% versus 2019, according to separate data from Sensormatic Solutions.

Cyber Monday online sales drop 1.4% from last year to $10.7 billion

China's manufacturing activity rebounded in Nov as orders improved and power shortages eased, a survey showed.  An industry group & the national statistics agency said a monthly purchasing managers' index rose to 50.1 from October’s 49.2 on a 100-point scale.  The index spent the previous 2 months below 50, which shows activity decreasing.  A measure of production rose 3.6 points to 52, indicating activity was recovering from power rationing imposed in major manufacturing areas in Sep to meet official energy efficiency targets.  The recovery faces uncertainty due to the spread of the coronavirus's omicron variant.  Manufacturers also face supply shortages but that was offset at least partly by falling prices for materials.  A measure of new export orders rose 1.9 points to 48.5 while new orders overall improved by 0.6 points to 49.4, according to the federation & the National Bureau of Statistics.

China manufacturing improves as power shortages ease

Powell spoke & investors were not happy with what they heard.  Basically the inflation prognosis is not good.  Adding to that uncertainty, there its a lot worry about the virus causing more economic damage with the new variant.  Even safe haven gold has been hit with selling.  New headwinds make it difficult for bulls to make their case for stocks.

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Monday, November 29, 2021

Markets rebound after Biden says lockdowns are not needed for now

Dow bounced back 236 (150 below session's high), advancers over decliners about 5-4 & NAZ jumped 291.  The MLP index fell 3+ to 177 & the REIT index climbed 4+ to the 478s.  Junk bond funds inched higher & Treasuries were sold, bringing higher yields.  Oil rose 1+ to the 69s (below session highs) & gold crawled up 2 ro 1785 (more on both below).

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Pending home sales rebounded in Oct, motivated by fast-rising rents & an anticipated increase in mortgage rates.  According to the National Association of Realtors' (NAR) pending home sales index, which tracks the number of homes that are under contract to be sold, rose 7.5% to a reading of 125.2, but are down 1.4% year-over-year.  An index of 100 is equal to the level of contract activity in 2001.  Contract signings rose at the strongest pace in the Midwest & South regions, climbing 11.8% to 124.6 & 8% to 149.7, respectively.  Meanwhile, pending home sales in the Northeast increased 6.9% to 99.5, a 10% drop compared to a year ago & grew 2.1% in the West to 107.5, down 6.2% year-over-year.  The latest real estate data comes after existing home sales rose 0.8% in Oct to a seasonally adjusted rate of 6.3M units, the fastest pace since Jan.  Total housing inventory in Oct fell 0.8% month-over-month & 12% year-over-year to 1.25M units.  Unsold inventory, which is at a 2.4-month supply at the current sales pace, remains unchanged from the previous month & is down from 2.5 months a year ago.  "This solid buying is a testament to demand still being relatively high, as it is occ urring during a time when inventory is still markedly low," NAR chief economist Lawrence Yun said.  "The notable gain in October assures that total existing-home sales in 2021 will exceed 6 million, which will shape up to be the best performance in 15 years." 

Pending home sales rebound on fast-rising rents, mortgage rates

Consumers are projected to spend $10.2-11.3B on Cyber Monday, making it the biggest online shopping day of 2021, according to new data from Adobe.  By comparison, US consumers doled out $10.8B during Cyber Monday last year.  This year's prediction comes just after Adobe saw decreased online spending on Thanksgiving Day & Black Friday for the first time since 2012, when the firm first began reporting on e-commerce. Black Friday sales totaled $8.9B, down from $9B in 2020, while Thanksgiving Day shopping amounted to $5.1B in spending, which was equal to last year's total.  Online shopping was also down on both Sat & Sun.  Consumers spent a total of  $4.5B on Nov 27, down 4.3% year over year, while consumers spent $4.7B on Nov 28, down 0.5% compared to 2020.  Adobe says figures on these big shopping days are down in part because consumers began filling their virtual shopping carts earlier this season.  During Nov 1-28, consumers spent $99.1B, which is up 13.6% compared to a year ago.  "Online sales on big shopping days like Thanksgiving and Black Friday are decreasing for the first time in history, and it is beginning to smooth out the shape of the overall season," Taylor Schreiner, Adobe's digital insights director, said.  So far, 21 days in Nov have already exceeded $3B in online spending.  By this time last year, only 8 days surpassed the $3B mark.  "It shows not only the effectiveness of early deals in Oct. 2021, but also how much consumers have taken supply chain issues seriously," Adobe said.  Adobe projects spending over the course of the entire season, Nov 1 - Dec 31, to hit $207B in online spending, which is a 10% growth compared to a year ago.

Cyber Monday shopping: Consumers projected to spend up to $11.3B

Pres Biden's administration stands ready to release even more barrels of oil from its strategic reserves should the need arise again, according to the State Dept's senior advisor for global energy security.  “Absolutely. This is a tool that was available to us and will be available again,” Amos Hochstein said in Dubai, the UAE.  His comments come as energy analysts assess the effectiveness of a US-led pledge to release Ms of barrels of oil from strategic reserves after OPEC+ producers had resisted calls to pump more to help cool the market.  “Remember, this was not a 50-million-barrel release, 30 million barrels were an exchange where companies and traders can take the oil now and return it over a scheduled period of time. That means the Strategic Petroleum Reserve will be replenished,” Hochstein added.  “And therefore, we have more flexibility to be able to do this again in the future if the need arises. I think we wanted to do something that was impactful for the market and that also had the ability and the flexibility to allow us to do that again should the need arise for the American economy.”  In the first such move of its kind, Biden announced on Nov 23 the coordinated release of oil between the US, India, China, Japan, South Korea & the UK.

U.S. energy envoy says Biden stands ready to release even more oil reserves

Pfizer (PFE) CEO Albert Bourla said he expects the company’s Covid-19 treatment pill to be effective against the omicron variant of the virus causes Covid-19.  “The good news when it comes to our treatment, it was designed with that in mind, it was designed with the fact that most mutations are coming in the spikes,” Bourla added.  “So that gives me very high level of confidence that the treatment will not be affected, our oral treatment will not be affected by this virus.”  PFE submitted its application earlier this month to the Food & Drug Administration to authorize the pill, Paxlovid, for emergency use.  In a clinical trial of people age 18 & over, PFE found the pill reduces hospitalization & death by 89% when taken with a widely used HIV drug within 3 days of the start of symptoms.  The pill blocks an enzyme the virus needs to replicate.  It is used in combination with HIV drug ritonavir, which slows the human metabolism to allow the Paxlovid to remain active in the body longer at a higher concentration to combat the virus.  Bourla said that PFE now expects to manufacture 80M courses of the pill, an increase from the company's original 50M manufacturing goal. The Biden administration has already bought 10M courses of Paxlovid in a $5M deal.  The stock was off 1.60.
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Pfizer CEO confident Covid treatment pill will be effective against new variant

Gold futures declined, with prices for the haven metal settling below $1800 an ounce for a 4th session in a row — failing to find much support even as the emergence of a new coronavirus variant sparked a US stock market selloff on Black Friday.  Feb gold edged down by $2 to settle at $1785 an ounce.  Dec, the front-month contract, lost $3 to end at $1782 an ounce.  Based on the most actively traded contracts, prices fell 3.6% last week & haven't settled above $1800 since Nov 22.  Trading on Fri saw gold rise but most of its early gain receded in a shortened session the day after Thanksgiving, as the World Health Organization's technical advisory group declared omicron a “variant of concern,” with several countries imposing flight bans from countries in southern Africa.  Treasury yields were rising today as US benchmark stock indices were mixed in the wake of their worst day in more than a year on Fri.

Gold futures settle below $1,800 for a 4th straight session

Oil futures rallied to recoup a portion of the steep decline on Fri, as markets scrambled to assess the coronavirus variant omicron.  Investors are also awaiting the outcome of this week's OPEC meetings, some of which have reportedly been delayed due to recent price action.  Declared a “variant of concern” by the World Health Organization’s technical advisory group, the new strain has sparked fresh travel restrictions around the globe.  For the commodity, investors are worried about weakness in demand as recoveries potentially get tripped up.  West Texas Intermediate crude for Jan was up $1.80 (2.6%) to settle at $69.95 a barrel, after touching an intraday high at $72.93.  The contract slid $10.24 (13.1%) to close at $68.15 a barrel on Fri, the biggest one-day drop for a front-month contract since Apr 2020.  Global benchmark Jan Brent, which expires at the end of tomorrow's trading session, rose 72¢ (1%) to $73.44 a barrel.  On Fri, Brent tumbled $9.50 (11.6%) to $72.72 a barrel, the biggest one-day percentage decline since Apr 2020, with both WTI & Brent seeing their lowest closes since Sep 9.  Fri's selloff came on a shortened day of trading following the Thanksgiving Day holiday, with lower volumes potentially exacerbating any moves.  The view that Fri's selling went too far was gaining momentum at the start of the week, as US benchmark stock indices traded on a mixed note.  A growing view emerging from last week is that the sharp selloff will give major oil producing nations a reason to pause planned production increases.  A pair of technical meetings for OPEC+ this week has reportedly been shifted so that the group can assess the variant.  OPEC & allies (OPEC+) pushed a joint technical committee to Wed from today.  A joint ministerial monitoring committee has reportedly been shifted to Thurs from Tues.  Meanwhile, negotiations to restore the 2015 Joint Comprehensive Plan of Action, also known as the Iran nuclear deal, were held today, according to a tweet from Russian Ambassador Mikhail Ulyanov.  The participants agreed on “further immediate steps during the seventh round of negotiations which started quite successfully,” Ulyanov tweeted.

Oil prices claw back some of Friday’s rout, as traders eye omicron variant, OPEC+ developments

All considered this was a lackluster rebound for the stock market.  While tech stocks on NAZ were in demand, NYSE market breadth was not impressive.  Retail sales look to be good.  But the virus story remains unclear & those guys in DC have to fund the gov for the rest of the fiscal year raise the debt ceiling shortly.  There are also serious questions about demand for oil, which has ended oil's recent rally.  A lot of investors are nervous.    

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