Markets edge higher while investors weigh inflation data

Dow climbed 104, advancers modestly ahead of decliners & NAZ went up 10.  The MLP index added 2+ to 191 & the REIT index was off 1 to 481.  Junk bond funds were bid a little higher & Treasuries dropped in price.  Oil jumped about 1 to the 82s & gold gained 10 to 1827 (more on both below).

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Americans' inflation fears continued to accelerate in Oct, climbing for the 12th consecutive month in a row to another record high, according to a key Federal Reserve Bank of New York survey.  The median expectation is that the inflation rate will be up 5.4% one year from now, the highest level for the gauge since its launch in Jun 2013, according to the New York Federal Reserve' s Survey of Consumer Expectations.  Inflation expectations over the next 3 years remained unchanged at a median of 4.2%, a series high.  "Median inflation uncertainty – or the uncertainty expressed regarding future inflation outcomes – increased at both the short- and medium-term horizons. Both measures reached series highs in October," the survey said.  With consumers braced for the highest inflation levels in nearly a decade, they are also expecting the price of things like food, gasoline, rent & college tuition to rise over the next year.  The only things that Americans expect to get cheaper over the next year are home prices & medical care.  The report is based on a rotating panel of 1300 households.  Federal Reserve Chair Jerome Powell has largely attributed the spike in consumer prices to pandemic-induced disruptions in the supply chain, a shortage of workers that has pushed wages higher & a wave of pent-up consumers flush with stimulus cash.  Although Powell has repeatedly said the rise in inflation is likely "transitory," he acknowledged last week during the Fed's 2-day policy-setting meeting that the surge may not fade until the latter ½ of 2022.  He maintained that wild swings in consumer prices will stop once current pressures on the supply chain dissipate.  "Our baseline expectation is that supply bottlenecks and shortages will persist well into next year and elevated inflation as well," Powell said reporters.  "And that, as the pandemic subsides, supply chain bottlenecks will abate and job growth will move back up. And as that happens, inflation will decline from today's elevated levels."  His comments came after the Federal Open Market Committee voted to begin pulling back on the extraordinary stimulus it has given the economy since Mar 2020.  The central bank announced that it would reduce its aggressive bond-buying program by $15B a month in mid-Nov, lowering its purchases of long-term Treasury bonds by $10B a month & purchases of mortgage-backed securities by $5B a month.  Powell has stressed that Fed policymakers will wait for the supply chain disruptions to dissipate & inflation to slow before hiking rates.  "We will be patient," he said.  "If a response is called for, we will not hesitate."

Inflation expectations surge to another record high: New York Fed survey

St Louis Fed Pres James Bullard argued that the US is in "pretty good shape for economic growth" & pointed out that gross domestic product (GDP) is "above pre-pandemic levels so we already fully recovered in that sense from the pandemic and the pandemic isn't even over yet."  Bullard stressed that he believes "we’re looking at a very rapidly expanding economy."  GDP, the broadest measure of economic performance, grew at a 2% annual rate during the 3 months thru Sep, the weakest of the recovery, according to an advanced estimate released late last month by the Commerce Dept.  The forecast expected 2.7% growth.  Q2 GDP was 6.7%.  Bullard acknowledged that "the growth rate slowed down in the third quarter that was just completed," but added that "we now expect that growth will return here in the fourth quarter and all the way through 2022."  "I’d have growth marked as higher than 4% for all of 2022," he added.  Bullard also discussed rate hikes, noting that he moved "rate hikes into 2022 last summer and now I’ve got two rate hikes in 2022."  He also noted that "by conventional wisdom, we'd have to complete the taper [of monthly asset purchases] before we start with the normalization of the policy rate" & pointed out that he does not know "exactly how this is going to play out."  "It is data dependent," Bullard stressed.  "You get into the second quarter there we wouldn’t be having very many purchases and it’s kind of questionable what kind of impact they'd be having anyway so I think if we had to, we could end the taper somewhat sooner."  Bullard weighed in on surging inflation & how that could impact the Fed's move to scale back the extraordinary stimulus it has given the economy since the onset of the pandemic.  Bullard noted that he has been "advocating" to getting the tapering of asset purchases "done by the end of the first quarter."  "If inflation is more persistent than we’re seeing right now, then we may have to take a little sooner action in order to keep inflation under control," Bullard said   He agreed with Powell, noting that he believes inflation will last for "quite a while," likely extending thru next year.  Bullard pointed out that while the pandemic has been "under better control in U.S." it is going to take longer "to come under control across the world."

Economy has ‘fully recovered’ from COVID pandemic: Fed's Bullard

Consumers are feeling extra generous this holiday season, according to a new survey that revealed about four out of 10 shoppers are willing to go into or add to debt for seasonal spending.  From this group, 45% are willing to spend some extra cash for the sake of making themselves happy, followed by the happiness of their children, partners, friends & family members, according to a survey from CreditCards.com.  At a time when inflated prices are bound to hit retailers' shelves, parents are still willing to spend an average of $276 per child under 18 years old.  Meanwhile, men will spend 55% more than women on gifts for a significant other.  But regardless of spending more, holiday merrymakers are still eager to seek deals to reduce the cost of gift-giving.  This includes 42% of shoppers looking for coupons& in-store sales, 39% limiting gift exchanges & 24% opting for DIY gifting – as well as 14% reaching for regifts & secondhand items.  The survey disclosed that 60% of holiday gift-givers who already have credit card debt are willing to take on more, compared to the 30% who do not have debt. 82% of shoppers with credit card debt are willing to reduce gifting costs compared to the 73% without debt.  While some shoppers are preparing to take on more debt, 21% of Americans say they will not increase spending this year, compared to 2020 while only 13% plan to spend more.   Americans are expected to pull back the most in decorating for the holiday season, followed by entertaining & hosting, gifting & traveling.

Holiday shoppers willing to take on more debt this year

Gold futures climbed with prices stretching their streak of gains to a 3rd consecutive session to mark another finish at the highest since early Sep.  Gold for Dec rose $11 (0.6%) to settle at $1828 an ounce, following a 1.8% weekly gain.  Prices based on the most-active contract marked a 2nd-straight finish at the highest since Sep 3, as well as a 3rd session gain in a row.  Gold continued to trade higher as a pair of senior Fed officials indicated that the central bank may raise interest rates by the end of 2022, based on the rapid recovery of the economic & an extended bout of high inflation.  Fed Vice Chair Richard Clarida repeated his view that the criteria for a rate hike could be met before the end of 2022, while St Louis Fed Bank Pres James Bullard said that he expects the central bank to raise interest rates twice in 2022.  The Fed last week noted that it was prepared to make adjustments in the pace of its bond-buying program if “warranted by changes in the economic outlook,” raising some expectations that the central bank could lift rates at an accelerated pace if needed.  Gold tends to be viewed as a hedge against inflation, which has been on the rise in the recovery phase of the COVID-19 pandemic.

Gold ends at a more-than-2-month high after a third straight gain

Oil futures climbed for a 2nd straight session, with prices settling at their highest level in almost a week.  Prices got a boost on the back of the $1T infrastructure spending packet & Saudi Arabia's move to lift prices for crude exports.  Meanwhile, a survey revealed that OPEC+ (the Organization of the Petroleum Exporting Countries & its allies) has struggled to raise production to meet its current output quotas.  OPEC+ output rose by 480K barrels per day in Oct, but only ½ of the group's members lifted output last month.  Dec WTI oil rose 66¢ (0.8%) to settle at $81.93 a barrel.  That was the highest front-month contract finish since Nov 2.

Oil futures post back-to-back session gains

Buying in early trading was followed with midday selling.  Late day buying enabled markets to recover some of those losses.  Even with markets reaching new records, they look tired after a 1 month almost non stop rally (see below).  The rally needs a rest, especially with so many worries about higher inflation.  Meanwhile gold is attracting fans.

Dow Jones Industrials