Markets fall as investors look to the outcome of the Fed meeting

Dow dropped 320 with selling into the close, decliners over advancers 2-1 & NAZ declined 217.  The MLP index fell 3+ to 170 & the REIT index went up 4+ to 490.  Junk bond funds continued to be out of favor & Treasuries rose sharply in price.  Oil was lower in the 71s & gold added 3 to 1788 (more on both below).

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Americans' inflation fears accelerated again in Nov, climbing for the 13th consecutive month to a new record high, according to a key Federal Reserve Bank of New York survey.  The median expectation is that the inflation rate will be up 6% 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 fell slightly to a median of 4%, a drop that was precipitated by responses from those without college degrees.  It marked the first decline in 6 months.  "Median inflation uncertainty — or the uncertainty expressed regarding future inflation outcomes — increased at both the short- & medium-term horizons, with both reaching new series highs," 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, medical care & college tuition to rise over the next year.  But Americans said they expect gasoline & medical care to get cheaper over the next year, while they think that rent will remain unchanged.  The report is based on a rotating panel of 1300 households.  The survey plays a critical role in determining how Fed policymakers respond to the recent inflation spike because actual inflation depends – at least in part – on what consumers think it will be.  It's a sort of self-fulfilling prophecy – if everyone expects prices to rise by 3% in the year, that signals to businesses that they can increase prices by at least 3%.  Workers, in turn, will want a 3% pay raise to offset the rising costs.  "This is about well-anchored inflation expectations," Fed Vice Chair Richard Clarida said 2 weeks ago.  "Getting actual inflation down close to 2% is going to be an important part of keeping those expectations anchored."

Americans' inflation expectations soar to new high as prices surge

UK Prime Minister Boris Johnson confirmed that at least one patient infected with the new omicron variant of Covid-19 has died in the country.  “Sadly yes, omicron is producing hospitalizations and sadly at least one patient has been confirmed to have died with omicron,” Johnson told reporters.  “So I think the idea that this is somehow a milder version of the virus, I think that’s something we need to set on one side and just recognize the sheer pace at which it accelerates through the population. So the best thing we can do is all get our boosters,” he added.  It’s the first publicly confirmed death globally from the new variant.  Earlier today, UK Health Secretary Sajid Javid saud that 10 people were currently in hospital after being infected with the omicron variant.  Javid said omicron was spreading at a “phenomenal rate” & cases were doubling every few days.  It comes after a study announced by the University of Oxford found that 2 doses of either the Oxford-AstraZeneca (AZN) or Pfizer (PFE)-BioNTech (BNTX) Covid-19 vaccine were substantially less effective at warding off omicron compared to previous variants of the coronavirus.  Scientists were, however, optimistic that booster shots would improve immunity against the new, highly transmissible variant.

UK confirms first death with the omicron Covid variant

The largest annual rise in inflation in nearly 4 decades is forcing four in 10 Americans to cut back on their holiday shopping lists, according to a new poll.  Due to surging product prices, 21% admitted they cut back on spending a little this season while 19% said they cut back on spending by a lot, according to a Monmouth University poll.  However, 48% said their purchasing habits haven't changed even as consumer prices in Nov jumped 6.8% over the past year — the quickest rate since 1982.  Some of the largest cost spikes have been for such necessities as food, energy, housing, autos & clothing.  A number of consumers' shopping lists have also been hampered by widespread supply chain issues.  Nearly ½ of Americans said items were out of stock at stores compared to years past, according to the poll.  Just over 40% said that items they wanted were out of stock online & 34% of respondents had packages that were delayed or went missing.  Pandemic-related supply chain issues & surging inflation have put undue stress on an increasing number of Americans.  "Inflation and supply chain problems are having an impact on holiday shopping," Patrick Murray, director of the independent Monmouth University Polling Institute, said.  "It appears that most Americans are trying to make this year as normal as they can, but it may be taking some of the joy out of the season."  Still, 22% reported that they were still on track to finish their shopping by the end of Nov & 32% expect to finish by mid-Dec.  This is "nearly identical" to what consumers reported in 2018.  According to the poll, 36% of Americans found that this holiday season is more enjoyable compared to the rest of the year, down from 41% reported in 2018 & 44% in 2015.

Inflation forces more Americans to cut down on holiday shopping lists

Gold prices climbed Mon to their highest settlement in 3 weeks, but stuck to a tight trading range ahead of the Federal Reserve's gathering this week, which could solidify bullish or bearish momentum for the precious metals complex.  Feb gold rose $3 to settle at $1788 an ounce after the most-active contract booked a tiny gain on Fri.  Today's settlement was the highest for a most-active contract since Nov 22.   Market participants are awaiting monetary-policy decisions from the Fed when its 2-day policy meeting concludes Wed, when the central bank will offer its update on projections for interest rates & the pace of its reduction of COVID-era accommodations, which likely will impact trading in precious metals.  Updates on policy from the Bank of England, ECB & Bank of Japan also are on deck later in the week.  On Fri, gold traded higher after the US gov reported that the rate of consumer inflation hit the highest level in nearly 40 years.  Data on Fri revealed that the US cost of living climbed in Nov & drove the rate of inflation to 6.8%, marking the highest annual rate since 1982.  

Gold futures settle at a 3-week high as Fed meeting comes in focus

Oil prices ended with traders monitoring the spread of the omicron variant of the coronavirus that causes COVID-19 & looking to this week's Federal Reserve decision on monetary policy for clues on the economic outlook & energy demand.  Prices saw little support after the OPEC, in its monthly report, said it expected the impact of the omicron variant to be “mild and short-lived.”  OPEC shifted some expected demand from the current qtr to early 2022 as a result of the omicron spread, but left its outlook for oil-demand growth in 2021 & 2022 unchanged.  West Texas Intermediate (WTI) crude for Jan delivery fell 38¢ (0.5%) to settle at $71.29 a barrel.  Feb Brent, the global benchmark, declined 76¢ (1%) to $74.39 a barrel.  Last week, WTI, the US benchmark, jumped 8.2%, the sharpest weekly gain since a 10% rise in the period ended Aug 27 & Brent climbed 7.5%, based on the front-month contract settlement from last Fri, also logging its steepest weekly advance since late Aug.  Traders are watching the impact of omicron.  Demand concerns are on the rise due to struggles of some emerging market economies & oil consumer nations,  If the Fed gets too aggressive with interest rates, it can slow the economy.  But those fears are being overplayed. 

Oil prices end lower as traders monitor omicron spread, this week’s Fed decision

The Fed meeting, as usual, is getting a lot of attention.  There will be a lot of discussion on the outlook for inflation & that will influence the future of interest rates.  Also, the virus continues to be in the headlines.

Dow Jones Industrials