Dow dropped 158, decliners over advancers 3-2 & NAZ went up 65. The MLP index was off 4 to the 206s & the REIT index gained 4+ to the 474s. Junk bond funds fluctuated & Treasuries saw buying which reduced yields (more below). Oil tumbled 8+ to the 105s (more below) & gold retreated 16 to 1938.
AMJ (Alerian MLP index tracking fund)
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A survey by the University of Michigan found that consumer sentiment fell to a new decade-long low as concerns about inflation grow amid the ongoing Russian invasion of Ukraine. The University of Michigan Consumer Sentiment Index (MCSI), a monthly survey of how consumers feel about the economy, personal finances, business conditions & buying conditions ended Mar at 59.4%, representing a 5.4% decline from the final reading of 62.8% in Feb & a 30.0% decline from the index' reading of 84.9% one year ago in Mar 2021. The end of Mar reading of 59.4% is down by 5% from what was already a decade-long low of 59.7 recorded in mid-Mar. The chief economist for the University of Michigan's Survey of Consumers, Richard Curtin, said that policymakers should consider the Russian invasion of Ukraine, which began on Feb 24 & entered its 32nd day yesterday, a major source of continued economic disruption, with new COVID variants also being a fairly minor factor. The survey found that inflation has been the primary cause of rising pessimism, with an expected year-ahead inflation rate at 5.4%, the highest since 1981. "When asked to explain changes in their finances in their own words, more consumers mentioned reduced living standards due to rising inflation than any other time except during the two worst recessions in the past fifty years: from March 1979 to April 1981, and from May to October 2008," Curtin said. "Moreover, 32% of all consumers expected their overall financial position to worsen in the year ahead, the highest recorded level since the surveys started in the mid-1940s." He assessed that the combination of rising prices & less positive income expectations meant that ½ of all households anticipated declines in inflation-adjusted incomes in the year ahead. The only area of the economy that consumers remained optimistic over was the job market, with 30% of respondents anticipating in Mar that during the year ahead it was more likely that the unemployment rate would post further declines compared to the 24% of respondents who anticipated increases. "Strong job growth will continue to put upward pressures on wages, resulting in higher income and stronger job prospects," Curtin added. "This strength will then act to expand consumer demand and ultimately lead to another cycle of price and wage increases. These factors represent the necessary (but not sufficient) conditions for the development of inflationary psychology as a self-fulfilling prophecy." He further assessed that "the prevention of inflationary psychology is much less costly before it becomes ingrained in the economic behavior of consumers and firms." While confidence that economic policies will resolve the problem is essential, Curtin noted unfortunately, ½ of all consumers unfavorably assessed current policies, more than 3 times the 16% who rated them favorably.
LOSING HOPE: Americans' confidence in economy shattered as inflation surges
Oil prices went down yesterday amid Shanghai authorities announcing the city will lockdown in 2 stages in order for residents to undergo COVID-19 testing. The lockdown announcement comes amid a new daily record for asymptomatic COVID-19 infections. Shanghai will be divided into 2 parts for the lockdown & will use the Huangpu River as a guide, according to authorities. The city of more than 26M reported 47 new COVID-19 cases that are symptomatic & 2631 new asymptomatic cases on Sat. Authorities say that the districts to the east of the Huangpu River, as well as some to the west, will be under a lockdown & will undergo testing from Mar 28 - Apr 5, while the other areas will be under a lockdown & will undergo testing from Apr 1-5. The restrictions have caused Brent Crude to drop $3.68 to $116.97 & U.S. crude dropped $3.30 to $110.60. During Shanghai's shutdown, ride-hailing services & public transportation will not operate & unapproved vehicles will not be permitted on the roads. Factories will also be forced to suspend operations but companies that are involved in public services or the supply of food can operate during the lock-down. "The public is asked to support, understand and cooperate with the city's epidemic prevention and control work, and participate in nucleic acid testing in an orderly manner," the gov said.
US oil prices take a hit as Shanghai goes into lockdown
US 5-year & 30-year Treasury yields inverted for the first time since 2006, raising fears of a possible recession. The yield on the 5-year Treasury note rose to 2.6361%, while the 30-year yield was down less than 1 basis point to 2.6004%. This is the first time the shorter-dated 5-year Treasury yield has risen above that of the longer-dated 30-year government bond since 2006 — just a couple of years before the Global Financial Crisis. However, the main yield spread that traders watch — the spread between the 2-year & the 10-year rate — remained positive for now. The 2-year yield jumped 12 basis points to 2.309% & the benchmark 10-year was down 1 basis point to 2.46%. Historically, the yield curve has inverted prior to recessions, with investors selling out of short-dated gov debt & buying into longer-dated bonds, indicating their concern about the health of the economy in the short term. Rising inflation, exacerbated by the Russia-Ukraine war, has resulted in increased market nervousness over the potential for an economic slowdown. The 10-year yield has jumped from 2.15% since the beginning of last week, after Federal Reserve Chair Jerome Powell said the central bank could be more aggressive with rate hikes, in an effort to keep inflation under control.
Treasury yields invert for the first time since 2006, as recession fears grow
Dow Jones Industrials
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