Dow gained 518 (session highs), advancers over decliners 3-1 & NAZ climbed 487. The MLP index added 1+ to the 195s & the REIT index rose 4+ to 462. Junk bond funds remained higher & Treasuries were heavily sold, taking the yield on the 10 year Treasury up 6 basis points to 2.22%. Oil dropped 1+ to 95 & gold retreated 15 to 1914 (more on both below).
AMJ (Alerian MLP Index tracking fund)
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Russia is spiraling closer to a historic debt default that could ripple throughout the global economy after the US & its European allies hit the Kremlin with a slew of crippling financial sanctions. Moscow's invasion of Ukraine nearly one month ago – the biggest attack on a European state in decades – elicited a raft of economic penalties from Western nations, including cutting off a key part of the Central Bank of Russia by preventing it from selling $s, euros & other foreign currencies in its roughly $630B reserve stockpile. The financial fallout has prompted credit rating agencies to downgrade their long-term debt rating for the Russian gov to "junk" status, with Fitch warning that intl sanctions have brought a "huge shock to Russia's credit fundamentals." It noted additional sanctions remain a distinct possibility. Russia has grasped for a way to soften the blow: the central bank more than doubled its key interest rate to 20% in early Mar after some banks were removed from the Swift financial system & the West froze a significant portion of its currency reserves. But the Kremlin is now due to pay $117M in interest on 2 $-denominated bonds on Wed. If it fails to make those payments, it will be Russia's first default on foreign debt since the 1917 Bolshevik Revolution. The Bank of Canada & Bank of England, which track global sovereign defaults, estimate the total value of gov debt in default around the world was about $443B in 2020, or roughly 0.5% of world public debt. Russian Finance Minister Anton Siluanov said Mon that Moscow will repay creditors from "countries that are unfriendly" in rubles & possibly the Chinese yuan until the sanctions are lifted, with the sanctions preventing the nation from accessing its reserve of $s & €s. The ruble has depreciated sharply since Russia attacked Ukraine. Today 107 rubles were worth $1.
Russia nearing historic debt as sanctions cripple economy
The Federal Reserve approved its first interest rate increase in more than 3 years, an incremental salvo to address spiraling inflation without torpedoing economic growth. After keeping its benchmark interest rate anchored near zero since the beginning of the Covid pandemic, the policymaking FOMC said it will raise rates by a qtr percentage point (25 basis points). That will bring the rate now to 0.25%-0.5%. The move will correspond with a hike in the prime rate & immediately send financing costs higher for many forms of consumer borrowing & credit. Along with the rate hikes, the committee also penciled in rate hikes at each of the 6 remaining meetings this year, pointing to a consensus funds rate of 1.9% by year's end. The committee sees 3 more hikes in 2023 then none the following year. The rate hike was approved with only one dissent. St Louis Fed Pres James Bullard wanted a 50-basis-point increase. The committee last raised rates in Dec 2018, then had to backtrack the following Jul & begin cutting. In its post-meeting statement, the FOMC said it also “anticipates that ongoing increases in the target range will be appropriate.” Addressing the Fed's nearly $9T balance sheet, comprised mainly of Treasuries & mortgage-backed securities it has purchased over the years. The statement said: “In addition, the Committee expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting.” The indication for about 175 basis points in rate increases this year was a close call: The “dot plot” of individual members’ projections showed 8 members expecting more than the 7 hikes, while 10 thought that would be sufficient. Officials also adjusted their economic outlook on multiple fronts, seeing much higher inflation than they expected in Dec & considerably slower GDP growth. Committee members bumped up their inflation estimates, expecting the personal consumption expenditures price index excluding food & energy to reflect 4.1% growth this year, compared to the 2.7% projection in Dec. On GDP, Dec's 4% was sliced to 2.8%, as the committee particularly noted the potential implications of the Ukraine war.
Federal Reserve approves first interest rate hike in more than three years, sees six more ahead
Pres Biden detailed how the US will spend $800M in military & humanitarian aid for Ukraine approved this week & promised to “do more in the days and weeks ahead” as that nation fights against Russian invaders. The funds will go toward drones, 800 anti-aircraft systems, 9000 anti-armor systems, 7000 small-arm machine guns, as well as grenade launchers & shotguns. The US with the new aid aims both to help care for the more than 3M Ukrainians displaced by the war & bolster the country's defenses as Russian forces try to encircle the capital city Kyiv. “This new package on its own is going to provide unprecedented assistance to Ukraine,” Biden said, hours after Ukraine Pres Volodymyr Zelenskyy appealed to Congress for more help in fighting back the invasion. “May God protect the Ukrainians who are out there defending their country.” Biden condemned Russian Pres Vladimir Putin for inflicting “appalling devastation” on Ukraine & cited reports of Russia's military forces holding hundreds of doctors & patients hostage at a hospital in Mariupol. “These atrocities are an outrage to the world,” the pres added. “This could be a long and difficult battle, with the American people will be steadfast in our support in the people of Ukraine, in the face of Putin’s immoral, unethical attacks on civilian populations,” Biden continued. “We are united in our abhorrence of Putin’s depraved onslaught.” Biden yesterday signed a $1.5T gov spending package that included money for both humanitarian & military assistance for the nation that has spent nearly 3 weeks fighting off a Russian invasion.
Biden details new aid to Ukraine, promises even more to help combat Russia invasion
Gold futures finished at their lowest price in more than 2 weeks, then saw volatile moves in electronic trading after the Federal Reserve announced the first interest-rate hike since 2018 to combat inflation. Apr gold moved higher immediate after the Fed announcement, then turned lower to touch lows below the $1900 mark. The contract was last at $1902 an ounce in electronic trading. The contract had lost $20 (1.1%) to settle at $1909 about a ½ hour before the Fed news. That was the lowest most-active contract finish since Feb 28. Led by Chair Jerome Powell, monetary-policy makers said they would raise the Fed benchmark interest rate by a qtr percentage point to 0.25-0.5%. They also laid out plans for ongoing increases in the Fed policy rate. The prospect of higher rates had helped to push Treasury yields higher, with the 10-year note up at around 2.24% -- easing demand for precious metals which don't offer a coupon. Gold has been driven higher by the Eastern European crisis, but worries about the erosive effects of inflation also has supported buying in bullion. Higher rates, however, were expected to dull some of the appeal for the precious metal.
Gold settles lower, sees volatile trade after Fed announces first rate hike since 2018
Oil futures fell, with US & global benchmark prices holding below the $100 mark, after US gov data revealed the first rise in domestic crude supplies in 3 weeks & traders showed concern that high fuel prices will lead to demand destruction. Traders also continued to monitor developments in the Russia-Ukraine war & weighed a pledge by Beijing to support China's economy. West Texas Intermediate (WTI) crude for Apr was down 1.40 (1.5%) at $95.04 a barrel. May Brent crude the global benchmark, fell $1.89 (1.9%) at $98.02 a barrel. WTI & Brent yesterday closed 22% below the nearly 14-year highs set on Mar 8, meeting the technical definition of a bear market, demonstrating the volatility in commodity markets that has followed Russia's Feb. 24 invasion of Ukraine. Russia's invasion of Ukraine & resulting sanctions threaten a supply shock that will weigh on the global economy & push the oil market into a deficit unless major producers increase output, the Intl Energy Agency said in a monthly report. 3M barrels a day of Russian oil & products could be effectively cut off from global markets starting next month. Analysts noted some optimism around talks between Moscow & Kyiv after Ukraine Pres Volodymyr Zelensky was quoted as saying negotiations had become “more realistic” & Russian Foreign Minister Sergei Lavrov said there was “hope for reaching a compromise.” US benchmark stock indices traded higher Chinese stock-market indexes rose today after the state-run reported that Beijing would keep its stock markets stable & take measures to boost economic growth in Q1. The Energy Information Administration (EIA) reported that US crude inventories rose by 4.3M barrels last week. That followed 2 consecutive weeks of declines. The EIA was expected to show crude inventories up by 200K barrels, according to the forecast. The American Petroleum Institute reported a 3.75M-barrel increase. The EIA data showed crude stocks at the Cushing, Okla, Nymex delivery hub edged up by 1.8M barrels for the week. Stocks in the Strategic Petroleum Reserve, meanwhile, was down by 2M barrels last week at 575M barrels.
Oil prices hold below $100 a barrel as U.S. supplies rise, demand destruction concerns emerge
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