Dow sank 301, decliners over advancers about 3-1 & NAZ tumbled 365. The MLP index added 1+ to the 211s & the REIT index rose 1+ to the 487s. Junk bond funds dipped lower & Treasuries were heavily sold again, bringing the yield on the 10 year Treasury up 6 basis points to 2.62%. Oil slid lower in the 103s & gold went up 4 to 1932.
AMJ (Alerian MLP index tracking fund)
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Philadelphia Federal Reserve Pres Patrick Harker joined the chorus of central bankers warning about inflation & the interest rate hikes needed to control rising prices. He said he is worried about an inflation rate running at its highest level in 40 years & anticipates the Fed will respond by raising rates & reducing the level of bonds it is holding on its balance sheet. “Inflation is running far too high, and I am acutely concerned about this,” Harker said. “The bottom line is that generous fiscal policies, supply chain disruptions, and accommodative monetary policy have pushed inflation far higher than I — and my colleagues on the [Federal Open Market Committee] — are comfortable with,” he added. “I’m also worried that inflation expectations could become unmoored.” The cautionary tone comes the day after 2 of his colleagues, Governor Lael Brainard & San Francisco Fed Pres Mary Daly, also expressed concern over inflation. Brainard, an influential policy “dove” who generally favors lower rates & less restrictive monetary policy, said reducing inflation is “of paramount importance” & would require “a series of interest rate hikes” & a “rapid” reduction of the balance sheet. Stocks dropped & bond yields rose following the comments. Harker's comments closely resembled Brainard's view on rate hikes. He expects “a series of deliberate, methodical hikes as the year continues and the data evolve,” though he wasn't quite as emphatic about the issue of balance sheet runoff. Harker is a non-voting FOMC member who nonetheless has input into the committee's final decisions. On the broader economy, he sees growth as “robust” & anticipates inflation ultimately coming down to the Fed’s 2% goal.
Fed's Patrick Harker is 'acutely concerned' about inflation, sees 'deliberate' rate hikes
The 10-year Treasury rose to levels not seen since 2019, as investors weighed remarks from Federal Reserve Governor Lael Brainard & awaited the latest insights into the central bank's policy tightening. The benchmark rate traded around 2.67%, near its highest level since Mar 2019, as it stages a massive 2-day jump. The 10-year yield closed yesterday around 2.4%. Today's move put the 10-year well above its 2-year counterpart, which traded at 2.52%. The 2-year had recently been trading above the 5-year US gov bond moved up 3 basis points to 2.726% & the 30-year Treasury yield rose 5 basis points to 2.642%. Yields move inversely to prices & 1 basis point is equal to 0.01%. Investors are awaiting the minutes from the previous Fed meeting, due later today for clues as to the central bank's plan for tightening monetary policy.
10-year yield rises to highest level since early 2019 after Brainard signals speedy Fed tightening
American Petroleum Institute CEO Mike Sommers blasted Rep Ro Khanna for his "thick" irony regarding the congressman's stance on oil production & argued that Dem politicians are continuing to "browbeat" US companies. Sommers made the argument ahead of testimony on Capitol Hill regarding record-high
gas prices from execs of some of the country's largest oil companies. The host noted when speaking on Mon, Rep Khanna, shifted the blame for high oil prices away from the Biden administration & onto the oil companies. "Let’s move to investing in renewable energy and I think most
people will agree that that’s a long-term solution," the Dem
congressman said. "I think what has happened
is Wall Street has independently made an assessment that this is not a
good long-term bet because they see the way the energy markets are going
and that’s why these companies, the oil companies, are engaged in stock
buybacks, they’re not engaged with their money with more production,"
he added. Today Sommers reacted to Khanna's comments 2 days before, pointing out his "irony." "Let’s rewind to last October where
I testified before the Congress with the same oil and gas
executives and Ro Khanna actually went down the line of those
executives & begged them to stop producing oil and natural gas,"
Sommers added.
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At the opening bell, the Dow was already at its depressed level. The thought of higher interest rates is very scary for investors. An inverted yield curve is scary for investors. It suggests buyers of bonds are attracted to short term debt with a slightly higher yield rather than longer term debt with lower yields, i.e. negative thinking about the future for the stock market. As pointed out, this is rarely seen!
Dow Jones Industrials
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