Markets drift lower on inflation and war worries

Dow slid back 39, decliners over advancers 2-1 & NAZ was off 18.  The MLP index stayed near 219 & the REIT index settled down 1+ to the 481s.  Junk bond funds were little changed & Treasuries dipped allowing bond yields to rise.  Oil rose 1 to 108 & gold after topping 2K, finished up 8 to 1983 (more on both below).

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The surging price of corn hit another milestone as the cost of global commodities continues to push higher.  The contracts for Jul corn futures were trading above $8 per bushel, the highest level since 2012.  The contracts were trading near $6 per bushel at the start of the year.  Corn is just one of several agriculture commodities that has seen surging prices in recent weeks, in part due to the war in Ukraine.  Ukraine is a major exporter of wheat & other items, such as sunflower oil, while Russia is a key producer of wheat & many of the chemicals used in fertilizer.  That is leading futures traders to bet that higher input costs & more demand for corn as a substitute food item will drive up the price.  Even prior to the war, agricultural commodities were seeing some upward pressure amid supply chain disruptions & high transportation costs that are contributing to inflation throughout the economy.  Drought in the western US & elsewhere in the world has also driven prices higher.  In addition to global supply concerns hitting agricultural commodities broadly, corn also has a potential source of additional demand.  Pres Biden announced last week that his administration would temporarily allow the sale of higher-ethanol gasoline over the summer in an attempt to offset rising energy costs.  Summer is typically one of the highest demand periods for gasoline in the US.  The rising price of corn & other food commodities are contributing to the highest inflation rate the US has seen since the 1980s, leading the Federal Reserve to start raising interest rates.  Some economists & Wall Street strategists are worried that, in the process of trying to slow inflation, the central bank could tip the country into a recession.  The World Bank warned earlier this month that global food insecurity was likely to rise this year due to the higher prices.

Price of corn hits 9-year high as surge in commodities continues

The World Bank lowered its annual global growth forecast for 2022 by nearly a full percentage point, down from 4.1% to 3.2%, citing the impact that Russia's invasion of Ukraine is having on the world economy.  World Bank President David Malpass told reporters that the largest single factor in the reduced growth forecast was a projected economic contraction of 4.1% across Europe & Central Asian.  Other factors behind the slowdown in growth from Jan's forecast include higher food & fuel costs being borne by consumers in developed economies across the world, he said.  These are partly the result of Western sanctions on Russian energy, which have driven up the price of oil & gas worldwide.  Supply disruptions to Ukrainian agricultural exports are also cited as contributing factors to pushing prices higher.  Russia has blockaded Ukraine's major Black Sea ports, making it extremely dangerous for shipping vessels carrying grain & other products to travel the key maritime pathway connecting Ukraine to the rest of the world.  The World Bank is “preparing for a continued crisis response, given the multiple crises,” Malpass added.  “Over the next few weeks, I expect to discuss with our board, a new 15-month crisis response envelope of around $170 billion to cover April 2022 through June 2023.”  This Ukraine crisis financing package is even larger than the one the World Bank organized for Covid-19 relief, which topped out at $160B.  Still, the damage that Russia's invasion of Ukraine has caused to the global economy pales in comparison to the catastrophic effect it has had on the economy of Ukraine & to a lesser extent that of Russia.  Earlier this month, the World Bank projected that Ukraine's annual GDP would fall by 45.1%, an astonishing figure for a country of more than 40M people.

World Bank slashes global growth forecast to 3.2% from 4.1%, citing Ukraine war 

US housing sales are heating up this spring, & although rising mortgage rates have threatened to cool demand, Americans still expect home prices to surge higher this year, according to a key Federal Reserves Bank of New York survey.  The average expectation is that home prices will be up 7% one year from now, hitting the highest level in 7 years, according to the New York Federal Reserve's Consumer Expectations Housing Survey, which dates back to 2014.  That compares to last year's reading of 5.7%  Consumers expect home prices to climb by 2.2% per year on average for the next 5 years, in line with their expectations from last year.  That's likely in part because Americans believe mortgage rates are going to rise rapidly in the future, jumping to 6.7% a year from now & 8.2% in 3 years.  Long-term mortgages rates have continued to climb, with the key 30-year loan rate hitting 5% last week for the first time in more than a decade.  The average rates have been rising at the fastest pace since 1994.  By comparison, the 30-year rate stood at just 3.04% last year.  "Combined with the expectation of a 7.0% increase over the next 12 months, this suggests that households expect a pronounced slowdown in price growth after next year," the survey added.  Rent change expectations were actually higher than home price expectations over both horizons:   Households forecast an 11.5% spike in rent costs over the next year, compared to 6.6% from Feb 2021.  Over the next 5 years, households expect annual rent increases of 5.2%, up from 4.4% a year ago.  "Taken together, these numbers suggest a spike in rents in the near term, followed by more moderate growth in subsequent years," the survey said.  The report, which is based on a rotating panel of 1300 households, comes as consumers grapple with the hottest inflation in more than 40 years.  The Labor Dept reported last week that prices soared by 8.5% in Mar from the previous year, the fastest pace since 1981.  

Americans expect home prices to rise at fastest pace since 2014, NY Fed survey shows

Gold futures rose as US traders returned from a 3-day weekend, with little prospect for a quick end to Russia's invasion of Ukraine in sight contributing to global inflation, supporting haven demand for the precious metal & lifting prices to their highest finish in more than 5 weeks.  Gold for Jun climbed $11 (0.6%) to settle at $1986 an ounce, after touching a high at $2003.  The settlement was the highest for a most-active contract since Mar 10, when prices ended at a roughly 19-month high of $2000.  Prices rose 1.5% for last week's holiday-shortened week.  Apparent Russian missile attacks rocked the western Ukraine city of Lviv today, killing at least 6, as the country prepared for an all-out Russian assault on eastern Ukraine.  Ukrainian troops were holding out in the southeastern port city of Mariupol, which has been largely destroyed, after rejecting Russian demands to surrender.  Gold has rallied on apparent haven demand even as yields on Treasuries have risen & the $ has strengthened — both typically seen as negatives for the precious metal.

Gold prices mark highest finish in more than 5 weeks as Russia-Ukraine war feeds inflation

Natural-gas futures extended their gains into a 5th straight session, with prices settling at their highest in nearly 14 years, while oil prices finished at their highest levels of the month on worries about global energy supplies.  West Texas Intermediate crude for May rose $1.26 (1.2%) to settle at $108.21 a barrel after trading as high as $109.81.  Front-month contract prices logged their its highest finish since Mar 25.  Jun Brent crude, the global benchmark, added $1.46 (1.3%) to $113.16 a barrel, with prices at their highest settlement for the month so far.  A late-season blast of cold air in the US & weak storage have been cited as some of the reasons behind a recent surge in natural-gas prices.  Oil prices, meanwhile, have climbed to their highest prices of the month so far, lifted by concerns over tight supplies.  Oil prices rose last week after a report that EU officials were drafting a ban on Russian oil imports, something the bloc has been reluctant to do due to dependence on those imports by countries such as Germany & Austria.

Natural-gas prices mark another finish at a nearly 14-year high, while oil prices climb

Little was accomplished in the stock market today.  Besides waiting for Q1 earnings reports, macro economic stories are getting a lot of attention & they tend to be dreary.

Dow Jones Industrials