Dow dropped 144, decliners over advancers about 5-2 & NAZ retreated 315. The MLP index stayed near 210 & the REIT index gained 6+ to 492. Junk bond funds remained weak & Treasuries saw more selling, bringing the 10 year Treasury yield above 2.6%. Oil was off 4+ to the 97s & gold was flattish at 1928 (more on both below).
AMJ (Alerian MLP Index tracking fund)
![Live 24 hours gold chart [Kitco Inc.]](https://www.kitco.com/images/live/gold.gif?0.2180338269244485)
Federal Reserve officials discussed how they want to reduce their Ts in bond holdings at their Mar meeting, with a consensus amount around $95B, minutes showed. Officials “generally agreed” that a limit of $60B in Treasuries & $35B in mortgage-backed securities would be allowed to roll off, phased in over three months. At the meeting, the Fed approved its first interest rate increase in more than 3 years. The 25 basis point increase — a qtr percentage point — lifted the benchmark short-term borrowing rate from the near-zero level where it had been since Mar 2020. In addition to the balance sheet talk, officials also discussed the pace of interest rate hikes ahead, with members leaning toward more aggressive moves. That means potential rate hikes of 50 basis points at upcoming meetings, a level consistent with market pricing for the May vote. There was considerable sentiment to go higher last month. “Many participants noted that — with inflation well above the Committee’s objective, inflationary risks to the upside, and the federal funds rate well below participants’ estimates of its longer-run level — they would have preferred a 50 basis point increase in the target range for the federal funds rate at this meeting,” the minutes said. Uncertainty over the war in Ukraine deterred some officials from going with the 50 basis point move. Also at the meeting, Fed officials also sharply raised their inflation outlook & lowered their economic growth expectations. Markets were looking to the minutes release for details about where monetary policy heads from here. Specifically, Fed Chair Jerome Powell said in his post-meeting news conference that minutes would provide details on the thinking about balance sheet reduction. The Fed expanded its holdings to about $9T, or more than double, during monthly bond purchases in the wake of the pandemic crisis. Those purchases ended only a month ago, despite evidence of roaring inflation higher than anything the US had seen since the early 1980s, a surge that then-Chair Paul Volcker quelled by dragging the economy into a recession.
Fed officials plan to shrink the balance sheet by $95 billion a month, meeting minutes indicate
Treasury Secretary Janet Yellen warned of major consequences for the global economy as a result of the Russian-Ukraine war, including severe disruptions to the global flow of food & energy. "Russia’s actions represent an unacceptable affront to the rules-based, global order, and will have enormous economic repercussions in Ukraine and beyond," Yellen said in during her annual testimony before the House Financial Services Committee. Her comments come as the US, EU & Group of Seven coordinated new sanctions on Russia – including a US ban on new investment in the country & fresh penalties targeting top Russian security officials & Pres Vladimir Putin's adult children – in response to reported Russian atrocities in the Ukrainian town of Bucha. Western allies have already cut off a key part of the Central Bank of Russia by preventing it from selling $s, €s & other foreign currencies in its roughly $630B reserve stockpile; blocked certain financial institutions from the Swift messaging system for intl payments & sanctioned some of the Russian elites who have close ties to Putin. The US also ordered a ban on Russian oil imports – something that Yellen acknowledged will push energy prices higher. "We think it's a price that's important to pay to punish Russia for what it's doing in Ukraine," she said. "But energy prices are going up, the price of wheat and corn that Russia and Ukraine produce are going up and metals that play an important industrial role – nickel, titanium, palladium – the cost of those things are going up. This is going to escalate inflationary pressures as well." Economists have been downgrading their forecasts for the year ahead as the outbreak of the worst European conflict in decades roils markets & threatens to push inflation even higher – in addition to creating a massive humanitarian crisis that has left more than 13K dead & Ms displaced.
Yellen warns of 'enormous' economic repercussions from Ukraine invasion
Leading US scientists & physicians worry that the FDA & CDC are moving too fast in approving a 4th round of Covid shots, with little public debate that gives the vaccine makers too big a role in setting the pace with which the doses are distributed across the nation. The top US public health agencies last week endorsed a 4th Covid shot for older adults without holding public meetings, drawing criticism from leading vaccine experts who believe federal health officials haven't provided enough transparency about the reasons for the decision. The authorization of a 4th dose for adults age 50 & older comes as the scientific community is divided over whether the data is sufficient to support another round of boosters & whether authorizing additional shots is a sustainable public health policy, especially since protection against infection simply wears off over time. There is a debate over whether the goal of the vaccines is to prevent severe illness, which they’ve largely achieved, or infection as well — a more challenging proposition. The Food & Drug Administration (FDA) authorized a 2nd booster shot for people age 50 & older last week & the Centers for Disease Control & Prevention (CDC) quickly backed their distribution hours later based on data from Israel, which rolled out 4th doses months ago. Dr Peter Marks, who heads the FDA office responsible for vaccine safety and efficacy, said shortly after the decision that another round of boosters will likely be needed in the fall. The rapid regulatory clearance of 4th shots for older adults came just weeks after Pfizer (PFE) & Moderna (MRNA) asked the FDA to permit them. Several FDA & CDC committee members as well as other leading experts said PFE & MRNA are playing too large a role in setting the agenda around US vaccine policy by announcing the need for 4th doses & possibly a variant-specific vaccine before the public health agencies have made any recommendations.
Scientists split on need for 4th Covid shot after FDA quietly OK’d more boosters
A fertilizer shortage has added to growing concerns about the Ukraine war's impact on the price & scarcity of certain basic foods. Combined, Russia & Belarus had provided about 40% of the world's exports of potash. Russia's exports were hit by sanctions. In Feb, a major Belarus producer declared force majeure — a statement that it wouldn't be able to uphold its contracts due to forces beyond its control. Russia also exported 11% of the world's urea & 48% of the ammonium nitrate. Russia & Ukraine together export 28% of fertilizers made from nitrogen & phosphorous, as well as potassium. Disruptions of those shipments due to sanctions & war has sent fertilizer prices skyrocketing. High grain prices are rising even more. “It is a huge problem,” said CF Industries (CF) CEO Tony Will. He said global fertilizer supplies are very tight. CF manufactures & distributes fertilizers.
A fertilizer shortage, worsened by war in Ukraine, is driving up global food prices and scarcity
Gold futures finished lower, pressured by a climb in Treasury yields as investors remain focused on the Russia-Ukraine war. Prices then saw volatile trading after minutes from the Federal Reserve's Mar meeting, moving higher, then lower as the minutes offered insight into the central bank's plans to shrink its balance sheet. The Fed might increase a key US interest rate by ½ percentage point increments at upcoming meetings if inflation remains high or gets even worse, which also indicated that the central bank may start reducing its $9T balance sheet as early as May. Gold for Jun fell by $4 to settle at $1923 an ounce ahead of the Fed minutes. It moved up to around $1926 immediately after the minutes, in electronic trading, then fell to $1921. The yellow metal ended slightly lower, falling 0.3% yesterday as the 10-year Treasury yield jumped to a nearly 2-year high after Fed Gov Lael Brainard signaled the Fed would move to quickly unwind its balance sheet while rapidly raising interest rates. Yields continued to rise today, with the 10-year rate touching highs above 2.65% . The $ has also gained ground, which can also be a negative for commodities priced in the unit as it makes them more expensive to users of other currencies.
Gold prices finish lower, then lose more ground after release of Fed minutes
Oil futures settled at their lowest in 3 weeks, with US prices ending below the $100 mark, following news that the Intl Energy Agency plans to release 120M barrels from crude reserves & as data revealed an unexpected climb in US crude supplies. West Texas Intermediate (WTI) crude for May fell $5.73 (5.6%) to settle at $96.23 a barrel. Jun Brent crude, the global benchmark, lost $5.57 (5.2%) ending at $101.07 a barrel. Brent & WTI marked the lowest front-month contract settlements since Mar 16. The Intl Energy Agency (IEA) is moving ahead with a collective oil stock release of 120M barrels from emergency reserves, Fatih Birol, IEA's exec director tweeted. The release includes 60M barrels from the US, as part of that country's overall draw from its Strategic Petroleum Reserve (SPR). The Biden administration last week said it would release 1M barrels per day from the US SPR for the next 6 months in a move to ease high gasoline prices, for a total of 180M barrels. Traders had been awaiting details from the IEA, which had said last week that its members would release reserve oil. The US & its allies today unveiled new sanctions on Russia over its invasion of Ukraine, including a ban on all new investment in the country. The EU, however, has held off on joining the US & UK in banning Russian oil imports. Still, EU officials have indicated that talk of a phaseout of Russian oil & natural gas was likely to increase. Measures on “oil & even gas will also be needed sooner or later,” Charles Michel, pres of the European Council, told the European Parliament today. The Energy Information Administration (EIA) reported that US crude inventories rose by 2.4M barrels last week. That followed declines in each of the previous 2 weeks. The EIA was expected to show crude inventories down by more than 1.85M barrels. The EIA reported a weekly inventory decline of 2M barrels for gasoline, but distillate stockpiles edged up by 800K barrels. The survey showed expectations for weekly supply declines of 350K barrels for gasoline & 700K barrels for distillates. The EIA data showed crude stocks at the Cushing, Okla, Nymex delivery hub, edged up by 1.7M barrels for the week, but stocks in the Strategic Petroleum Reserve fell by 3.7M to 564M barrels last week.
Interest rates are climbing & will keep heading north for some time. If history is a guide, that could bring on a recession. Already forecasts for 2022 GDP growth are being reduced. The Dow is back to where it was last May (on the way up). Dow rallied in the last 2 hours of trading, but not enough to bring it into the black.
Dow Jones Industrials
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