Dow pulled back 280 not far from session lows, decliners over advancers almost 4-1 & NAZ dropped 328. The MLP index was off 2+ to the 209s & the REIT index retreated 1+ to the 485s. Junk bond funds remained weak & Treasuries continued to see heavy selling, taking the yield on the 10 year Treasury up to 2.56%. Oil fell 1+ to the 101s & gold was off 6 to 1922 (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 Governor Lael Brainard, who normally favors loose policy & low rates, said the central bank needs to act quickly & aggressively to drive down inflation. In a speech, Brainard said policy tightening will include a speedy reduction in the balance sheet & a steady pace of interest rate increases. Her comments indicated that rate moves could be higher than the traditional increments of 0.25 percentage point. “Currently, inflation is much too high and is subject to upside risks,” she said. “The [Federal Open Market] Committee is prepared to take stronger action if indicators of inflation and inflation expectations indicate that such action is warranted.” The Fed already has approved one interest rate increase: a 0.25% hike at the Mar meeting, the first in more than 3 years & likely one of many to occur this year. In addition, markets expect the Fed to lay out a plan at its May meeting for running down some of the nearly $9T in assets, primarily Treasuries & mortgage-backed securities, on its balance sheet. According to Brainard, that process will be swift. “The [FOMC] will continue tightening monetary policy methodically through a series of interest rate increases and by starting to reduce the balance sheet at a rapid pace as soon as our May meeting,” she said. “Given that the recovery has been considerably stronger and faster than in the previous cycle, I expect the balance sheet to shrink considerably more rapidly than in the previous recovery, with significantly larger caps and a much shorter period to phase in the maximum caps compared with 2017-19.” Back then, the Fed allowed $50B in proceeds to roll off each month from maturing bonds & reinvested the rest. Market expectations are that the pace could double this time around. The moves are in response to inflation running at its fastest pace in 40 years, well above the Fed's 2% target. Market expectations are for rate increases at each of the remaining 6 meetings this year, possibly totaling 2.5 percentage points overall.
Fed’s Brainard sees balance sheet reduction soon and ‘at a rapid pace’
The average rate on the popular 30-year fixed mortgage just crossed 5%, now standing at 5.02%, according to Mortgage News Daily. This is the first time it has crossed that threshold since 2011, save 2 days in 2018. It stood at 3.38% one year ago today. Mortgage rates, which follow loosely the yield on the 10-year Treasury, have been climbing since the start of the year, partially due to the Federal Reserve’s policies to curb inflation as well as the global economic turmoil resulting from the Russian invasion of Ukraine. Bonds were already having time today, but then comments from Federal Reserve Vice Chair Lael Brainard that the pace of the Fed’s balance sheet reductions would be significantly bigger than last time & that the maximum pace of reductions would be achieved significantly sooner hit bonds hard. “To hear her speak about bond-buying adjustments in such blunt, urgent terms is unsettling for the market with just over 24 hours to go before we see the minutes from the most recent Fed meeting,” said Matthew Graham, COO at Mortgage News Daily. “At this point, traders are taking Brainard’s comments to foreshadow an extremely unfriendly conversation about bond buying to be revealed in the minutes.” For homebuyers already facing the priciest housing market in recorded history, higher rates are only adding to the pain. Another report released today from CoreLogic showed prices in Feb were up a stunning 20% from a year ago. That is the 12th consecutive month of annual increases.
30-year fixed mortgage crosses 5%
Dr Scott Gottlieb he believes the US this spring will avoid a “national wave” of infection related to the more contagious omicron BA.2 subvariant. However, the former Food and Drug Administration commissioner added that he thinks cases are being “dramatically” underreported in some parts of the country. Given the reliance on at-home testing now, he estimated that in the Northeast, as few as one in 7 or 8 infections are actually showing up in official case counts. “I think we’re further into this than we perceive,” Gottlieb said, pointing to Germany & the UK., where cases have started to decline quickly from their recent, BA.2-related peak. In the US, BA.2 is the dominant version of Covid, according to the Centers for Disease Control & Prevention. Some expect that within 2 weeks, it may displace the earlier version of omicron, which caused a surge in cases & hospitalizations late last year & into 2022. Both Covid infections & hospitalizations have retreated more than 90% since their Jan highs during the omicron wave. “It’s probably not going to be a national wave of infection” from BA.2, predicted Gottlieb. “It’s probably going to be centered in the Northeast, maybe Florida. I think by the time it starts to spread nationally, we’ll already be deep into the summer, and that’ll provide a seasonal backstop.” The picture may change once fall rolls around for a few reasons, Gottlieb continued. “We’ll have to contend with this in the fall,” he said. “If [BA.2] is still the dominant variant in places in the country that it really didn’t get in right now, it’ll start to spread in the fall as people’s immunity starts to wane, they get further out from their vaccination and their prior infection from omicron.”
Dr. Gottlieb thinks omicron subvariant unlikely to cause ‘national wave’ in U.S.
Ukrainian Pres Volodymyr Zelenskyy called for a Nuremberg-style tribunal to investigate & prosecute Russian war crimes in a speech before the UN Security Council. “The Russian military & those who gave them orders must be brought to justice immediately for war crimes in Ukraine,” Zelenskyy said in his speech. Zelenskyy's appearance before the UN Security Council follows Ukrainian claims that at least 300 civilians were tortured & killed in Bucha by Russian troops. The bodies were discovered after Moscow withdrew its troops from the suburb near Ukraine's capital. Zelenskyy described the aftermath in Bucha, which he saw firsthand yesterday, as a “genocide” & accused Russia of war crimes. “The massacre in our city of Bucha is only one, unfortunately, only one of many examples of what the occupiers have been doing on our land for the past 41 days,” Zelenskyy said, adding “the world has yet to see” what Russia has done elsewhere in Ukraine. Over the weekend, the Russian invasion sparked renewed global outrage as horrific images emerged of bodies scattered across the streets, some with their hands tied & gunshot wounds to the back of the head. “Anyone who has given criminal orders and carried out them by killing our people will be brought before the tribunal which should be similar to the Nuremberg tribunals,” Zelenskyy noted.
Zelenskyy calls for a Nuremberg-style tribunal to probe, prosecute war crimes
Gold futures finished lower, giving up earlier gains on the back of a rise in Treasury yields, as investors continued to monitor developments tied to the Russia-Ukraine war & worry about inflation. Inflation is running very hot & could move up even higher, necessitating steady interest rate increases & a shrinking of the balance sheet, Federal Reserve Board Gov Lael Brainard said above. Gold for Jun declined by $6 (0.3%) to settle at $1927 an ounce after posting a gain of 0.5% yesterday. Western leaders said they would investigate evidence of alleged war crimes by Russian forces & talked up the possibility of additional sanctions against Moscow. The yield on the 10-year Treasury note was at 2.55%, up from 2.409% 24 hours ago.
Gold prices finish lower as Treasury yields rise
Oil futures, meanwhile, reversed course to trade modestly lower as Western leaders weighed the possibility of additional sanctions against Moscow in response to evidence of alleged war crimes in Ukraine. West Texas Intermediate crude for May delivery declined by $1.32 (1.3%) to settle at $101.96 a barrel after posting a gain of 4% yesterday. French Finance Minister Bruno Le Maire said there was a “total determination” from all 27 EU countries for sanctions against Russia that could target oil & coal after evidence emerged that its troops deliberately killed Ukrainian civilians. While the US & UK. previously moved to ban imports of Russian energy, EU countries have struggled to reach a decision given concerns over some nations’ heavy dependence on flows from the country.
Natural-gas futures up nearly 6% to settle at highest since January
This was another gloomy day for stocks. There was very little encouraging news, so the sellers were in charge. The Dow kept declining all day, hour after hour.
Dow Jones Industrials
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