Dow went down 85, decliners over advancers 5-4 & NAZ added 114. The MLP index fell 1+ to the 201s & the REIT index saw continued pressure, down 7+ to the 416s. Junk bond funds inched higher & Treasuries were heavily purchased, driving down yields. Oil dropped 3 to about 100 & gold sold off 16 to 1841 (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)
Cleveland Federal Reserve Pres Loretta Mester said she supports consecutive, ½-point interest rate hikes at the central bank's next 2 meetings – & would back an even bigger increase down the road if sky-high
inflation doesn't cool off by H2-2022. "We
don’t rule out 75 forever, right? The cadence we’re going now seems
about right to me," Mester said. "We’re going to have to assess whether inflation is
actually moving down, and then we’ll be able to get more information
after we do a couple of those to see," she said, referring to 50
basis-point hikes. Mester,
a voting member on the FOMC this year, said
that she does not want to rule any moves out after inflation rose to a
fresh 40-year high in Mar. If prices do not begin to subside by H2, she said policymakers may "need to speed up." "If we see inflation moving down and demand down more than we might be predicting, then we can adjust at that point," she added. Her
comments come just one week after policymakers voted unanimously to
raise the key benchmark rate by 50 basis points for the first time in 2 decades to 0.75-1.0%, the highest since the
pandemic began 2 years ago, as they look to curb consumer demand. The
Fed also announced it will start reducing its massive $9T
balance sheet, which nearly doubled in size during the pandemic as the
central bank bought mortgage-backed securities & other Treasuries to
keep borrowing cheap. Collectively, the steps mark the most
aggressive tightening of monetary policy in decades as the Fed races to
catch up with inflation. Chair Jerome Powell all but promised 2 more similarly sized
hikes at the Fed's coming meetings in Jun & Jul as policymakers seek
to "expeditiously" get overnight borrowing costs to a neutral range of
2.25-2.5%. Current market pricing shows that traders expect
the rate to rise to 3.0-3.25% by the end of the year, according to
CME Group data, which tracks trading. That would mean the Fed raises
rates at every meeting for the rest of the year, including 3 ½-point hikes. Powell
has acknowledged there could be some "pain associated" with reducing
inflation & curbing demand but pushed back against the notion of an
impending recession, identifying the labor market & strong consumer
spending as bright spots in the economy.
Cleveland Fed president endorses more half-point rate hikes, bigger ones if inflation persists
Even with rampant inflation & rapidly accelerating interest rates, household borrowing climbed to start 2022 & hit a new record, the Federal Reserve reported. Consumer debt & credit rose 1.7% in Q1 to $15.8T. The rise in total household credit was propelled largely by a $250B increase in mortgage debt, which now stands at $11.2T, an increase of 10% from Q1-2021. Credit card balances actually fell during the 3-month period by $15B but still remained $71B, or about 9% higher than they were for the same period a year ago. Auto loan originations declined in Q1 after what the New York Fed described as “a historically brisk 2021,” in which used vehicle prices soared by nearly 27%. Student loan debt climbed by $14B, bringing the annual increase to 6.5%. The acceleration in debt overall comes with consumer price inflation up 8.5% over the past year thru Mar & with interest rates surging to multiyear highs. 30-year mortgage rates are now running around 5% after being closer to 3% just a year ago, according to Freddie Mac. Mortgages make up 71% of all household debt, a number that has consistently climbed. Households have originated $8.4T in new mortgage debt since the Covid pandemic began, the result of a relocation trend out of cities & into the suburbs, a move that has coincided with a massive rise in prices. The median home price has soared 30% over the past 2 years to $428K, according to census data.
Household debt nears $16 trillion despite rising rates and inflation
Boeing’s (BA), a Dow stock, aircraft deliveries fell last month as handovers of its 787 Dreamliner planes remain paused after a series of manufacturing flaws. The
company delivered 35 jets in Apr, down from 41 in Mar, bringing its
total so far this year to 130. That trails rival Airbus' 188 aircraft
deliveries for the first 4 months of 2022. BA's gross orders for Apr fell to 46 from 53 in Mar. Most of the new orders were for 737 Max planes. Customers of both major aircraft manufacturers have cited delays in getting new planes. The stock fell 37¢.
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Boeing aircraft orders, deliveries slipped in April
Gold futures finished at the lowest level in 3 months, as a surge in the $ kept pressure on the yellow metal. Gold for Jun shed $17 (1%) to settle at $1841 an ounce, the lowest settlement for the most-active contract since Feb 10. The ICE US Dollar Index, a measure of the currency against a basket of 6 major rivals, was up 0.2% after trading near a 20-year high on Mon. A rising $ can be a negative for commodities priced in the unit, making them more expensive to users of other currencies. The benchmark 10-year Treasury rate pulled back from its multiyear peak today to trade near 2.99%. Rates volatility this year has been a key source of pain for financial markets as the Federal Reserve gears up to aggressively raise interest rates in the coming months to cool high costs of living. US stocks saw choppy trade today. Inflation data, due tomorrow, are likely to be the main event on the economic calendar.
Gold ends at lowest in 3 months as stocks zigzag, dollar surges
Oil futures ended lower, with the US benchmark sliding back
below $100 a barrel for the first time in nearly 2 weeks amid worries
about the global economic outlook & COVID-19 lockdowns in China
alongside a persistently strong $. Meanwhile, the average US pump price for regular gasoline hit a record above $4.37 a gallon. West Texas Intermediate crude for Jun dropped $3.33 (3.2%) to close at $99.76 a barrel, after trading below $100 for the first time
since Apr 27. Jul Brent crude,
the global benchmark, fell $3.48 (3.3%) to settle at $102.46 a barrel. Oil extended a slump seen yesterday following a round of weak Chinese
trade data that underlined worries about the country’s COVID-19
lockdowns & their impact on crude demand. A steep selloff for
equities added to pressure on crude. The inability of the EU to quickly agree to a plan for
implementing a ban on Russian oil imports has also weighed on the market. Hungary has continued to demand more in the way of assistance to help
it transition away from Russian energy. Reports have said that a
proposed compromise would allow Hungary & other Eastern European EU
members to phase out Russian oil by the end of 2024, as opposed to the
end of the year. French European Affairs Minister Clement Beaune
said he thought a deal could be completed this week, noting
that French Pres Emmanuel Macron was due to speak to Hungarian
leader Viktor Orban.
U.S. oil benchmark finishes below $100 a barrel as worries mount over global growth
Federal Reserve Governor Christopher Waller pledged that the rate-setting group wouldn't make the same mistakes on inflation that it did in the 1970s. Back then, he said during a panel chat with Minneapolis Fed Pres Neel Kashkari, the central bank talked tough on inflation but wilted every time tighter monetary policy caused an uptick in unemployment. This time, Waller said he & & his colleagues will follow thru on its intentions to raise interest rates until inflation comes down down to the Fed's targeted level. The central bank has raised rates twice this year, including a ½ percentage point move last week. “We know what happened for the Fed not taking the job seriously on inflation in the 1970s, and we ain’t gonna let that happen,” Waller added. The remarks came with inflation running at its hottest pace in more than 40 years. Earlier in the day, Pres Biden called inflation the economy's biggest challenge now & noted fighting price increases “starts with the Federal Reserve.” Though he noted the central bank's political independence, Biden said, “The Fed should do its job, and it will do its job. I’m convinced of that in my mind.” While Waller drew the comparison to the Fed of the 1970s & early ’80s, which eventually defeated inflation with a series of massive interest rate hikes when Chair Paul Volcker took over, he said he doesn't think the current policymakers need to be as aggressive. “They had zero credibility, so Volcker just basically said, ‘I’ve got to just do this shock and awe,’” Waller said. “We don’t have that problem right now. This is not a shock-and-awe Volcker moment.” The Volcker moves took the Fed’s benchmark interest rate to close to 20% & sent the economy into recession. Waller said he had a conversation with the former chair before his death & Volcker said, “If I had known what was going to happen, I never would have done it.”
Fed’s Waller promises to tackle inflation, says mistakes of the ’70s won’t be repeated
Investors remain nervous about tomorrow's report on consumer inflation. A dreary reading is already baked into the stock market. But that represents the past. 2 days later the producer price index data for Apr is coming. That gives the short term outlook for consumer prices in the coming months. Keep your fingers crossed.
Dow Jones Industrials
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