Dow dropped 151, decliners over advancers about 2-1 & NAZ crawled up 19. The MLP index slid 3+ to the 204s & the REIT index fell 3+ to the 387s. Junk bond funds crawled higher after recent selling & Treasuries ran into heavy selling again, taking the yield on the 10 year Treasury near 2½% (more below). Oil pulled back 2+ to the 118s & gold tumbled 23 to 1808 (more on both below).
AMJ (Alerian MLP Index tracking fund)
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A closely watched recession predictor in the bond market just flashed red, spurring fresh concern that the US economy is on track for a downturn this year as a result of the Federal Reserve's war on inflation. The
spread between the 2-year & 10-year Treasury yields inverted this
week for the first time since Apr on fears that the Federal Reserve's
aggressive approach to tackling the hottest inflation in 4 decades
could lead to a sustained slowdown in growth. The phenomenon – which is
rare – has been a historically accurate predictor of recessions. Yields on the 2-year Treasury note climbed as high as 3.431% early today, rising above those on 30-year bonds, which
fell to about 3.277%. The movement reflects "fears of a Fed policy error
and an impending recession," according to Mark Hackett, chief of
investment research at Nationwide. Yield curve inversions are viewed as a good recession predictor
because it suggests that investors believe – with the interest rate on
long-term bonds lower than the rate on short-term bonds – economic
growth is slowing. Every recession in the past 60 years was preceded by
an inverted yield curve, according to research from the Federal Reserve Bank of San Francisco. There
are growing fears that the central bank will
trigger a downturn as it raises interest rates at the fastest pace in 2 decades following a scorching-hot Labor Dept report
released last week that showed the consumer price index rose 8.6% in
May from a year ago, faster than expected. It marks the fastest pace of
inflation since 1981.
Wall Street's favorite recession indicator is flashing red
Small business owner optimism edged down for the 5th straight month in May, hitting the lowest point ever recorded as high inflation, supply chain challenges & labor shortages continue to take a toll. The National Federation of Independent Business (NFIB) Optimism Index showed small business sentiment fell by 0.1 points last month to 93.1, with the number of small business owners expecting conditions to improve over the next 6 months dropping 4 points to a net negative 54%, the lowest level in the survey's 48-year history. The data indicates that inflation, which sits at a 40-year high, is a significant factor for small business owners, with 28% citing it as their top problem. The number of respondents that reported raising their average selling prices also hit a record high of 72%, which is 32 points higher than the same month last year. "Inflation continues to outpace compensation which has reduced real incomes across the nation," said NFIB chief economist Bill Dunkelberg. "Small business owners remain very pessimistic about the second half of the year as supply chain disruptions, inflation, and the labor shortage are not easing." The 2nd-highest problem cited by small business owners was labor quality, with 23% saying it was their biggest headache. Of the respondents that said they were hiring or trying to hire more workers, 92% reported that there were few or no qualified applicants for the positions they were seeking to fill. The number of owners reporting that they had job openings that could not be filled rose to 51% in May, up 4 points from the month before in a clear sign that the ongoing worker shortage persists. Meanwhile, the number of small businesses that said they raised employee pay last month dropped 3 points to 46%, providing further evidence that soaring inflation is wiping out most Americans' wage gains
Small business optimism drops to record low
The 10-year Treasury yield rose to its highest level in more than a decade as investors continued to assess the prospect of the Federal Reserve taking the most aggressive step yet in its fight to lower soaring inflation. The yield on the benchmark 10-year Treasury note was last up 7 basis points to 3.44%, after breaking above 3.45%. That marks a high not seen since 2011. The 2-year yield rose an enormous 14 basis points to 3.425% while the 30-year Treasury bond was last up 5 basis points to 3.423%. Yields move inversely to prices, & a basis point is equal to 0.01%. After ending May at 2.74%, the 10-year yield has rocketed higher this month as hot inflation readings caused investors to dump bonds & ratcheted up their bets for aggressive Fed tightening. The 10-year is also up sharply from where it started 2022 at — 1.51%. These moves come as investors brace themselves for a 75 basis-point hike from the Fed this week, rather than a 50 basis-point hike many had come to expect. That's because last week's inflation report showed prices running hotter than expected. The Federal Open Market Committee in May raised the target range for the federal funds rate to 0.75-1% from 0.25-0.5%. During the previous session, the 10-year notched its biggest move since 2020. The 2-year & 10-year Treasury yield curve also briefly inverted for the first time since early Apr as investors prepared for the prospect of aggressive monetary policy tightening to lower inflation. This measure is closely monitored by traders & is often seen as an indicator of a recession.
10-year Treasury yield tops 3.45%, the highest in 11 years
Wholesale prices rose at a brisk pace in May as inflation pressures mounted on the US economy, the Bureau of Labor Statistics reported. The producer price index (PPI), a measure of the prices paid to producers of goods & services, rose 0.8% for the month & 10.8% over the past year. The monthly rise was in line with estimates & a doubling of the 0.4% pace in Apr. Excluding food, energy & trade, so-called core PPI rose 0.5% on the month, slightly below the 0.6% estimate but an increase from the 0.4% reading in the previous month. On a year-over-year basis, the core measure was up 6.8%, matching Apr's gain. The 2 PPI measures remained near their historic highs — 11.5% for headline & 7.1% for core, both hit in Mar. The data is significant in that prices at the wholesale level feed thru to consumer prices, which are running at their highest levels since 1981. The consumer price index increased 8.6% annually in May, defying hopes that inflation had peaked in the spring. Federal Reserve officials are watching the inflation numbers closely. Markets now expect the central bank to raise benchmark short-term borrowing rates by 75 basis points when their 2-day meeting concludes tomorrow. For wholesale prices, energy made up much of the May gains. The index for final demand energy rose 5% on the month, part of a 1.4% surge in final demand goods. The goods-services imbalance has been at the core of the inflation pressures, as consumer demand has shifted strongly in an economy that generally is more dependent on services.
Wholesale prices rose 10.8% in May, near a record annual pace
Oil futures gave up early gains to finish with a loss, pressured after report that a US senator may propose a plan to impose a federal surtax on
certain oil companies in a move to curb inflation. Natural-gas prices,
meanwhile, settled at their lowest in 5 weeks
as full repairs to a damaged Freeport LNG terminal isn't expected until
later this year. West Texas Intermediate crude for Jul fell $2 (1.7%) to settle at $118.93 a barrel after trading as high as $123.68. Jul natural
gas settled at $7.189 per M British thermal units, down $1.42 (16.5%).
Oil prices settle lower; natural-gas futures drop more than 16%
Gold ended lower, with prices settling at their lowest in
more than a month, as investors braced for the outcome of this week's
Federal Reserve meeting. Gold for Aug fell $18 (1%) to settle at $1813
an ounce, the lowest most-active contract finish since May 13. Yesterday, the precious metal 2.3% amid after a
wide-ranging market selloff sent the S&P 500 into a bear market &
bond yields surging. $ strength pared somewhat after yesterday's surge. $-denominated gold prices tend to pressure the metal, while rising
rising Treasury yields can dull the luster of gold, which offers no
yield. The yield on 10-year Treasurys rose sharply today. A swath of assets swooned yesterday following last week's US
consumer price data that saw inflation reach a 40-year high of 8.6%
year-over-year in May, disappointing those hoping for signs inflation
had peaked. The 2-day Federal Reserve meeting that ends tomorrow is
expected to result in another sharp rise in benchmark interest rates as
officials battle to get inflation under control, but may also risk a
recession. The ICE US Dollar Index was up 0.3%, trading near a
20-year high. Gold futures continued to trade lower after data today revealed that US wholesale prices jumped 0.8% in May.
Gold prices end at a more than 1-month low as investors brace for Fed decision
Dow Jones Industrials
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