Dow finished up 90 in choppy trading around breakeven, advancers ahead of decliners 5-4 & NAZ was off 51. The MLP index jumped 6+ to the 203s & the REIT index remained little changed near 420. Junk bond funds were mixed & Treasuries saw more selling, raising yields. Oil rose 1+ to the 96s & gold slid back 9 to 1717 (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)
Not many people understand commodities markets, but as the Federal Reserve decides just how much to raise interest rates, commodity prices have a lot to do with today's high inflation & the rate hikes designed to halt it – & that affects everyone. The Fed is widely expected to raise interest rates by ¾ of a percentage point at its ed meeting, in response to the blistering 1.3% gain in consumer prices in Jun, which brought 12-month inflation to a 41-year high of 9.1 percent. Nearly ½ of the monthly gain reflects just the impact of energy commodities like oil & natural gas that the Labor Dept breaks out in the report. And that's not all: other commodities like copper, iron ore, corn, wheat & even soybeans also play a role in driving inflation in the rest of the economy, even as many of them fall outside the food & energy prices that are excluded from the so-called “core” inflation measure. With commodity prices now falling fast, will future inflation reports show inflation tailing off? “For now, inflation is a commodity story,” said Moody's Analytics. “Even though commodities are coming down now, they’re still elevated.” Most economists don't expect the Fed to bet on lower commodities to bring inflation to heel with smaller rate hikes, saying price gains in the rest of the economy need to be battled. But commodity declines are themselves a signal of slower economic growth & at least in energy they are already. Major commodities rose as much as 4-fold from the beginning of the Covid pandemic, helping to get the inflation surge started. Crude oil rose to $124 a barrel in Jun from $64 just before the first US Covid case in Jan 2020. Wheat went from around $195 to $351 & corn doubled. Lumber, used for housing & renovations, went from $426 to $1686. Natural gas, a market that, like wheat, has been squeezed by embargoes against Russian exports for the invasion of Ukraine, has also doubled in the last year & quadrupled since early 2020. All this translates more or less directly into consumer prices.
Gas prices are down, but commodities still control inflation’s future
The World Health Organization (WHO) cautioned against complacency in the rapidly escalating monkeypox outbreak, saying there is no guarantee that the virus will continue to spread within specific communities. The UN health agency said that while cases have so far been concentrated primarily within gay & bisexual communities, there is little evidence to suggest that the disease will remain confined to those groups. Rather, their early detection could be a harbinger of a wider outbreak. “At the moment, cases continue to be reported among men who have sex with men for the most part, but we should not expect that to remain as such,” Dr Catherine Smallwood, senior emergency officer at the WHO, said. It is not uncommon for a virus outbreak to start in one particular group or setting before spreading more widely in the general population, Smallwood said, noting that health authorities could take cues from the early findings. “This really might be the canary in the mine that’s alerting to us a new disease threat that could spread to other groups,” she continued. The WHO activated its highest alert level for the escalating outbreak Sat, declaring the virus a public health emergency of international concern. The rare designation means the WHO now views the outbreak as a significant enough threat to global health that a coordinated international response is needed to prevent the virus from spreading further & potentially escalating into a pandemic. “We have an outbreak that has spread around the world rapidly, through new modes of transmission, about which we understand too little. For all of these reasons, I have decided that the global monkeypox outbreak represents a public health emergency of international concern,” WHO Director General Tedros Adhanom Ghebreyesus said. More than 16K cases of monkeypox have been reported across more than 70 countries so far this year, & the number of confirmed infections rose 77% from late Jun thru early Jul, according to WHO data. Europe accounts for more than 80% of confirmed cases in 2022.
Monkeypox could spread well beyond communities of gay and bisexual men, WHO says
Russia's Gazprom said it was halting another turbine in the Nord Stream 1 pipeline to Germany & the flow of gas, already at just 40% of capacity, would fall by another ½ from Wed. The new blow to supply comes at a moment of high tension as Russia & the West exchange economic blows in response to Moscow's actions in Ukraine. The EU has accused Russia of resorting to energy blackmail, while the Kremlin says the gas disruption has been caused by maintenance issues & the effect of Western sanctions. Gazprom said throughput from Wed would fall to 33M cubic metres per day — just ½ of the current, already reduced, supply. Politicians in Europe have repeatedly warned that Russia could cut off gas flows this winter, a step that would thrust Germany into recession & lead to soaring prices for consumers already grappling with higher prices for food & energy. Pres Vladimir Putin warned the West this month that continued sanctions risked triggering catastrophic energy price rises for consumers around the world. Russia is the world's 2nd largest oil exporter after Saudi Arabia & the world's largest exporter of natural gas. Europe imports about 40% of its gas & 30% of its oil from Russia. Gazprom resumed gas flows via Nord Stream 1 last week after a 10-day maintenance break, but only at 40% of the pipeline's capacity — a level Russia has said it was forced to lower volumes to in Jun because of the delayed return of a turbine being serviced in Canada. European politicians have challenged that explanation, with Germany saying the turbine in question was not meant to be used until Sep.
Russia’s Gazprom says new turbine halt will further cut gas to Germany via Nord Stream 1
Gold futures finished lower, with prices easing after posting back-to-back session gains. Precious metals investors are now looking forward to the conclusion of the 2-day Federal Reserve meeting on Wed, where the central bank is highly likely to hike rates by another 75 basis points to bring the Fed Fund rate to 2.50%. Given the weakness in the $ & yields last week, it looks like this is already priced in. Unless the Fed hikes by 100 basis points, there is a possibility for further weakness in the $ & gains for gold. Today, Aug fell $8 (0.5%) to settle at $1719 an ounce.
Gold futures end lower after back-to-back session gains
Natural-gas futures climbed by more than 5%,
supported by hotter-than-usual weather throughout much of the US
which has boosted demand for the commodity as a power source. The rise in US prices also follows a rally in European prices
for the commodity, with Dutch TTF gas futures up
nearly 12% Monday. Russian state-owned energy producer Gazprom said
natural-gas exports thru the Nord Stream pipeline to Germany would
drop to 20% of the pipe's capacity, down from the current 40% of
capacity.
Aug natural rose 43¢ (5.2%) to settle at $8.727 per M British thermal units. Aug West Texas Intermediate crude meanwhile, added $2 (2.1%) to
settle at $96.70 a barrel. Oil prices are going to remain volatile this
week with the Federal Reserve meeting tomorrow & Wed & the
US jobs report Fri.
Natural-gas futures rally by more than 5%; oil prices finish higher
This was a quiet day for are waiting to hear from the Fed & about about GDP data. Dow stay above break even for much of the day. Everybody is nervous about new economic data along with more earnings reports.
Dow Jones Industrials
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