Markets retreat led by oil falling to a 6 month low on recession fears

Dow fell 85, decliners modestly ahead of advancers & NAZ went up 52.  The MLP index gave back 5+ to the 203s & the REIT index fell 1 to 431.  Junk bond funds clawed their way higher & Treasuries saw more buying, bringing lower yields.  Oil slumped 2+ to the 88s, a 6 month low, & gold surged 33 to 1810 (more on both below).

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The number of Americans filing for unemployment benefits edged higher last week, hovering near the highest level of the year — the latest sign that the historically tight labor market is starting to cool off.  Figures from the Labor Dept show that applications for last week rose to 260K from the downwardly revised 254K recorded a week earlier.  That is above the 2019 pre-pandemic average of 218K claims & just narrowly missed topping the 8-month high of 261K recorded in mid-Jul.  Continuing claims, or the number of Americans who are consecutively receiving unemployment aid, rose slightly to 1.4M, up by 48K from the prior week's revised level.  For months, the labor market has been one of the few bright spots in the economy, with the Jun jobs report showing that the unemployment rate remained at 3.6% — near a historic low — for the 4th consecutive month.  There are growing fears that the US economy is on the cusp of — or already in — a recession as a result of the Federal Reserve's war on inflation.  The central bank is raising interest rates at the fastest pace in decades as it races to cool consumer prices, which surged 9.1% in Jun — the fastest year-over-year increase since 1981.

Jobless claims climb again, hovering near 8-month high

The pres of the San Francisco Federal Reserve Bank is doing fine amid a period of high inflation, but she acknowledged that others are not so fortunate.  Pres Mary Daly in an interview yesterday exploring the ongoing inflation spike & its effect on low-income households.  When asked whether she was personally experiencing the negative effects of inflation in the US economy. Daly responded that she, in fact, does not "feel the pain of inflation anymore."  "I don't feel the pain of inflation anymore," Daly added.  "I see prices rising, but I have enough that I can make substitutions."  She continued, "I'm not immune to gas prices rising, food prices rising; I sometimes balk at the price of things, but I don’t find myself in a space where I have to make trade-offs, because I have enough."  "Many, many Americans have enough," she said.  "But I see regularly — and I recognize what it feels like — when you don't have that situation. When you live so close to the edge of your income that raising prices actually force real trade-offs," she continued.  Daly went on to give an example of the people she believes are being affected by inflation — specifically, families who must downsize their vacations.  "You may not be able to go to the vacation you want. You may end up instead camping or doing a stay-cation," Daly said.  "Or what you used to eat out to do, you eat in your hotel because you can't really afford getting there and then going out to dinner once you're at the hotel. And I see all of that."

Fed's Daly says many Americans forced to make hard choices due to soaring inflation

Walmart (WMT), a Dow stock & Dividend Aristocrat, confirmed it is laying off corp workers as part of a restructuring process.  "We’re updating our structure and evolving select roles to provide clarity and better position the company for a strong future," a company spokesperson said.  "At the same time, we’re further investing in key areas like eCommerce, technology, health & wellness, supply chain and advertising sales and creating new roles to support our growing number of services for our customers, suppliers and the business community."  A source familiar with the situation said the number of layoffs is around 200 corp employees.  The news comes a little more than a week after the company lowered its profit outlook for Q2 & the full year as soaring inflation takes its toll on the retail giant.  The company announced that it expects adjusted EPS for Q2 to decline to around 8-9% & drop to the 11-13% range for fiscal year 2023.  WMT said that double-digit food inflation is higher than it was at the end of last qtr, noting that "this is affecting customers' ability to spend on general merchandise categories and requiring more markdowns to move through the inventory, particularly apparel."  The stock dropped 4.88.
If you would like to learn more about WMT, click on this link:
club.ino.com/trend/analysis/stock/WMT?a_aid=CD3289&a_bid=6ae5b6f7

Walmart slashing jobs as Americans cut back on spending

The Bank of England hiked interest rates by 50 basis points, its largest single increase since 1995 & projected the UK's longest recession since the global financial crisis.  The 6th consecutive increase takes borrowing costs to 1.75% & marks the first ½-point hike since the bank was made independent from the British gov in 1997.  The Monetary Policy Committee (MPC) voted by a majority of 8-1 in favor of the historic ½-point rise & cited climbing inflationary pressures in the UK & the rest of Europe since its previous meeting in May.  “That largely reflects a near doubling in wholesale gas prices since May, owing to Russia’s restriction of gas supplies to Europe and the risk of further curbs,” the MPC added.  “As this feeds through to retail energy prices, it will exacerbate the fall in real incomes for UK households and further increase UK CPI inflation in the near term.”  Britain's energy regulator, Ofgem, increased the energy price cap by 54% from Apr to accommodate soaring global costs, but is expected to rise by a greater degree in Oct with annual household energy bills predicted to surpass £3600 ($4396).  The bank now expects headline inflation to peak at 13.3% in Oct & to remain at elevated levels throughout much of 2023, before falling to its 2% target in 2025.  The MPC noted that the labor market remains tight, with domestic cost & price pressures elevated, adding that there is a risk that a “longer period of externally generated price inflation will lead to more enduring domestic price and wage pressures.”  “The labour market has remained tight, with the unemployment rate at 3.8% in the three months to May and vacancies at historically high levels,” the MPC continued.  “As a result, and consistent with the latest Agents’ survey, underlying nominal wage growth is expected to be higher than in the May Report over the first half of the forecast period.”

Bank of England launches biggest interest rate hike in 27 years, predicts lengthy recession

Oil futures fell sharply, with the US benchmark ending below the $90 a barrel threshold as investors worried about the risk of a global economic slowdown that could crimp demand.  West Texas Intermediate crude for Sep ended with a loss of $2.12 (2.3%) at $88.54 a barrel, the first finish below $90 for a most actively traded contract since Feb 10.

U.S. crude-oil benchmark closes below $90 a barrel for first time since February

Gold futures closed at one-month high, buoyed by a pullback in the $ & Treasury yields, as investors awaited tomorrow's employment report for Jul to help gauge whether the American economy can avoid recession.  Gold for Dec delivery jumped $30 (1.7%) to settle at $1806 per ounce, the highest for the most-active contract since Jun 30.  The $ & Treasury yields moved lower though data from the US service sector surprised markets yesterday with momentum and helped clear away some recession fears.  An ISM barometer of business conditions at service-oriented companies such as restaurants, retailers & hotels in Jul rose to a 3-month high of 56.7%, suggesting the economy continues to expand despite growing headwinds.  Cleveland Federal Reserve's Loretta Mester insisted that the US has not fallen into recession, despite 2 straight qtrs of declines in GDP, but still backs higher interest rates until inflation fades.  The yield on the 2-year Treasury note fell to 3.07%, while the 10-year Treasury note yield retreated to 2.69%.  The focus now remains on tomorrow's release of the monthly employment report for Jul, with scattered reports of layoffs, declining job openings & a softening economy all pointing to a slowdown in hiring.

Gold prices top $1,800, end at one-month high as investors focus on U.S. recession odds

There's no shortage of gloomy thoughts for tradrs to digest, but they are taking it all with a sense of calm.  Selling today was limited with the Dow staying only a little below breakeven for the entire trading session.  The jobless claims data is a forward looking indicator & is becoming worrisome.  The WMT warning is very disturbing.  It shows how badly the company is getting pinched by a slowing economy & high inflation.  The invereted yield curve has not corrected  The interest rate hike in England adds fuel to a raging fire of negative thoughts about the US & global economies.  Tomorrow brings the jobs reports & the latest uneployment rate.  Negative reports will not be well received by the stock market.

Dow Jones Industrials