Thursday, August 11, 2022

Markets rise on optimistic consumer price index data

Dow gained 192 (but off early highs), advancers over decliners 4-1 & NAZ went up 34.  The MLP index rose 4+ to the 213s & the REIT index was up 2 to the 447s.  Junk bond funds remained in demand & Treasuries saw more selling as stocks were bid higher.  Oil added 1+ to the high 92s & gold slid back 4 to 1809.

AMJ (Alerian MLP index tracking fund)







 

 




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The number of Americans filing for unemployment benefits ticked higher last week, hitting the highest level in 9 months — the latest sign that the historically tight labor market is starting to cool off.  Figures released by the Labor Dept show that applications for last week rose to 262K from the downwardly revised 248K recorded a week earlier.  That is above the 2019 pre-pandemic average of 218K claims & marks the highest level since mid-Nov.  Continuing claims, or the number of Americans who are consecutively receiving unemployment aid, rose slightly to 1.4M, up by 8K from the previous week's revised level.  One year ago, nearly 13M Americans were receiving unemployment benefits.

Jobless claims rise to highest level in 2022 amid record-high inflation

Inflation at the wholesale level cooled in Jul for the first time in 2 years, although prices for everyday necessities remain at a multi-decade high, squeezing businesses & Ms of American households   The Labor Dept said that its producer price index, which measures inflation at the wholesale level before it reaches consumers, climbed 9.8% in Jul from the previous year.  On a monthly basis, prices actually fell by 0.5%.  It marks the first monthly drop since Apr 2020, at the early days of the COVID-19 pandemic & subsequent lockdowns.  Both of those figures are lower than the 10.4% annual & 0.2% monthly estimates.  Core inflation at the wholesale level, which excludes the more volatile measurements of food & energy, increased 0.2% for the month, following a 0.3% increase in Jun.  That is below the expectation for a gain of 0.4%.  Over the past 12 months, core prices climbed 5.8%.  Overall, prices for goods fell 1.8% last month, the largest decline since Apr 2020 & the biggest contributor to the drop in the headline inflation figure.  Nearly 90% of the Jul decrease in services stems from a 9% plunge in prices for final demand energy, including a stunning 16.7% decline in gasoline prices, according to the Labor Dept.  Food prices, however, marched higher in Jul, surging 1% – the fastest increase in 4 months.  Meanwhile, the services index advanced 0.4% in Jun, with increases in transportation & warehousing services accounting for about 2/3 of the gain.  The surge in wholesale prices comes on the heels of a separate Labor Dept report released yesterday that showed the consumer price index rose 8.5% in Jul from a year ago, below the 9.1% year-over-year surge recorded in Jun.  Prices were unchanged in the one-month period from Jun.

Wholesale inflation falls slightly, but prices remain at multi-decade high

Treasury yields slipped as market participants digested another economic report that showed a slowdown in inflation.  The yield on the benchmark 10-year Treasury note dipped 4 basis points to 2.737% & the yield on the 30-year Treasury bond< was down more than 3 basis points to 3.006%.  Yields move inversely to prices & a basis point is equal to 0.01%.  The 2-year Treasury yield was 5 basis points lower at 3.161%, following a dramatic move in the previous session.  The action in the bond market followed data showing wholesale prices falling in Jul for the first time in 2 years.  The producer price index, which gauges the prices received for final demand products, fell 0.5% from Jun, the first month-over-month decrease since Apr 2020, the month after Covid-19 was declared a pandemic.  The forecast had been expecting an increase of 0.2%.  The easing of inflation made investors question the prospects for the Federal Reserve to slow the pace of rate hikes as soon as Sep.

Treasury yields fall after another inflation report shows easing price pressures

The economic news was mixed.  Continued higher readings on jobless claims data is worrisome at the current levels.  Improvement  in the inflation reading was largely due to lower price for West Texas crude which has been sloshing around the low 90s for more than a month.  However, overall demand for crude remains strong.  The inverted yield curve which is signalling a recession is 42 basis points negative.  That's not encouraging.

Dow Jones Industrials

 






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