Dow dropped 402 (session lows), decliners slightly ahead of advaners & NAZ crawled off 40. The MLP index stayed in the 211s & the REIT index fell 5+ to the 431s. Junk bond funds fluctuated & Treasuries saw heavily selling, raising the yield on the 10 year Treasury 14 basis points to 2.74%. Oil was marginally higher in the 94s & gold slid back 8 to 1779, lower from late day selling (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)
The Federal Reserve still has a lot of work to do before it gets inflation under control & that means higher interest rates, San Francisco Fed Pres Mary Daly said. “People are still struggling with the higher prices they’re paying and the rising prices,” Daly said. “The number of people who can’t afford this week what they paid for with ease six months ago just means our work is far from done.” Separately, Chicago Fed Pres Charles Evans opened up the possibility of another large rate hike ahead, but said he hopes that can be avoided & sees the Fed being able to bring down inflation without having to use harsh policy tightening. So far this year, the central bank has raised its benchmark interest rate 4 times, totaling 2.25 percentage points. That has come in response to inflation running at a 9.1% annual rate, the highest level since 1981. The Fed in Jul raised its funds rate 0.75 percentage point, the same as it hiked in Jun. That was the largest back-to-back increase since the central bank started using the funds rate as its chief monetary policy tool in the early 1990s. But Daly said no one should take those big moves as an indication that the Fed is winding down its rate hikes. “Nowhere near almost done,” she said in assessing the progress. “We have made a good start and I feel really pleased with where we’ve gotten to at this point.” Chicago Fed Pres Charles Evans said the Fed is likely to keep its foot on the brake until it sees inflation coming down. He expects policymakers to raise rates by half a percentage point at their next meeting in Sep, but left the door open to a bigger move. “Fifty [basis points] is a reasonable assessment, but 75 could also be OK,” he said. “I doubt that more would be called for.” A basis point is 0.01 percentage point. “We wanted to get to neutral expeditiously. We want to get a little restrictive expeditiously,” Evans added. “We want to see if the real side effects are going to start coming back in line ... or if we have a lot more ahead of us.” However, he also said he's hopeful the Fed soon could pause its rate hikes as inflation comes down.
Fed’s Daly sees more hikes ahead; Evans says ‘reasonable’ chance for smaller increase
Caterpillar (CAT), a Dow stock, reported Q2 adjusted EPS of $3.18, which
surpassed the estimate of $3.00. The bottom-line
figure marked a 22% improvement year on year. Strong demand across most
of its end markets & favorable price realization led to the
improvement in earnings in the qtr under review despite unfavorable
manufacturing costs (mainly higher material & freight costs). Including
one-time items, EPS was $3.13, an
improvement from the prior-year qtr's figure of $2.56. Q2 revenue of $14.2B missed the estimate of $14.3B. However, the top line improved 10.5% from the year-ago
qtr on favorable price realization & increased sales volumes. Sales volume was primarily driven by services, partially offset by lower
sales of equipment to end users. Unfavorable currency impacts related
to the €, Australian $ & Japanese ¥ had a dampening effect. Sales increased across all of its 3 segments. Cost of sales increased 12.3% year over year to around $10B.
Manufacturing costs were higher in the qtr due to inflated material
costs & freight costs. Gross profit improved 7% year over year to $4.3B. Gross margin was 30%, down from
31.1% in the prior-year qtr. The stock dropped 11.42 (6%).
If you would like to learn more about CAT, click on this link:
club.ino.com/trend/analysis/stock/CAT?a_aid=CD3289&a_bid=6ae5b6f7
Caterpillar (CAT) Q2 Earnings Beat Estimates, Increase Y/Y
House Speaker Nancy Pelosi landed in Taiwan's capital of Taipei, kicking off a controversial visit that had already strained the testy relationship between Beijing & DC before it even began. China has spent weeks warning Pelosi not to come to the disputed territory, which Beijing considers a province of China, but which considers itself an independent nation. These warnings escalated into actions during the hours ahead of Pelosi's arrival, which marked the first time in 25 years that an American House speaker has visited Taiwan. The visit will reportedly last almost 24 hours. Hua Chunying, China's assistant minister of foreign affairs, said in a string of tweets that Pelosi's visit to Taiwan was a “major political provocation.” Today, China reportedly levied new import bans on more than 100 Taiwanese products, an apparent effort to impose a quick economic cost on Taipei for its role in Pelosi's high profile visit. The Chinese military also flexed its muscle by holding live fire exercises all day Sat, just 80 miles from Taiwan. Today, as Pelosi’s visit drew near, the People’s Liberation Army deployed fighter jets to the Taiwan Straits that flew very close to the center line of the strait, which is rarely crossed. As Pelosi landed, Chinese state affiliated media announced that more live fire exercises would be conducted over the coming weekend -- notably, after Pelosi has left the area. For China experts, these military drills & bellicose public statements come as little surprise. “This is just something they have to do,” said Andrew Mertha, the director of the China Global Research Center at the Johns Hopkins School of Advanced International Studies. “I would frankly be very surprised if Beijing does anything physically threatening in any meaningful way. I mean, it’s not out of the question, but I would really be surprised,” he added.
China ratchets up military and economic pressure on Taiwan as Pelosi begins her visit
Oil futures ended modestly highey, trimming a larger intraday gain, ahead of a meeting of OPEC+ members that"s not expected to see a large increase in output. West Texas Intermediate crude for Sep delivery rose 53¢ (0.6%) to close at $94.42 a barrel.
Oil logs modest gain ahead of OPEC+ meeting
Gold’s post-Federal Reserve rally continued, with the yellow metal & other safe-haven assets ending higher after House Speaker Nancy Pelosi landed in Taiwan, sparking vows of retaliation from Beijing. Focus also was on comments from 2 top Federal Reserve officials who said a central bank pivot away from aggressive rate-hiking plans wasn't likely until high inflation subsides. Gold futures for Dec climbed $7 to settle at $1789 an ounce, booking a 5-session rise & the longest win streak for the most-active contract since Apr, Gold prices have surged nearly $100 per ounce in the past 2 weeks from their lowest level since early 2021. Analysts credited the leg higher last week to Fed Chair Jerome Powell's comments that the pace of interest rate hikes likely would slow. However, today San Francisco Federal Reserve Bank Pres Mary Daly said the central bank is “no where near” being done in its fight against inflation. Chicago Fed Pres Charles Evans also said that he hoped the pace of rate hikes would be slower later in the year, but echoed Daly in saying it would depend on whether inflation, at 9.1% in Jun, begins to slow. Gold & other safe-haven assets also benefited from a different tailwind on House Speaker Nancy Pelosi's visit to Taiwan. Pelosi’s trip, coming in the wake of a tense & “candid” phone call between Pres Biden & President Xi Jinping, revived fears of strained bilateral relationships between DC & China. The $ was 0.7% higher against a basket of rival currencies, while US equities mostly retreated. The 10-year Treasury yield also was higher by 12 basis points to 2.73%.
Gold ends higher for 5th day as safe-haven assets rise with U.S. – China tensions
Nancy Pelosi in Taiwan is getting everybody's attention. Currently they should be sleeping, but tomorrow more news may be coming from Taiwan. Thurs OPEC+ meets, but no increase in raising monthly production is expected. Currently the monthly increase is 638K barrels a day. Over time that will restore production to the prior Covid levels. There was heavy selling in stocks in the PM. Traders must be worried about Nancy!
Dow Jones Industrials
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