Markets struggle to find footing as the third quarter ends

Dow dropped 500 to session lows, advancers & decliners about equal & NAZ slid back 161.  The MLP index added 2+ to the 203s & the REIT index rebounded 5+ to 361 following heavy selling.  Junk bond funds were sold & Treasuries continued flattish with little change in yields.  Oil was off 1+ to the 79s & gold added 3 to 1671 (more on both below).

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The House passed a stopgap funding measure to keep the federal gov open until at least mid-Dec.  The continuing resolution measure was approved by a 230-201 margin with a majority-Dem vote. The approval came a day after the Senate passed the same resolution in a down-to-the-wire vote.  Pres Biden is expected to sign it into law later today.  If the resolution had not been passed, the gov would have shut down due tonight's deadline for approval of the upcoming federal budget.  Funding in the resolution includes approximately $12B in emergency aid for Ukraine, $18.8B for the FEMA Disaster Relief Fund & $1 billion for heating & utility assistance.  The bill, which will fund the gov until Dec 16, needed to pass before negotiations for the final 2023 budget could continue.

House passes stopgap funding measure to avoid federal government shutdown

Big Tech companies are the target of a House measure giving states greater power in competition cases & increasing money for federal regulators.  The antitrust legislation focuses on the dominance of tech companies.  The bipartisan measure passed by a 242-184 vote yesterday.  It was separated from more ambitious provisions cleared by key House & Senate committees aimed at reining in the biggest tech companies.  Those proposals have languished for months, giving the companies time for vigorous lobbying campaigns against them.  The bill would give states an upper hand over companies in choosing the location of courts that decide federal antitrust cases.  Proponents say this change would avert the "home-court advantage" that Big Tech companies enjoy in federal court in Northern California, where many of the cases are tried & many of the companies are based.  The bill also would increase filing fees paid by companies to federal agencies for all proposed mergers worth $500M or more, while reducing the fees for small & medium-sized transactions.  The aim is to increase revenue for federal enforcement efforts.  Under the bill, companies seeking approval for mergers would have to disclose subsidies they received from countries deemed to pose strategic or economic risks to the US — especially China.

REINING THEM IN: House passes antitrust bill targeting Big Tech

The Biden administration announced new economic sanctions on hundreds of Russian officials & entities in response to the Kremlin's illegal annexation of 4 regions of Ukraine.  “Make no mistake: these actions have no legitimacy,” Pres Biden said slamming Russian Pres Vladimir Putin's goal of recreating a Soviet-style Russian empire.  “I urge all members of the international community to reject Russia’s illegal attempts at annexation and to stand with the people of Ukraine for as long as it takes,” he said, vowing that America & its allies would hold the Kremlin accountable.  The new sanctions target several front companies outside of Russia that were created this year to help major Russian military suppliers evade the sanctions they had already faced.  The new designations also expand sanctions on top Kremlin officials to include their wives & adult children.  After 7 months of war & economic sanctions, these revisions offer a window into what US officials believe is working.  The Treasury Dept named 14 intl suppliers that assisted Russia's military supply chains.  It also imposed designations on 109 members of Russia's State Duma & 169 members of the Federation Council of the Federal Assembly of the Russian Federation.  In announcing the annexations Friday in Moscow, Putin declared that “There are four new regions of Russia,” referring to the Ukrainian regions of Donetsk, Luhansk, Zaporizhzhia & Kherson.  Putin cited sham referendum votes held in Russian-occupied areas, saying voters approved becoming parts of Russia.  Those votes are widely viewed by Western officials as rigged & illegitimate.

U.S. announces new sanctions on Russia in response to Ukraine annexation

Gold prices post a 6th-consecutive monthly loss.  Gold futures climbed today to post a gain for the week, shrugging off rising inflation in Europe & the US, as the $ traded below a 20-year high reached earlier this week.  Overall strength in the $, however, on the back of aggressive monetary policy tightening by the Federal Reserve, as the central bank continues its efforts to tame inflation, pushed $-denominated prices for the metal lower for the month, as well as the qtr.  Gold for Dec rose $3 to settle at $1672 an ounce.  Prices based on the most-active contract climbed 1% for the week.  They posted declines of 3.1% for the month & 7.5% for the qtr.  Gold ended Fri at its highest level in just over a week despite another batch of worrying inflation data out of the eurozone, which showed consumer-prices are rising at their fastest pace since World War II, one day after an inflation report out of Germany revealed something similar.  Data in the US meanwhile, showed that the personal-consumption price index, a key gauge of US inflation, rose a mild 0.3% in Aug, but prices are still going up at the fastest pace in 40 years.  Lately, movements in the price of gold has been dictated mostly by the relative value of the $ along with rising Treasury yields.  Gold's decline for the month & qtr really has to do with the strength in the $.  The $ index for the last qtr, gold & currency have been moving inversely to each other.  For Q3, gold futures based on the most-active contract lost almost 8% lower, while the ICE US Dollar Index has gained over 7%.  The $ index today traded below its 20-year high of 114.78, reached on Wed.

Gold ends higher for the week, but falls for the month and quarter on strength in the U.S. dollar

Oil futures declined, contributing to their losses for the month & qtr as concerns over a potential recession  raise expectations for a slowdown in demand.  Still, oil supply will get tighter in the winter & now that most of the crude demand destruction has been priced in, prices may stabilize going into the year-end.  Nov WTI crude fell $1.74 (2.1%) to settle at 79.49 a barrel, with front-month prices still up about 1% for the week.  For the month, prices lost 11% & ended the qtr down 25%.

Oil futures end lower for the session, month and quarter

It's been a tough time for stocks in 2022.  Dow is down 7600 YTD & lost over 2000 in Q3.  Today it closed below 29K, that's where it was shortly after the election.  The outlook continues to be bleak as the Fed struggles to control high levels of inflation & a recession is out there.

Dow Jones Industrials 

Markets attempt to find their footing after a difficult week

Dow inched up 1, advancers over decliners 5-2 & NAZ gained 94.  The MLP index rose 2+ to the 202s & the REIT index recovered 4+ to 359.  Junk bond funds were little changed & Treasuries fluctuated (more below).  Oil was off 1+ to the 89s & gold went up 14 to 1682.

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The Federal Reserve's preferred inflation gauge accelerated again in Aug, keeping prices elevated near a 4-decade high, according to new data.  The Personal Consumption Expenditures (PCE) index showed that core prices, which strip out the more volatile measurements of food & energy, climbed 0.6% from the previous month and rose 4.9% on an annual basis, according to the Commerce Dept.  Those figures are both higher than the 0.5% monthly increase & 4.7% annual increase forecast, indicating that inflationary pressures are broadening throughout the economy.  The reading is also up from Jul's annual increase of 4.7%.  The more encompassing headline figure rose 6.2% on an annual basis after prices rose 0.3% from the previous month, compared with a 0.1% decline in Jul.  That increase came despite a sharp decline in gas prices.  While the Fed is targeting the PCE headline figure as it tries to wrestle consumer prices back to 2%, Chair Jerome Powell previously told reporters that core data is actually a better indicator of inflation.  "Core inflation is a better predictor of inflation going forward," Powell said.  "Headline inflation tends to be volatile."  However, both the core & headline numbers point to inflation that is running well above the Fed's preferred 2% target, a troubling sign as the central bank is already hiking interest rates at the fastest pace in decades.

Fed's preferred inflation gauge rose more than expected in August

Treasury yields fell across the board, as stocks tried to rebound from a major sell-off that sent the S&P 500 to a new 2022 low.  The yield on the benchmark 10-year Treasury was down 6 basis points to 3.686%.  The note has had a highly volatile week, soaring to a 14-year high before seeing its steepest inter-day decline since 2020 during Wed's session.  The policy-sensitive 2-year Treasury fell 3 basis points to 4.145%.  Yields & prices move in opposite directions & one basis point is equal to 0.01%.  Market jitters about the Federal Reserve's economic policy & potential future interest rate hikes have been weighing on markets, amplified by a series of hawkish comments from Fed.  The central bankers have made clear that fighting persistent inflation is top of their agenda.  Yesterday, San Francisco Fed Pres Mary Daly said she would be comfortable with interest rates rising as high as 5% in 2023, while Cleveland Fed Pres Loretta Mester said that she sees no reason to slow rate hikes.  Meanwhile, investor concerns about interest rates rising too quickly and a leading to a recession are rising.

Treasury yields slip across the board as stocks try to rebound

Federal Reserve Vice Chair Lael Brainard stressed the need to tackle inflation & the importance of not shrinking from the task until it is finished.  "Monetary policy will need to be restrictive for some time to have confidence that inflation is moving back to target," the central bank official said.  "For these reasons, we are committed to avoiding pulling back prematurely."  The remarks came a little more than a week after the Fed enacted its 5th interest rate increase of the year, pushing its benchmark funds rate to 3-3.25%.  Sep's increase marked the 3rd consecutive 0.75 percentage point increase for a rate that feeds thru to most adjustable-rate consumer debt.  While Fed officials & many economists expect that inflation may have peaked, Brainard warned against complacency.  “Inflation is very high in the United States and abroad, and the risk of additional inflationary shocks cannot be ruled out,” she said.  Earlier today, the Commerce Dept released data showing that inflation continued to push higher in Aug, as measured by the Fed's preferred personal consumption expenditures price index (see above).  Since the Fed has hiked rates, Treasury yields have soared & the $ has increased in value rapidly against its global peers.  Brainard noted the ramifications of a higher US currency, saying that it is exerting inflationary pressures globally.  “On balance, dollar appreciation tends to reduce import prices in the United States,” she added.  “But in some other jurisdictions, the corresponding currency depreciation may contribute to inflationary pressures and require additional tightening to offset.”

Fed Vice Chair Brainard warns against retreating from inflation fight prematurely

Today's gloomy inflation data is another reminder that the Fed has more work to do.  The yield on the 2 year Treasury remains very high, a classic signal that a recession is coming (if it's not already here).  This week the Dow is down more than 250.

Dow Jones Industrials

 

Markets tumble on growiing recessio fears

Dow dropped 458 with late day buying trimming losses, decliners over advancers 5-1 & NAZ retreated 314.  The MLP index was off 2+ to the 201s & the REIT index plunged 11+ to the 354s on rising interest rate fears.  Junk bond funds continued to be sold & Treasuries had more selling bringing higher yields.  Oil was fractionally lower to the 81s & gold was off 1 to 1668 (more on both below).

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A chorus of Federal Reserve officials are laying the need for further interest rate hikes in the coming months as they wrestle to bring the highest inflation in decades under control, even if it means slowing economic growth & raising unemployment.  Several policymakers this week endorsed the central bank's aggressive trajectory, disclosed after its 2-day meeting last week.  The outline shows the benchmark federal funds rate climbing to 4.4% by the end of the year.  That indicates at least one more 3-qtr percentage point increase is on the table either in Nov or Dec.  "This is a serious problem, and we need to be sure we respond to it appropriately," St Louis Fed Pres James Bullard said yesterday.  "We have increased the policy rate substantially this year and more increases are indicated."  His sentiment was echoed by Chicago Fed Pres Charles Evans & Minneapolis Fed Pres Neel Kashkari, who said the central bank needs to deliver on its promised rate increases & hold rates there until inflationary pressures start to ease.  "We are moving very aggressively," Kashkari said yesterday.  "There’s a lot of tightening in the pipeline. We are committed to restoring price stability, but we also recognize given these lags there is a risk of overdoing it."  The central bank has embarked on one of the fastest courses in history to raise borrowing costs & slow the economy.  Officials last week approved a 3rd consecutive 75 basis point rate hike, lifting the federal funds rate to 3.0-3.25% – near restrictive levels – & indicated that more super-sized increases are coming.  The CME Fedwatch Tool, which tracks trading, shows roughly a 1 in 3 chance of a 50 basis point increase at the Fed's Nov 1-2 meeting & a 2-3 chance of a 75 basis point hike from the current federal funds rate of 3% to 3.25%.  One basis point is one hundredth of one %.  Those hawkish expectations were reinforced this week.  During an interview with CNBC, Cleveland Fed Pres Loretta Mester said officials are resolute in their efforts to push rates into a restrictive territory.  "Real interest rates — judged by the expectations over the next year of inflation — have to be in positive territory & held there for a time," she said.  "We’re still not even in restricted territory on the funds rate."  There is a growing expectation that the Federal Reserve will trigger an economic downturn as it raises interest rates at the fastest pace in 3 decades to catch up with runaway inflation.  Economic growth already contracted in the first 2 qtrs of the year, with GDP contracting by 1.6% in the winter & 0.6% in the spring.

Fed officials warn of additional interest rate hikes to fight inflation

Ian, one of the most powerful storms to ever hit the US, wreaked havoc across the state, cutting power to 2.5M customers, leaving several hospitals without water & trapping thousands of residents in their homes.  Officials said it would take days or longer to assess the total destruction of the storm.  Florida Gov Ron DeSantis said there were 2 deaths potentially linked to the storm, adding that the total number of fatalities remained unconfirmed.  Fort Myers Mayor Kevin Anderson said that Ian was one of the most ferocious storms he had witnessed in decades, gutting him emotionally.  “Watching the water from my condo in the heart of downtown, watching that water rise and just flood out all the stores on the first floor, it was heartbreaking,” Anderson said.  Photos & videos on social media showed scenes of devastation: Orlando inundated by floodwater, boats wrecked in Fort Myers, trees snapped like toothpicks in Punta Gorda.  Part of the Sanibel Causeway was destroyed, blocking vehicles from crossing the bridge.  DeSantis said the storm would rank as “one of the top five hurricanes to ever hit the Florida peninsula.”  Ian was downgraded to a tropical storm today & Pres Biden declared a major disaster, freeing up federal aid to assist with local & state recovery efforts.  Ian had maximum sustained winds of near 65 mph with higher gusts today as it moved slowly thru central Florida on its way to the western Atlantic, according to the National Hurricane Center.

Florida confronts scenes of havoc as Hurricane Ian batters the state

Bed Bath & Beyond (BBBY) reported a loss of $366M in its fiscal 2nd qtr.  The company said it had a loss of $4.59 per share.  Losses, adjusted for asset impairment costs & restructuring costs, were $3.22 per share.  The results did not meet expectations.  The estimate was for a loss of $1.59 per share.  The home goods retailer posted revenue of $1.44B in the period, which matched forecasts.  BBBY shares have decreased 56% since the beginning of the year, while the S&P's 500 index has declined 22%.  The stock has declined 72% in the last 12 months.  The stock fell 27¢ (4%) today.
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Bed Bath & Beyond touts turnaround as losses widen

Oil futures finished lower on concerns over production disruptions from Hurricane Ian eased, but prices held ground above $80 a barrel following a 4.7% gain in the previous session.  The overall dynamic for crude remains largely unchanged.  Recession fears continue to weigh on demand prospects looking forward, which has been reinforced by accelerated by aggressive rate increases by the Federal Reserve & other central banks.  Nov WTI crude fell 92¢ (1.1%) to settle at $81.23 barrel. 

U.S. oil futures finish lower, but hold above $80 a barrel

Gold futures settled slightly lower, a day after rising to their highest level in nearly a week, as Treasury yields resumed their march higher following a precipitous pullback.  Gold for Dec fell $1 to $1668 an ounce.  Gold received a brief reprieve yesterday, with prices ending that session higher, as US stocks soared & Treasury yields recorded their biggest daily drop in more than 2 years following the Bank of England's announcement that it would do "whatever it takes" to calm the gilt market, which boosted fixed income markets in Europe & the US.  In today's dealings, the 10-year Treasury yield rose nearly 6 basis points to 3.767%.  The ICE US Dollar index edged down by 0.2% to 112.375, but trades more than 3% higher month to date.

Gold prices end lower after brief BoE-inspired reprieve

High interest rates along with inflation are on the minds of investors.  And there are worries that high interest rates will drag the economy into a serious recession.  These are gloomy times for investors.

Dow Jones Industrials