Dow plunged 880, decliners over advancers a massive 9-1 & NAZ tumbled 507. The MLP index fell 2+ to the 221s & the REIT index sank 12+ to 417. Junk bond funds dropped along with selling in stocks & Treasuries were sold taking yields higher. Oil was off 1 to the 86s & gold sank 25 to 1715.
AMJ (Alerian MLP index tracking fund)
Inflation rose more than expected in Aug, squeezing US households even as the cost of gasoline fell & continuing to create a political headache for Pres Biden. The Labor Dept said that the consumer price index, a broad measure of the price for everyday goods including gasoline, groceries & rents, rose 8.3% in Aug from a year ago. Prices climbed 0.1% in the one-month period from Jul. Those figures were both higher than the 8.1% headline figure & 0.1% monthly decline forecast, a worrisome sign for the Federal Reserve as it seeks to cool price gains & tame consumer demand with an aggressive interest rate hike campaign. Core prices, which strip out the more volatile measurements of food & energy, climbed 6.3% from the previous year, above the 6.1% forecast. Core prices also rose more than expected on a monthly basis, jumping 0.6% in Aug – a bigger increase than in Apr, May, Jun & Jul, & a troubling sign that underlying inflationary pressures in the economy remain strong. Scorching-hot inflation has created severe financial pressures for most US households, which are forced to pay more everyday necessities like food & rent. The burden is disproportionately borne by low-income Americans, whose already-stretched paychecks are heavily impacted by price fluctuations. Although households saw some real reprieve last month in the form of lower energy prices, which fell 10.6% in Aug from the previous month, other price gains proved persistent & stubbornly high. The cost of groceries climbed 0.7%, putting the 12-month increase at 113.5%, the highest since 1979. Consumers paid more for items like cereal, chicken, milk & fresh vegetables. Shelter costs, which account for about 40% of the core inflation increase, have climbed 6.2%, the fastest since 1991. Rent costs jumped 0.8% over the month and 6.7% on an annual basis. Rising rents are a concerning development because higher housing costs most directly & acutely affect household budgets. Another data point that measures how much homeowners would pay in equivalent rent if they had not bought their home, climbed 0.7% in Aug from the previous month.
Inflation rose 8.3% in Aug as price gains remain painfully high
Treasury yields shot higher as investors bet that a hot inflation reading will keep the Federal Reserve aggressive in tightening monetary policy. The yield on the benchmark 10-year Treasury note surged 7 basis points, trading at 3.435%. & the yield on the 30-year Treasury bond was up up about 4 basis points at 3.558%. Meanwhile, the yield on the 2-year Treasury the, the part of the curve most sensitive to Fed policy, soared 17 basis points to 3.735%, hitting its highest level since 2007. Yields move inversely to prices & a basis point is equal to 0.01%. The consumer price index increased 0.1% for the month & 8.3% over the past year. The forecast had expected headline inflation to fall 0.1% month over month. The year-over-year estimate was 8%. Following the hot inflation reading, markets are pricing in a 100% chance that the Federal Reserve will hike interest rates by 75 basis points for a 3rd time next week.
Treasury yields surge as hot CPI likely to keep Fed aggressive in raising rates
Russia has been tight-lipped about its latest defeats in Ukraine & strategists fear Moscow could look to punish Kyiv severely for its victories on the battlefield in an effort to save face. Kyiv’s forces launched a massive counterattack in the northeast of the country, reclaiming thousands of kilometers of Russian-occupied land over the last few days. Now thoughts are turning to potential Russian retaliation, with Ukrainian Defense Minister Oleksii Reznikov saying he was expecting a counterattack. “A counteroffensive liberates territory and after that you have to control it and be ready to defend it,” Reznikov said, adding, “Of course, we have to be worried, this war has worried us for years.” Russia has already launched intense shelling on the Kharkiv region, starting Sun night, leaving it without electricity & water. Ukraine's deputy defense minister told Reuters it was too early to say Ukraine had full control of the area. Close followers of the Kremlin say Pres Vladimir Putin is likely weighing his options now. Ukraine's victories on the battlefield in recent days & its ability to reclaim dozens of towns & villages in the Kharkiv region, puts Russia on the back foot. It is now scrambling to defend its territory in Donetsk & Luhansk, where 2 pro-Russian “republics” are located, in the Donbas in eastern Ukraine. Russian forces are widely believed to have been taken by surprise by Ukraine’s counterattack in the northeast of the country & were heavily outnumbered. There were signs that Russian forces had beaten a hasty retreat, with stores of equipment & ammunition abandoned. Ahead of these counterattacks in the northeast, Kyiv had heavily promoted a counteroffensive in the south of Ukraine — leading Russia to redeploy troops there.
Russia's defeats in Ukraine have strategists worried about Moscow's next move
This is just another very ugly day which has been common in 2022. The 75BP rate hike next week by the Fed is all but guaranteed & traders are worried the Oct meeting will bring a another big rate hike. Then there is the recession out there & money in the Treasuries is mainly going into 2 year notes. That's another signal about recession worries. Times are gloomly for investors.
Dow Jones Industrials
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