Markets fall after Powell dims hopes about pausing rate hikes

Dow dropped 504 (session lows), decliners over advancers better than 3-1 & NAZ slid back 366.  The MLP index fell 4+ to the 224s & the REIT index sank 9+ to 361.  Junk bond funds were lower & Treasuries saw buying, taking the yield on the 10 year Treasury down 5 basis points to 4.0% (more below).  Oil added 1+ to 90 & gold jumped 16 to 1668 (more on both below). Markets fall after Powell dims hopes  to talk about pausing hikes

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Private payroll job growth rose faster than expected in Oct, suggesting that companies are continuing to hire new workers despite growing fears of an economic slowdown, according to the ADP National Employment Report.  Companies added 239K jobs last month, beating the 195K gain that had been predicted & better than the downwardly revised gain of 192K in Sep.  The hiring increase came even as goods-producing industries reported a loss of 8K jobs.  The manufacturing sector accounted for the bulk of those losses, shedding 20K jobs last month.  That was offset by gains of 11K in natural resources in mining & a gain of 1K in the construction industry.  Service-providing industries, meanwhile, saw payrolls jump by 247K in Oct, with the gains stemming from just 2 sectors: leisure & hospitality, which added 210K new jobs, & trade, transportation & utilities, which saw payrolls grow by 84K.  Every other sector saw job losses last month, with information shedding the most at 17K.  That was followed by professional/business services (-14K), financial activities (-10K) & education & health services (-5K).  "This is a really strong number given the maturity of the economic recovery, but the hiring was not broad-based," said Nela Richardson, chief economist at ADP.  "Goods producers, which are sensitive to interest rates, are pulling back, and job changers are commanding smaller pay gains. While we’re seeing early signs of Fed-driven demand destruction, it’s affecting only certain sectors of the labor market."  By size, hiring accelerated predominantly at medium businesses that employ 50-499 workers, which saw a gain of 218K last month.  Small businesses, which have struggled the most with the worst inflation in 4 decades, onboarded 25K new workers & large businesses saw a decline of 4K.

Job growth rebounds in October

The Federal Reserve raised its benchmark interest rate by 75 basis points for the 4th straight month as it struggles to bring runaway inflation under control, a move that threatens to further slow US economic growth & exacerbate financial pain for millions of households & businesses.  The 3-qtr percentage point hikes in Jun, Jul Sep & Nov — the most aggressive series of increases since 1994 — underscore just how serious Fed officials are about tackling the inflation crisis after a string of alarming economic reports.  Policymakers voted unanimously to approve the latest super-sized hike.  The widely expected move puts the key benchmark federal funds rate at 3.75-4%, the highest since before the 2008 financial crisis & marks the 6th consecutive rate increase this year.  However, the Fed also hinted at the possibility of smaller rate increases at future meetings as policymakers acknowledged that tighter monetary policy takes time to work its way through the economy.  "The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time," the Fed added to its post-meeting statement.  Officials noted they will take into consideration "the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation and economic and financial developments" when determining how high to raise rates in coming months.

Fed makes big announcement on interest rates as inflation rages

Treasury yields dropped as the Federal Reserve approved a widely expected 75 basis point interest rate hike & signaled a possible slowdown in the pace of increases.  The yield on the 10-year Treasury traded 7 basis points lower to 3.97%.  The policy-sensitive 2-year Treasury yield fell 9 basis points to 4.44%.  Yields & prices have an inverted relationship, with one basis point equaling 0.01%.  The new statement hinted at a possible policy change, saying the Fed “will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”  Within the Treasuries market, investor focus has also turned to whether yields have hit their peak.

10-year Treasury yield falls below 4% after the Fed signals a potential policy change

Gold futures settled with a modest gain, then moved higher in electronic trading after the Federal Reserve announced a hike in the fed funds rate of 75 basis points to the 3.75-4% range.  December gold was at $1666 an ounce in electronic trading shortly after the announcement.  That follows a settlement of $1,650 an ounce, up pennies following yesterday's session.

Gold Prices End Slightly Higher, Then Extend Gains As Fed Lifts Interest Rates

Gold prices ended slightly higher, then moved up in electronic trading after the Federal Reserve's decision to lift interest rates by 75 basis points.  That marked the 4th straight significant increase in the central bank's benchmark interest rate.  The Fed also said it expects to continue with further rate hikes “until they are sufficiently restrictive to return inflation to 2% over time.”  Dec gold futures rose pennies to settle at $1650 per ounce on Comex.  Gold futures ended the session with a slight price gain, then extended their climb into the electronic trading session.  Prices were at $1664 shortly after Fed Chair Jerome Powell began a press conference in the wake of the central bank's decision to hike its rate by 0.75 percentage points to 3.75% to 4%.  The Fed hiked rates by 75 basis points as expected, but “the change in language seemed to signal to markets that the pace of rates hikes will slow or stop after the announcement.  The key language in the statement — “the lags with which monetary policy affects economic activity…”  seemed to signal the Fed likely understands the swift pace of interest rate increases is still working thru the economy.  This year's strong & rising real interest rates have kept gold prices under pressure in 2022.  A slowing in Fed rate hikes is unlikely to change this trend.  Gold investors will likely require a pause in rate hikes to see gold prices start to build out support.  Powell said he doesn't believe the Fed has “overtightened,” & that it has “some ground to cover” to move interest-rates higher.

Gold prices settle slightly higher, then climb after the Fed decision on interest rates

Oil futures inched higher, finding support after US gov data showed weekly declines for both crude & gasoline inventories.  Traders also awaited the Federal Reserve’s decision on interest rates due later in the session, which can directly impact the economy — & energy demand.  West Texas Intermediate crude for Dec rose 71¢ (0.8%) to $89.08 a barrel.  Jan Brent crude, the global benchmark was up 75¢ (0.8%) at $95.40 a barrel.  The release of oil from the US Strategic Petroleum Reserve dropped the reserve's total below the “significant milestone” of the 400M-barrel mark. The Energy Information Administration reported that US crude inventories fell by 3.1M barrels last week.

Oil prices settle at a more than 3-week high on fall in U.S. crude and gasoline supplies, rising Middle East tensions

Powell's remarks following the meeting when the Fed raised its rate hike by 75 basis points did no warm the hearts of investors.  There was buying initially, but the Dow sank in the last hour+ of trading, finishing 800 below the highs.  Comments which did not support reducing rate hikes brought back bears in force..

Dow Jones Industrials