Dow zoomed 1201 (session high & one of its best days in history), advancers over decliners 8-1 & NAZ surged 760. The MLP index added 3+ to the 224s & the REIT index surged 26 to the 388 on hopes for lower interest rates. Junk bond funds were bid higher, benefiting from the stock market rally, & Treasuries continued in heavy demand, taking the yield on the 10 Year Treasury down 31 BP to 3.84% (biggest drop in more than a decade). Oil only crawled up to the 86s & gold soared 41 to 1754 (more on both below).
AMJ (Alerian MLP index tracking fund)
Federal Reserve officials welcomed today's news showing that inflation rose less than expected last month & they noted that interest rate increases could slow ahead. But they also cautioned against getting too excited by the data, noting that prices are still far too high. “One month of data does not a victory make, and I think it’s really important to be thoughtful that this is just one piece of positive information but we’re looking at a whole set of information,” San Francisco Fed Pres Mary Daly said. She, along with multiple other Fed officials, spoke after the Bureau of Labor Statistics reported that the consumer price index rose 0.4% in Oct, below the 0.6% estimate. The data sent a possible signal that while inflation is still running high, price increases may have leveled off and could soon head lower. Markets staged a massive rally following the report, with the Dow soaring more than 1000 points before coming slightly off its highs. The policy-sensitive 2-year Treasury note yield tumbled more than 30 basis points (0.3 percentage point, to around 4.33%). While Daly said the report was “indeed good news,” she noted that inflation running at a 7.7% annual rate is still far too high & well away from the central bank's 2% goal. “It’s better than over 8 [percent] but it’s not close enough to 2 in any way for me to be comfortable,” she continued. “So it’s far from a victory.” Likewise, Cleveland Fed Pres Loretta Mester said today's report “suggests some easing in overall and core inflation,” though she noted that the trend is still “unacceptably high.” Kansas City Fed Pres Esther George noted that even with the lower monthly gain, inflation is still “uncomfortably close” the 41-year annual high hit in the summer. “With inflation still elevated and likely to persist, monetary policy clearly has more work to do,” she said. However, she advocated a more “deliberate” approach going forward, noting that “now is a particularly important time to avoid unduly contributing to financial market volatility.” “Despite the moves we have made so far, given that inflation has consistently proven to be more persistent than expected and there are significant costs of continued high inflation, I currently view the larger risks as coming from tightening too little,” Mester added.
Fed officials welcome inflation news but still see tighter policy ahead
The initial weekly jobless increased by 7K to 225K last week, slightly surprising the markets with a sign that the US employment situation is starting to cool slightly more than expected. The foecast called for initial claims to come in at 220K, following the previous week's revised level of 218K. The 4-week moving average for new claims – often viewed as a more reliable measure of the labor market since it flattens week-to-week volatility – decreased to 218K. The previous week's 4-week moving average was revised up to 219K, the Labor Dept. Continuing jobless claims, which represent the number of people already receiving benefits, were at 1.5M during the latest week, an increase of 6K from the previous week's revised level of 1.5M. The 4-week moving average rose to 1.45M an increase of 32K. And the previous week’s four-week moving average was revised up to 1,42M. Traders watch the jobless claims data very closely to gauge its impact on the Federal Reserve's employment side of the monetary policy mandate.
U.S. weekly jobless claims rise to 225,000
Stubbornly high inflation could force the Federal Reserve to aggressively raise interest rates above 6%, the highest in more than 2 decades, according to former Treasury Secretary Larry Summers. The central bank has embarked on one of the fastest courses in history to raise borrowing costs and slow the economy. Policymakers have already increased the benchmark federal funds rate from near-zero in Mar to 3.75-4%, the highest since the 2008 financial crisis. Despite the steeper interest rates, inflation is still running near a 40-year high, with the Labor Dept reporting that the consumer price index rose 8.3% in Sep on an annualized basis. The unrelenting rise in consumer prices may ultimately give the Fed no choice but to hike interest rates above the projected peak rate of 4.6% next year, Summers said. "It would not be surprise me if the terminal rate reached 6% or more," Summers added. Interest rates have not been that high since the early 2000s. He warned last month that history indicates inflation will be slower to fall than Fed officials anticipate. "The good news is the economy is looking robust," Summers said. "The bad news is there's not much evidence of inflation restraint yet."
INFLATION AGRESSION: Fed may need to hike interest rates above 6% to crush inflation
Gold futures settled at their highest price since late Aug, supported by a pullback in the $ & Treasury yields after data showed a smaller-than-expected monthly rise in US inflation. The consumer-price index reading signaled a modest rise in the cost of living, raising the possibility that the Federal Reserve might scale back the size of its interest-rate hikes in Dec. Gold futures for Dec rose a very big $40 (2.3%) to settle at $1753 per ounce after trading as high as $1757. The settlement was the highest for a most-active contract since Aug 25. Inflation has finally started to drop like a rock in the US & this is the best news that anyone can expect. The $ index plunged on the back of this reading when traders know that inflation is moving in the right direction. The US cost of living rose a relatively modest 0.4% in Oct, a sign price pressures in the US are waning after the biggest surge in inflation in 40 years. The forecast was for a 0.6% increase in the consumer-price index. Against that backdrop, the ICE US Dollar index fell 1.8% to 108.524. The 10-year Treasury note yield 3.852% also declined by 29 points to 3.8565%. The Federal Open Market Committee will hold its next monetary policy meeting on Dec 13-14.
Gold prices end session at their highest since August as U.S. inflation eases
Oil futures finished higher, with a pullback in the $ helping prices post their first gain in 4 sessions after US economic data revealed a slowdown in US inflation for Oct. US benchmark West Texas Intermediate crude for Dec rose 64¢ (0.8%) to settle at $86.47 a barrel after settling yesterday at a more than 2-week low.
Oil prices finish higher, supported by weakness in the dollar as U.S. inflation eases
Dow Jones Industrials
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