Dow jumped 528 (rising over 200 hour in the last hour of trading), advancers over decliners 2-1 & NAZ gained 139. The MLP index added 3+ to 215 & the REIT index went up 2+ to the 384s. Junk bond funds were little changed & Treasuries had limited buying in a choppy session. Oil rose 2+ to the 73s & gold pulled back 19 to 1790 following its rise over 1800 (more on both below).
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Consumer expectations for where inflation will be one year from now decreased in Nov, according to a key Federal Reserve Bank of New York survey, a potentially reassuring sign for the central bank as it tries to cool surging prices. The median expectation is that the inflation rate will be up 5.2% one year from now, matching the lowest level since Aug 2021, according to the New York Federal Reserve's Survey of Consumer Expectations. Americans anticipate that inflation will cool further in coming years, according to the survey. 3 years from now, consumers see inflation falling to 3% – down from 3.1% in Oct. Consumers anticipate that prices will remain above the Fed's 2% goal over the next 5 years, projecting that the inflation rate will hover around 2.3% in 2027. "Median inflation uncertainty—or the uncertainty expressed regarding future inflation outcomes—decreased at both the short-term and medium-term horizon," the survey said. The decline stemmed from a big drop in home price growth expectations, with Americans forecasting an increase of just 1% – the lowest since May 2020. Consumers are also anticipating that the cost of food, gas & rent will decline over the next year. The report is based on a rotating panel of 1300 households. The survey plays a critical role in determining how Fed policymakers respond to the inflation crisis. That is because actual inflation depends, at least in part, on what consumers think it will be. It is sort of a self-fulfilling prophecy – if everyone expects prices to rise by 3% in the year, that signals to businesses that they can increase prices by at least 3%. Workers, in turn, will want a 3% pay raise to offset the rising costs.
Americans' inflation expectations eased to lowest since 2021, survey shows
Inflation has already peaked, but it will remain above pre-Covid
levels in 2023, said David Mann, chief economist for Asia-Pacific,
Middle East & Africa at the Mastercard Economics Institute. “Inflation
has seen its peak this year, but it will still be above what we had
been used to pre-pandemic next year,” Mann said. It'll take a few years to return to 2019 levels, he added. “We
do expect that we go back down in the direction of where we were back
in 2019 where we were still debating how many countries needed negative
interest rates.” Central banks around the world have been hiking interest rates as recently as Nov in response to high inflation. They
include central banks from the Group of 10 countries — such as the US
Federal Reserve, the Bank of England & the Reserve Bank of Australia —
as well those of emerging markets, such as Indonesia, Thailand,
Malaysia & the Philippines. “Inflation has become that big challenge. It’s
been spiking and staying very high,” Mann said. But he warned that it
would be risky if central banks end up hiking rates more than they need
to. “The challenge is if you’ve lost orientation of where the sky
and the ground is, you’re not quite sure where you need to end up,”
Mann noted. It would be a “serious scenario” if central banks “end
up going slightly too far and then need to reverse relatively quickly,”
he added. Despite
high inflation, Mann said, US consumers are still willing to engage
in discretionary spending in areas such as travel.
Inflation has peaked — but it’s not returning to pre-Covid levels in 2023, Mastercard says
Americans have turned to credit cards to ease the pressure of high inflation, bringing balances to a record level, according to a report by TransUnion. Bankcard balances climbed to a record $866B in Q3, up 19% from last year. But as many Americans utilize this financial option, they could also be piling up long-term debt. The average credit card debt per borrower was $5474 in Q3, up from $4857 in Q3 of 2021. While rising prices tighten the budgets of many Americans, some have also turned to personal loans. The number of consumers with access to unsecured personal loans reached a record 22M, up from 19.2M last year. "Consumers are being pressured on multiple fronts, first by this environment of high inflation, and secondarily by the higher interest rates that the Federal Reserve is implementing to tamp it down," Michele Raneri, TransUnion VP of US research & consulting, said. But even as the Federal Reserve raised interest rates to fight inflation this year, personal loan interest rates are at a near-record gap with credit cards. The average interest rate on credit card plans was 16.3% as of Aug, according to the latest data released by the Federal Reserve. Meanwhile, the average finance rate on 24-month personal loans was 10.2% as of Aug.
US worker productivity has tanked this year. What gives?
Gold futures declined, posting their first loss in 5 sessions, as traders looked to a week that includes a report on inflation & multiple central-bank meetings where interest-rate hikes could diminish the yellow metals' appeal to investors. Feb gold fell $18 (1%) to settle at $1792 per ounce. That was the lowest most-active contract finish since Dec 6. Gold was hit by profit-taking ahead of the major central bank events taking place this week, with traders continuing to pay respect to the key $1800 resistance level, Gold prices softened as investors shied away from precious & industrial metals & awaited tomorrow's consumer-price index report, along with a smattering of central bank meetings — including the Fed, the ECB, the Bank of England, the Swiss National Bank & others — which are taking place this week. When central banks impose higher interest rates, it makes gold less attractive by comparison since the yellow metal doesn't offer a yield.
US oil futures finished higher, finding support as supply concerns resurfaced. Recession or not, people still need to fill their gas tanks, so trading sentiment has shifted from macro factors to supply concerns. The suspension of the Keystone Pipeline removes 600K daily barrels of oil supply in a market that was already hanging with a thin balance. US benchmark WTI crude for Jan rose $2.15 (3%) to settle at $73.17 a barrel.U.S. oil futures settle 3% higher on supply worries
Dow Jones Industrials
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