Dow tumbled 450, decliners over advancers better than 6-1 & NAZ gave back 244. The MLP index was off 1+ to the 225s & the REIT index fell 6 to the 383s as interest rates rose. Junk bond funds were a little lower & Treasuries saw selling which raised yields (more below). Oil slid to just above 75 & gold was off 8 to 1818.
AMJ (Alerian MLP Index tracking fund)
An inflation measure closely watched by the
Federal Reserve rose faster than expected in Jan as consumer prices remain stubbornly high. The
personal consumption expenditures (PCE) index showed that consumer
prices rose 0.6% from the previous month, the most since Jun, &
rose 5.4% on an annual basis, according to the Bureau of Labor
Statistics. Those figures are both higher than the 0.2% monthly increase & 5.3% headline jump recorded in Dec, a worrisome sign for the
Federal Reserve as it tries to crush runaway inflation with the most
aggressive series of interest rate hikes since the 1980s. Core
prices, which strip out the more volatile measurements of food &
energy, climbed 0.6% from the previous month & 4.7% year-over-year,
also faster than in Dec. The figures all point to strong underlying inflationary pressures
within the US economy that could force the Fed to raise rates higher
than they expected even just a few weeks ago. The Fed voted earlier this month
to raise its benchmark interest rate another quarter percentage point
to 4.50-4.75% & signaled that a "couple more" increases
are on the table this year. That followed a ½-point increase at a
Dec meeting & 4 consecutive 75-basis-point moves.
Fed's inflation gauge accelerated more than expected in January
Treasury yields rose as investors reacted to the Federal Reserve's latest meeting minutes & the latest inflation data. The yield on the benchmark 10-year Treasury note rose by 4.5 basis points to 3.926%, while the yield on the 30-year Treasury bond climbed 3 basis points to 3.911%. Yields move inversely to prices. The Commerce Dept reported the personal consumption expenditures price index, excluding food & energy, increased 0.6% for the month, & 4.7% from a year ago. The forecast had been expecting respective readings of 0.5% & 4.4%. The PCE price index is the Fed's preferred measure of inflation. Investors were also digesting minutes from the Fed's last meeting on Jan 31 & Feb 1, published on Wed. The minutes showed that while there were signs of inflation easing, central bank officials were still concerned about rising prices. They also noted that further interest rate hikes are likely, prompting a fall in yields yesterday as investors sought safety. Market participants are concerned about the pace of future hikes against a backdrop of contradictory economic signals, with inflation remaining high but the US consumer proving surprisingly resilient.
Treasury yields rise after Fed’s preferred inflation gauge shows larger-than-expected increase
One year since the start of Russia’s full-scale invasion, Ukraine's economy & infrastructure are in tatters, with the gov & its allies planning the largest rebuilding effort since World War II. The World Bank estimates that Ukrainian GDP shrank by 35% in 2022, & projected in Oct that the population share with income below the national poverty line would rise to almost 60% by the end of last year — up from 18% in 2021. The World Bank has so far mobilized $13B in emergency financing to Ukraine since the war began, including grants, guarantees & linked parallel financing from the US, UK, Europe & Japan. The Intl Monetary Fund (IMF) estimates that the Ukrainian economy contracted by 30%, a less severe decline than previously projected. Inflation has also begun to decelerate, but ended 2022 at 26.6% year-on-year, according to the National Bank of Ukraine. IMF Managing Director Kristalina Georgieva visited Ukraine this week, meeting with Pres Volodymyr Zelenskyy & NBU Governor Andriy Pyshnyy, among others. Georgieva said she saw “an economy that is functioning, despite the tremendous challenges,” commending the gov's vision to move from recovery to a “transformational period of reconstruction and EU accession.” “Shops are open, services are being delivered and people are going to work. This is remarkable testament to the spirit of the Ukrainian people,” Georgieva said, also noting that gov agencies, economic institutions & the banking system are fully operational. “Notwithstanding the attacks on critical infrastructure, the economy is adjusting, and a gradual economic recovery is expected over the course of this year,” she added. Georgieva reiterated the IMF's commitment to supporting Ukraine, & the Washington-based institution has provided $2.7B in emergency loans over the past year. However, it is also working with Ukraine under an economic policy monitoring program, a precursor to establishing a fully-fledged IMF lending program, as Kyiv seeks a $15B multi-year support package. “The international community will continue to have a vital role in supporting Ukraine, including to help address the large financing needs in 2023 and beyond,” Georgieva concluded. “The war in Ukraine has had far-reaching consequences for the local, regional, and global economy. Only if we work together as a global community will we be able to build a better future.”
Ukraine and the West prepare for the biggest reconstruction since World War II
High inflation does not want to go away anytime soon. 2 small rate hikes are coming shortly & more may be needed if inflation remains high. Housing is already feeling the effects of higher interest rates along with major companies who are laying off workers. More pain to the economy is coming.Dow Jones Industrials
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