Dow weht up 67, decliners modestly ahead of advancers & NAZ was off 72. The MLP index added 2+ to the 229s & the REIT index was about even, near 400. Junk bond funds drifted lower & Treasuries had more selling, driving yields higher (more below). Oil was up 1+ (see below) to the 79s & gold pulled back 7 to 1871.
AMJ (Alerian MLP Index tracking fund)
Russia will cut oil output by 500K barrels per day in Mar, Deputy Prime Minister Alexander Novak said, following Western bans on Moscow's crude & oil products implemented in the past few months. The announced production decline amounts to roughly 5% of Russia's latest crude oil output, which the watchdog Intl Energy Agency estimated was down at 9.77M barrels per day in Dec. The Brent contract for Apr was trading at $85.58 per barrel, jumping by $1.10 a barrel, over 1%, to yesterday's closing price. The front-month WTI contract with Mar expiration was at $79.03 a barrel, gaining 1.2% from the previous settlement. Novak said that the reduction will “help restore market relations.” He noted that the cut does not apply to gas condensate & will be calculated from actual output levels, not from Russia's quota under the OPEC+ output agreement. The decision was not made in consultation with the OPEC+ coalition, which Moscow co-chairs. OPEC+ producers must typically agree consensus on output policy, with members bound to their targets. But the group has previously allowed voluntary gestures that honor the spirit of existing output agreements — in this case, the Russian decline would build on a previous OPEC+ decision to lower production by a combined 2M barrels per day, agreed in Oct last year. Other OPEC producers facing sanctions, such as Venezuela & Iran, have requested & received exemptions from their production quotas. Several OPEC+ delegates previously said that Russia had so far signaled no intention to ask for similar accommodations.
Oil prices rise 2% after Russia says it will cut output by 500,000 barrels a day
Treasury yields were little changed as investors looked to economic data & comments from Federal Reserve officials to assess the outlook for inflation & monetary policy. The 10-year Treasury yield was trading at 3.702% after rising by 1 basis point & the yield on the 2-year Treasury was last flat at 4.509%. Yields & prices move in opposite directions & one basis point equals 0.01%. Investors assessed the outlook for the US economy, especially regarding whether inflation is easing, & what that could mean for monetary policy. In comments made throughout the week, central bank officials have indicated that their battle with inflation is not yet over & that there could be further interest rate hikes, depending on economic data. Many investors are, however, concerned that the pace of rate hikes & keeping them higher for longer will lead to a recession. Yesterday, the weekly jobless claims reading came in at 196K, an increase of 13K from the previous week. Many investors saw this as a sign that the job market could be easing, which has been one of the Fed's policy aims as it has worked to cool the economy.
Treasury yields steady as investors await economic data, Fed speaker remarks
New data from the nonpartisan Congressional Budget Office (CBO) shows the federal budget deficit has increased by $200B in fiscal year 2023 so far compared to a year ago, undercutting claims made by Pres Biden about deficit reduction during his administration. The CBO's monthly budget review noted that in the first 4 months of FY2023, which began on Oct 1, 2022, the federal deficit was $459B, up by $200B compared to the $259B deficit reported in the same Oct-Jan period in FY2022. Federal revenue was $43B lower in the first 4 months of FY2023 compared to the prior year, primarily due to lower income tax receipts & fewer remittances of profits from the Federal Reserve banks as short-term interest rates have risen, while spending was up by $157B in the same period. In Biden's State of the Union address, he claimed, "In the last two years, my administration has cut the deficit by more than $1.7 trillion – the largest deficit reduction in American history." However, Biden's deficit reduction claims omitted the impact of expiring COVID-19 pandemic relief measures in achieving that reduction. The US ran a record-setting deficit of more than $3.1T in FY2020 after Congress approved Ts of $s of new spending on temporary COVID-19 programs on a bipartisan basis, including those under the CARES Act in the early weeks of the pandemic-induced lockdowns. Many of those programs continued into the following year when Biden took office & Dems used their majorities in Congress to enact the $1.9T American Rescue Plan Act along party lines. Those factors combined to keep the FY2021 deficit over $2.7T.
Federal deficit up $200B compared to last year despite Biden's claims
The Treasury runs an enormous business of collecting revenue & paying bills. This year, so far, that business has a bigger deficit than last year. Not good. Meanwhile, the Fed will keep hiking interest rates & consumers have to adjust to higher costs for just about everything. The Dow is down 130 this week.
Dow Jones Industrials
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