Dow pulled back 82, decliners over advancers 2-1 & NAZ dropped 142. The MLP index was off 2+ to the 229s & the REIT index declined 4+ to the 394s. Junk bond funds fluctuated & Treasuries had limited selling, bringing slightly higher yields (more below). Oil was off 2+ to the 76s & gold fell 5 to 1846.
AMJ (Alerian MLP Index tracking fund)
Treasury yields climbed as concern over persistently high inflation & the prospects of tighter Federal Reserve policy for longer grew. The yield on the 10-year Treasury hits highest level since Nov, reaching a high of 3.929%. It was last up 4 basis points at 3.886%. The 2-year Treasury yield also reached levels not seen in 3 months, last trading up 7 basis points at 4.692%. Yields & prices have an inverted relationship & 1 basis point is equivalent to 0.01%. Yesterday's producer price index reading for Jan came in higher than expected, causing investors to fret about inflationary developments & upcoming Fed monetary policy decisions. Several Fed speakers hinted at further interest rate hikes after the data was released yesterday. The central bank has been using rate increases as a tool aiming to cool the economy & ease inflation. Many investors have been hoping for the central bank to pause rate increases this year as they are concerned that high interest rates will cause the US economy to contract.
10-year yield hits highest level since November as traders assess inflation data
Goldman Sachs now expects the Federal Reserve to raise interest rates 3 more times this year. That call comes following the latest inflation data which was released this week. The bank sees a hike of a qtr of a percentage point each. Producer prices accelerated in Jan by the biggest margin in 7 months. That was reflected in one report yesterday, while another showed the number of Americans filing new claims for unemployment benefits unexpectedly fell last week. Consumer prices rose 6.4% in Jan on an annual basis, hotter than expected, but remained steady compared to last month. "In light of the stronger growth and firmer inflation news, we are adding a 25bp (basis points) rate hike in June to our Fed forecast, for a peak funds rate of 5.25-5.5%," economists led by Jan Hatzius said yesterday. Money markets are currently pricing in a rate of 5.3% by Jul. Before the latest data was released, a majority of the economists expected the Fed to raise rates at least twice more in coming months. Before the recent data, JPMorgan had forecast a funds rate of 5.1% by the end of Jun, while BofA Global Research had forecast in the range of 5.0-5.25% by the end of the year.
Goldman Sachs reveals Fed rate hike expectations for 2023
World leaders are gathering in Munich, Germany, for the annual Munich Security Conference, which will focus heavily on Russia's invasion of Ukraine as the war nears its one-year anniversary. It is the first time in 20 years that Russia is not invited. Several regions of Ukraine faced a barrage of missile attacks overnight, one of which hit the country's largest oil refinery. Meanwhile, Russia is ramping up the volume of reservists it is sending to the front lines for its anticipated spring offensive, & is already intensifying land attacks across eastern & southern Ukraine. Moldova, a small European nation to Ukraine's western border, has found itself increasingly caught in the crosshairs of Russia's war, following the collapse of its gov last week. Pres Maia Sandu on Mon accused Russia of plotting a coup to overthrow her pro-EU gov using “foreign saboteurs.” Sandu said authorities had confirmed allegations first voiced by Ukrainian Pres Volodymyr more work to doZelenskyy last week, who warned his intelligence agencies have uncovered “a detailed Russian plan to undermine the political situation in Moldova.” Analysts said it is entirely possible that Moscow is using Moldova — & separatist groups in its pro-Russian breakaway state of Transnistria — to sow discord & disarm Ukraine from a new front, ahead of the war's one-year anniversary.
World leaders convene in Munich; Zelenskyy rules out conceding territory for peace
Traders are betting on more interest rate hikes. The Fed has more work to do by raising interest rates. In the short term, investors are largely waiting on the sidelines.Dow Jones Industrials
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