Dow advanced 220, advancers over decliners better than 5-1 & NAZ went up 120. The MLP index stayed in the 221s & the REIT index rose 3+ to 369. Junk bond funds found some buying & Treasuries were higher, lowering yields (more below). Oil crawled higher in the 74s & gold was off 4 to 1993.
AMJ (Alerian MLP Index tracking fund)
An inflation measure closely watched by the Federal Reserve showed signs of slowing in Feb, but it still remained abnormally high, according to new data. The personal consumption expenditures (PCE) index showed that consumer prices rose 0.3% from the previous month & climbed 5% on an annual basis, according to the Bureau of Labor Statistics. Those figures are both lower the 0.6% monthly increase & 5.3% headline jump recorded in Jan, a welcoming 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 0.3% from the previous month & 4.7% year-over-year, slower than expected. While the Fed is targeting the PCE headline figure as it tries to wrestle consumer prices back to 2%, Chair Jerome Powell previously told reporters that core data is actually a better indicator of inflation. Both the core & headline numbers point to inflation that is running well above the Fed's preferred 2% target. Traders expect the Fed to pivot & start reducing the federal funds rate as soon as Jul, eventually trimming as much as a full percentage point by the end of the year.
Fed's favorite inflation gauge eases despite stubbornly high prices
Boston Federal Reserve Pres Susan Collins said that central bankers will likely need to raise interest rates at least one more time this year to tamp down persistent inflation. "Inflation remains too high, and recent indicators reinforce my view that there is more work to do to bring inflation down to the 2% target associated with price stability," Collins said. Her comments come just a few days after Fed officials delivered another qtr-percentage-point rate hike, lifting the benchmark funds rate to 4.75-5.00%, the highest since 2007. It marked the 9th consecutive rate increase aimed at combating high inflation. The Fed also released updated economic projections after the meeting that indicated most officials expect one more 25-basis-point increase this year. Collins, who is not a voting member of the policy-setting Federal Open Market Committee this year, said she supports the move & sees the rate-hike forecast as "reasonably balancing the risk of monetary policy not being restrictive enough to bring inflation down and the risk that activity slows by more than needed to address elevated price pressures." If it were not for recent turmoil within the banking sector, the Fed may have taken a less conservative approach on monetary policy, Collins said. "While the banking system remains strong and resilient, recent developments will likely lead banks to take a somewhat more conservative outlook and tighten lending standards, thus contributing to slowing the economy and reducing inflationary pressures," she added. "These developments may partially offset the need for additional rate increases." Market pricing indicates that central bankers will approve another qtr-percentage-point rate hike at their meeting May 2-3, according to the CME Group's FedWatch Group. But traders expect the Fed to pivot & start reducing the federal funds rate as soon as Jul, eventually trimming as much as a full percentage point by the end of the year. Fed officials have been adamant that they are not considering slashing rates this year, even though the rapid rise in interest rates played a direct role in the spate of bank collapses earlier in Mar. Collins said it is "premature" to say what rate moves she will support in May but said she does not foresee any rate cuts this year.
Top Fed official signals need for more rate hikes to tackle inflation
Treasury yields were flat as the bond market wrapped up a wild qtr that saw rates spike & then reverse lower on the regional bank crisis. The 10-year Treasury yield was trading at around 3.53% after declining by around 3 basis points & the yield on the 2-year Treasury was up by more than 2 basis points at 4.12%. Yields & prices move in opposite directions & one basis point equals 0.01%. The collapse of Silicon Valley Bank & ensuing banking crisis spurred chaos in bonds in Mar. The yield on 2-year notes soared past 5% for the first time since 2007 in early Mar, before staging its biggest 3-day decline since 1987. A mixed bag of investor expectations that preceded the last FOMC meeting also added to the unease this qtr.
Treasury yields are flat as bond market wraps up wild quarter
Investors have been encouraged by a sense of relief in the banking crisis & are encouraged to think about lower interest rates later this year. However negative investors keep buying safe have gold & Treasuries.Dow Jones Industrials
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