Dow rose 145 (off early highs), advancers over decliners 5-2 & NAZ gained 111. The MLP index was steady in the 224s & the REIT index added 1+ to 371. Junk bond funds were little changed & Treasuries had significant selling, raising yields. Oil continued strong, up 2+ to the 69s, & gold dropped 15 to 1954 (more on both below).
AMJ (Alerian MLP Index tracking fund)
The Federal Reserve is expected to pause hiking interest rates at the conclusion tomorrow's meeting marking the end to 10 straight increases which have
driven borrowing costs above 5% squeezing consumers & creating
headwinds for the economy. Despite the pause, Americans are unlikely to see any relief according
to Greg McBride, CFA, chief financial analyst with Bankrate.com. "A
pause won’t bring borrowing rates lower, particularly for variable rate
debt such as credit cards and home equity lines of credit that have
increased in step with the Fed’s 10 previous interest rate hikes,"
McBride said. "Elevated inflation and a strong labor market mean the Fed
is nowhere close to cutting interest rates, so borrowers will continue
to be dealing with high interest rates for months to come, even if the
Fed doesn’t hike rates further." "Home equity rates are the highest in more than 20 years, credit card
rates are the highest on record, auto loan rates are the highest since
2010, and mortgage rates are again flirting with 7%, a relic of two
decades ago." McBride also says paying down high cost, variable rate
debt is an urgent priority for households. Consumers are seeing some relief. Inflation, which had spiked to 9.1%,
fell down to 4% in the Consumer Price Index's May report, on an annual
basis. 4% of market participants expect the Fed to pause, as tracked by the CME’s- FedWatch Tool,
when policymakers will announce their decision tomorrow.
Chair Jay Powell's press conference will follow where investors will
listen for any clue about whether the likely pause is a one-off or a
holding pattern. "That ‘pause’ may turn out to be short-lived
however, with the Fed only skipping a rate hike this month but resuming
in July" McBride added.
A Fed pause likely won’t help struggling consumers
The Federal Reserve is expected to pause or skip its interest rate hikes at this week's Federal Open Market Committee meeting after the most aggressive series of hikes since the 1980s. But it won't be enough for the Fed to keep rates where they are now, at 5% & then get right back to hiking in Jul if the central bank wants to avoid a potentially bad fate for the economy, according to several chief financial officers at major corps. CFOs today said they have recently spoken directly with Fed the pres in their regions, relayed the following message to the central bank: it's not time to pause or skip, it's time to stop. This view coming from within corps across the economy matches the results from the latest CNBC Fed Survey, released today, which finds that while the markets see a 68% probability of a hike in Jul, 63% of survey respondents see no change & think the Fed is at the end of its hiking cycle. CFOs on the call, which is conducted under Chatham House rules to allow the executives to speak candidly, said they are seeing the signs in both consumer spending & credit strength to indicate the Fed rate hikes are not only working, but the evidence is in the data to suggest that lagging & more significant economic effects are coming. Consumer weakness that began in Q1 has continued & there is concern from the C-suite that the actions taken by the Fed are not showing up fully in the CPI data yet, but will soon enough. The latest consumer price index released today came in as expected, with inflation up 0.1% monthly & at an annual rate of increase of 4%, the lowest it has been in 2 years. But core inflation rose 0.4% on the month & was still up 5.3% from a year ago, indicating that consumers are still under fire. While food & energy prices are stripped out of core inflation to remove volatility, one CFO said the recent “dramatic” decline in energy prices will start to work its way into the core inflation index over time & that makes a pause at this FOMC meeting a smart move by the Fed, but likely not enough. The Fed remains focused on the labor market& cooling wage growth while raising unemployment as the key to bringing hot services inflation down. The CFO conceded that the “big anomaly” is still employment, which continues to be strong & which companies are “not seeing break in any measurable way.” But the CFO said when he looks at an ISM Services index that is now trending down 5 months in a row, the only conclusion he can come to is, “That doesn’t happen typically unless we are in a recession. There is a chance we find out Q2 is a recession and we may not learn that until sometime deep into the third quarter. Services is in contraction territory we haven’t seen in a long time.”
The message top CFOs are sending to Fed presidents: Don’t pause. Stop
Boeing (BA), a Dow stock, handed over 50 airplanes to customers last month, up from 35 in Apr, though it trails rival Airbus in deliveries so far this year as the Paris Air Show approaches. The deliveries included eight 787 Dreamliners. Boeing last week said a new manufacturing flaw, the 2nd disclosed this year, will slow near-term deliveries of the wide-body planes, which are in high demand due to the recovery in intl travel. BA has delivered 206 planes so far this year, behind the 244 that Airbus has handed over in the first 5 months of the year. Both BA & Airbus have announced plans to increase output of new planes to meet strong demand in the wake of the Covid pandemic. BA gross orders of 69 planes for May, were up
from 34 in Apr. Net of 11 cancellations it sold 58 planes, most of
them 737 Max jets. The Paris Air Show
kicks off Mon, when BA, Airbus & other aerospace manufacturers
will meet with customers & potentially announce more new orders in
the first in-person iteration of the event since before the pandemic. The stock fell 1.18.
If you would like to learn more about BA, click on this link:
club.ino.com/trend/analysis/stock/BA_aid=CD3289&a_bid=6aeoso5b6f7
Boeing logs more aircraft orders ahead of Paris Air Show, 787 problems persist
Gold futures declined for a third consecutive session. For
gold to rally, it needs traders to become confident that the Fed is
done raising rates.
Data released today showed that US inflation has slowed, with
consumer prices up 0.1% in May, in-line, but
some Fed members might be concerned that core pricing pressures are
looking sticky. The Fed will remain data-driven, but
optimism should be high that the end of tightening is near. Gold for
August delivery fell $11 (0.6%) to settle at $1958 ounce.
Gold Futures End Lower For a Third Session in a Row
Oil prices climbed over 3% on hopes for growing fuel demand after China's central bank
lowered a short-term lending rate for the first time in 10 months,
boosting crude prices after steep losses the previous session. The
rate cut is aimed at adding momentum to a hesitant post-pandemic
recovery in the world's 2nd-largest economy & biggest crude
importer. Brent crude futures settled
up $2.45 (3.4%) to $74.29 a barrel. US West Texas Intermediate
(WTI) crude gained $2.30, (3.4%) at $69.42 a barrel. Yesterday, crude prices fell 4%, in part because of concerns
about the Chinese economy after disappointing economic data last week. The
market is showing a rebound from yesterday. It was overdone with doom & gloom yesterday.
Oil Prices Settle More Than 3% Higher After China Rate Cut
Early enthusiasm for stock was reduced in the PM. The inflation news was encouraging, although somewhat mixed. Tomorrow's announcement in the PM by Powell should be the major driver for stocks tomorrow.
Dow Jones Industrials
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