Dow went up 153 with a little selling into the close, advancers over decliners 5-2 & NAZ rose 165. The MLP index rose 2+ to the 222s & the REIT index stayed near even at 357. Junk bond funds edged higher joining in the rally for stocks & Treasuries continued to have modest buying which lowered yields. Oil went up 2 to go over 2000 & gold was up 13 to 1995 (more on both below).
AMJ (Alerian MLP Index tracking fund)
![Live 24 hours gold chart [Kitco Inc.]](https://www.kitco.com/images/live/gold.gif?0.2180338269244485)
The bipartisan budget deal reached by Pres Biden & House Speaker Kevin McCarthy in exchange for raising the debt limit until Jan 2025 is set to move thru Congress in the next few days, just in time to prevent the federal govt from defaulting on its debt as early as Jun 5. As the debate has played out, lawmakers from both sides of the aisle have taken issue with the size of the spending cuts. Some fiscally conservative Reps have argued that the spending reductions don't go far enough while progressive Dems have said they cut vital programs too deeply. The deal, known as the Fiscal Responsibility Act (FRA), which reflects the partisan divide by capping discretionary spending for the next 2 years & outlining spending caps for the following 4 years, can serve as an optional guideline for the next budget & debt limit debate in early 2025. The nonpartisan Congressional Budget Office (CBO) released its cost estimate of the impact of the FRA on the budget & found that if Congress & the pres adhere to the 2-year mandatory spending caps & carry on with the bill's budget guidelines beyond then, the bill will reduce federal deficits by more than $1.5T in 2023-2033. Of the total $1.527T in deficit reduction over the decade, more than $1.331T is expected to come from caps on discretionary spending, which covers all the agencies & programs that Congress funds annually thru the appropriations process. An additional $188B in savings comes from reduced costs associated with paying interest on the national debt. By reducing the size of annual budget deficits, the national debt grows more slowly, which in turn reduces interest expenses. The Fiscal Responsibility Act also rescinds some funding that Congress had previously approved but has gone unobligated & unspent. Roughly $27B in budget authority is covered by the rescissions, which the CBO translates into roughly $11B in reduced spending over the 2023-2033 period. One major area of federal spending is left untouched by the Fiscal Responsibility Act is mandatory spending. Entitlement programs like Social Security & Medicare are the largest components of the federal gov's mandatory spending. As America's population ages & health care costs increase, federal spending on Social Security & Medicare has risen at a faster pace than discretionary spending & is expected to continue to do so, barring reforms to those programs.
How bipartisan budget, debt limit deal impacts spending, deficit
Demands by Rep senators for more defense funding threatened to delay Majority Leader Chuck Schumer's plan to fast-track a bill to raise the debt limit, as the US barreled toward a Jun 5 deadline to avert a default. “Nobody wants to default ... But I’m tired of having default over my head as a reason to neuter the military at a time we need it the most,” Sen Lindsey Graham said, where he railed against a bill the House passed with broad bipartisan support. Under that bill, defense spending in 2024 would be capped at $886B, an annual increase of 3%. The following year, the budget would keep the increases to 1%, for a total of roughly $895B. Sen Susan Collins called that figure “woefully inadequate,” & demanded that Schumer agree to pass an emergency defense supplemental funding bill to make up for it. “Bottom line, folks — we’re not leaving until we get a path to fix this problem,” said Graham. Schumer, for his part, has also pledged to keep the Senate in session. “Until we send a bill avoiding default to President Biden’s desk, we will keep working until the job is done,” he said today. “Time is a luxury the Senate does not have if we want to prevent a default.” The Fiscal Responsibility Act was passed in the Rep-majority House yesterday night by an overwhelming bipartisan majority, sending it to the Dem-controlled Senate. In order to fast-track a bill thru the chamber & vote on it before Mon, all 100 senators must agree to the plan, & give their “unanimous consent” for the bill to bypass the notoriously slow Senate procedures. Herein lies the challenge. In addition to Collins & Graham & Sens Tom Cotton & Roger Wicker, all of whom spoke in oppositions to the defense funding levels, there were at least 3 more senators who also said they had serious objections to specific parts of the bill. Kaine introduced an amendment that would strip the House bill of a last-minute provision that all but guaranteed the approval of the Mountain Valley Pipeline, a controversial natural gas pipeline project thru West Virginia & Virginia. Lee also proposed an amendment, to remove a line in the House bill that would allow the director of the Office of Management & Budget to unilaterally waive some spending restrictions on federal regulators if they determined that the spending was needed for “effective program delivery.” In a typical Senate process, members would be expected to slow down Senate deliberations on the bill, propose their amendments to it, try to get those amendments passed by a vote and added to the bill, and if they succeed, send the amended bill back to the House for another vote.
Defense spending levels threaten to delay Senate plan to fast-track debt bill
The number of Americans filing new claims for unemployment benefits increased modestly last week & private employers hired more workers than expected in May, pointing to continued labor market tightness that could push the Federal Reserve to keep interest rates elevated. The labor market is slowing only marginally, keeping a much feared recession at bay for now, despite 500 basis points worth of interest rate hikes from the central bank since Mar 2022, when the Fed embarked on its fastest monetary policy tightening campaign since the 1980s to tame inflation. Initial claims for state unemployment benefits rose 2K to a seasonally adjusted 232K last week, the Labor Dept said. The forecast expected 235K claims. It's believed that claims have probably topped out for now, having barely budged from current levels for much of May. There have been high-profile layoffs in the technology sector & industries sensitive to interest rates, such as housing, but employers have been generally hoarding workers after difficulties finding labor in the wake of the COVID-19 pandemic. The gov reported there were 10.1M job openings at the end of Apr, with 1.8 vacancies for every unemployed person, well above the 1.0-1.2 range viewed as consistent with a labor market that is not generating too much inflation. The number of people receiving benefits after an initial week of aid, a proxy for hiring, increased by 6K to 1.8M, the claims report showed.
US weekly jobless claims rise slightly; labor market defies recession
Gold prices finished higher after touching intraday highs above the key $2000 an ounce level for the first time since mid-May. Investors eyed developments tied to the debt-ceiling deal & looked ahead to monthly labor market data due tomorrow. Gold futures for Aug gained $13 (0.7%) to settle at $1995 per ounce after trading as high as $2000 during the session.
Gold taps highs above $2,000 ahead of monthly U.S. jobs data
Oil futures climbed, with US prices settling back above $70 a barrel for the first time in almost a week. Prices rebounded from yesterday's decline with the outside risk that oil ministers at a meeting on Sun could surprise the markets with another production cut, given the recent weakness seen in prices. Jul West Texas Intermediate crude rose $2.01 (3%) to settle at $70.10 a barrel. Prices settled at their highest since last Fri, just a day after marking their lowest front-month finish since Mar 20.
US oil prices settle back above $70 ahead of this weekend’s OPEC+ output decision
Dow started with selling which took it into the red. But then the buyers took it up 400 from the early lows & kept that elevated level for the rest of the session. Obviously there are a number of stories about the debt ceiling, but nobody really knows what's going on in DC. In addition, the senate has an unlimited supply of red tape to play with which can abort any deal. Dow continues its sideways trend for over 1 year (see below).Dow Jones Industrials
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