Dow was off 115, decliners over advancers about 2-1 & NAZ went up 55. The MLP index hardly changed & the REIT index was flattish at 365. Junk bond funds drifted lower & Treasuries were even, keeping yields steady. Oil added 1 to the 72s after the Saudi output cut (more below) & gold rose 4 to 1973.
AMJ (Alerian MLP Index tracking fund)
To bring down stubborn inflation, the Federal Reserve has raised
interest rates 10 times since Mar 2022. Despite a recent inflation
slowdown & less turmoil in the banking sector, one Fed official said
rate hikes may persist after the central bank's next meeting set for
mid-Jun. "I do not support stopping rate hikes unless we get clear evidence
that inflation is moving down towards our 2 percent objective," Fed
Governor Christopher J Waller said. Most recently in May, the Fed increased the federal funds rate by 25 basis points. In Apr, inflation increased 4.9% year-over-year, a decrease from its 5% increase in Mar, according to the latest consumer price index (CPI) report. "But
that decline was only due to rounding—the actual decrease was just five
one-hundredths of a percentage point, from 4.98 percent to 4.93
percent. Almost no progress," Waller added. In addition, Core CPI, which excludes food & energy prices & is the Fed’s preferred
measure of inflation, increased 5.5% year-over-year in Apr. "Whether measured on a three month, six-month or 12-month basis, it is running too high," Waller said. To
make its decision on potential rate increases, Waller said the central
bank would be analyzing future inflation data, jobs reports, Gross Domestic Product (GDP) readings & the state of credit conditions amid recent pressure in the banking sector. In the past year, the Fed has been increasing the target range for
the federal funds rate to reduce the demand for goods, services &
labor, Waller continued. But that range is now at 5.00-5.25%, its highest in more than a decade. And citizens have been feeling the pressure of higher interest rates, according to various reports.
The Fed is not taking future interest rate hikes off the table
OPEC+ made no changes to its planned oil production cuts for this year, as coalition chair Saudi Arabia announced further voluntary declines. OPEC+ also announced that it will limit combined oil production to 40.5B barrels per day over Jan-Dec 2024. Previously, the alliance agreed to a 2M barrels-per-day decline in Oct. Some OPEC+ members also announced some voluntary drops of just over 1.6M barrels per day in Apr. Russia's Deputy Prime Minister Alexander Novak said that all voluntary cuts, which were initially set to expire after 2023, will now be extended until the end of 2024. Asked whether Russia, hit by Western sanctions, will carry out its pledge to cut output, UAE oil minister Suhail al-Mazrouei acknowledged there were discrepancies between figures supplied by Moscow & the independent Russian production estimates of analysts & trade publications. “Some of the things that we have seen from Russia on a technical basis just ... [don’t] add up from some of the independent sources, and we will be reaching out to those independent sources,” he said during after the OPEC+ meeting. Saudi Arabia's energy ministry said Riyadh will implement an additional voluntary one-month 1M-barrel-per-day cut starting this Jul, which can be extended. This will bring the kingdom's total voluntary declines to 1.5M barrels per day over the period, reining in its production to 9M barrels. The Saudi energy minister described the kingdom's additional 1M barrel-per-day voluntary reduction as a “Saudi lollipop” & stressed it will be implemented. “We have always honored our commitments,” he said. He left unanswered whether the kingdom will extend its voluntary reduction beyond Jul. The move by the 23-country alliance follows contentious talks that dragged well into the night on Sat, as well as a more-than 4-hour yesterday meeting of the alliance's Joint Ministerial Monitoring Committee, which recommends, but does not implement, policy. At stake for OPEC+ is a battle to reconcile an outlook of tighter supply in H2, current macro-economic & inflationary concerns, & intergroup diplomacy. Ahead of the meeting, Saudi oil minister Prince Abdulaziz bin Salman in late May warned oil market speculators to “watch out,” in a comment widely read as heralding another supply cut. It remains to be seen if the 2024 reduction in output will offer long-term support to current oil futures prices when markets open today, following months of pressure from global financial turmoil since the start of the year. The producers’ alliance also agreed to review baselines — the starting level from which producers cut their output during OPEC+ agreements, usually by a similar percentage — for 2025, following a study of countries' output capacities.
OPEC+ sticks to 2023 oil production targets as Saudi Arabia announces further voluntary cuts
Treasuries dipped as investors considered what could be next for interest rates & weighed key economic data that could affect the Federal Reserve's next policy moves. The yield on the 10-year Treasury was last down 2 basis points at 3.674%, reversing earlier gains & the 2-year Treasury yield was last trading at 4.555% after shedding about 5 basis points. Yields & prices move in opposite directions. One basis point equals 0.01%. Investors assessed what could be next for Fed interest rate policy as uncertainty about whether the central bank will pause its rate-hiking campaign when it meets later this month has spread. The Fed has been hiking rates since Mar 2022 with the goal of easing inflation & cooling the economy. Recent economic data has, however, raised questions about whether rate increases so far have had the desired effect. That includes May’s jobs report, which on Fri showed that payrolls increased by 339K during the month, far exceeding what the 190K economists previously had expected. Fresh economic data this week could provide insight into the health of the economy & the Fed's next monetary policy moves.
Treasury yields rise as investors weigh interest rate outlook, key economic data
Stocks had a strong start, but worries about oil output cuts along with more uncertainties about the strength of the economy are weighing on the stock market. The Dow is not able to break out of its sideways trading range.Dow Jones Industrials
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