Markets fall after most policy makers expect additional rate increases

Dow retreated 129, decliners over advancers 2-1 & NAZ was off 25.  The MLP index slid fractionally below 231 & the REIT index was up 1+ to the 379s.  Junk bond funds fluctuated & Treasuries had heavy heavy selling raising yields.  Oil added 2 to the 71s & gold was off 6 to 1922 (more on both below).

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Almost all Federal Reserve officials at their Jun meeting indicated further policy tightening is likely, if at a slower pace than the rapid-fire rate increases that had characterized monetary policy since early 2022, according to minutes.  Policymakers decided against a rate increase amid concerns over economic growth, even though most members think further hikes are on the way.  Citing the lagged impact of policy & other concerns, they saw room to skip the Jun meeting after enacting 10 straight rate increases.  Officials felt that “leaving the target range unchanged at this meeting would allow them more time to assess the economy’s progress toward the Committee’s goals of maximum employment and price stability.“  Federal Open Market Committee members voiced hesitance over a multitude of factors.  They said that a brief pause would give the committee time to assess the impacts of the hikes, which have totaled 5 percentage points, the most aggressive moves since the early 1980s.  “The economy was facing headwinds from tighter credit conditions, including higher interest rates, for households and businesses, which would likely weigh on economic activity, hiring, and inflation, al-though the extent of these effect remained uncertain,” the minutes stated.  The unanimous decision not to hike came in “consideration of the significant cumulative tightening in the stance of monetary policy and the lags with which policy affects economic activity and inflation.“  The document reflected some disagreement among members.  According to projection materials released after the session, all but 2 of the 18 participants expected that at least one hike would be appropriate this year & 12 expected 2 or more.  “The participants favoring a 25 basis point increase noted that the labor market remained very tight, momentum in economic activity had been stronger than earlier anticipated, and there were few clear signs that inflation was on a path to return to the Committee’s 2 percent objective over time,” the minutes said.  Even among those favoring tightening, there was a general feeling that the pace of hikes, which included 4 straight 0.75 percentage point increases at consecutive meetings, would abate.  “Many [officials] also noted that, after rapidly tightening the stance of monetary policy last year, the Committee had slowed the pace of tightening and that a further moderation in the pace of policy firming was appropriate in order to provide additional time to observe the effects of cumulative tightening and assess their implications for policy,” the minutes added.  Since the meeting, policymakers mostly have stuck with the narrative that they don't want to give in to quickly on the inflation fight.

Fed sees more rate hikes ahead, but at a slower pace, meeting minutes show

General Motors (GM) US vehicle sales increased by 18.8% in Q2 compared with subdued results a year ago when the automaker was battling supply chain issues.  The automaker reported sales of 692K new vehicles in Apr-Jun.  That compared with 582K vehicles during Q2-2022.  It also is a sequential increase compared with Q1 sales of just over 600K new cars & trucks.  GM's Q2 sales indicate demand for new vehicles remains strong as inventories of cars & trucks improve from historically low levels during the coronavirus pandemic & supply chain problems.  Auto industry forecasters project US new vehicle sales to have increased 16-18% during Q2 compared with a year earlier.  Cox Automotive recently increased its full-year new vehicle sales forecast to 15M for the broader industry, a gain of nearly 8% from 2022, when sales finished at 13.9M due to low inventory levels & inflated prices.  GM's retail sales increased 15% thru H1 of the year, while its fleet business jumped 30%.  GM maintained its status as the country's largest automaker thru the first 6 months of the year, with sales up 18.3% to nearly 1.3M vehicles.  GM's EV sales topped 36K during H1, including 16K in Q2.  EVs accounted for just 2.8% of the company’s total sales during H1.  The stock rose 45¢.
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GM second-quarter sales increase 18.8% as supply chain stabilizes

Americans are getting poorer as expenses climb & savings dwindle, according to a new survey from LendingClub Cor, the parent company of LendingClub Bank, a digital marketplace bank.  In May 2023, the Fed released the "Economic Well-Being of U.S. Households in 2022," the latest edition of an annual report commonly used in measurements of financial well-being.  Since 2013, these annual reports have tracked consumers' stated ability to afford a theoretical $400 emergency expense, a number that seems outdated in today's economic environment.  LendingClub and & PYMNTS have examined this issue since 2022 & have found that the $400 benchmark does not accurately reflect today's consumer experience, per a press statement.  "In fact, two-thirds of the unexpected expenses consumers experienced cost more than the benchmark of $400, with 41% spending double that amount or more," the statement said.  "Furthermore, the average emergency expense was approximately $1,700, reflecting a year-over-year growth of 16 percent."  Alia Dudum, money expert with LendingClub, says this study ultimately shows that the Fed's $400 emergency expense benchmark, which has remained the same for 10 years, is no longer an accurate figure to use when assessing a consumer's overall financial well-being as it doesn't factor in inflation over the last decade or address the macroeconomic volatility we've seen since the beginning of the pandemic.  For example, she added, 2/3 of the unexpected expenses consumers experienced cost more than the benchmark of $400, with 41% spending double that amount or more.  "The reality is 46% of US consumers stated they faced an unexpected emergency & the cost of that expense averages $1,700. We’re seeing a false sense of security where consumers feel they have enough savings and/or available cash to cover unexpected expenses," continued Dudum. "The question is, as unexpected emergencies become more frequent and the cost for those expenses continues to rise, have consumers really prepared enough and will the same saving levels from previous years be enough to help them navigate the future?"  While the share of consumers who are living paycheck to paycheck & the share of those who have faced an emergency expense are both virtually unchanged from Jul 2022, Dudum says the average cost to consumers of these expenses continues to inflate and has grown 16% over last year.  According to Dudum, the research finds that 46% of consumers have faced unexpected emergencies, with millennials & high-income consumers facing them at even higher rates.  "Most unexpected expenses are related to necessary repairs or replacements, so it’s no surprise that affluent consumers who own vehicles and homes face these the most often," Dudum added.  "In fact, consumers earning more than $100,000 annually were 34% more likely to have faced these expenses than their lower-income counterparts."

Americans are getting poorer, new survey shows

Gold closed with a loss, giving up early gains as $ & bond yields moved higher.  Gold for Aug was closed down 2 to settle at $1927 per ounce.  The drop came as the $ rose ahead of the release of minutes from the last meeting of the Federal Reserve's policy committee which ended without raising rates after hikes following the prior 10 meetings, though the minutes are expected to have a hawkish tone.  Gold prices re-tested the key $1930 level at the start of the week as $ traded range-bounded due to the US holiday & manufacturing PMI release brought some inflation relief with the slide in prices paid component.  The ICE dollar index was last seen up 0.26 points to 103.3.  Treasury yields also rose, bearish for gold since it offers no interest.  The Treasury 2-year note was last seen paying 4.934%, up 0.9 basis points, while the yield on the 10-year note was up 7.7 basis points to 3.936%.

Gold Closes Lower as the Dollar and Treasury Yields Rise

Oil futures settled higher, as reported comments from Saudi Arabia at an Organization of the Petroleum Exporting Countries seminar raised the potential for tighter crude supplies.  Saudi Energy Minister Prince Abdulaziz bin Salman said that OPEC & its allies would do "whatever necessary" to support the oil market, according to various news reports.  The comment followed the Saudi Arabia's extension of its voluntary 1M barrel per day output cut thru Aug.  West Texas Intermediate crude for Aug climbed $2 (2.9%) to settle at $71.79 a barrel.

Oil Futures Settle Higher as Saudi Arabia Pledges to do What's Necessary to Support the Market

The minutes were not cheery & there was modest selling in the PM.  Thoughts about higher oil prices did not help.

Dow Jones Industrials