Markets edrift lower ahead of the jobs data tomorrow

Dow fell 168, advancers barely ahead of decliners & NAZ added 15.  The MLP index crawled higher, settling above 240, & the REIT index was off 2+ to the 366s.  Junk bond funds fluctuated & Treasuries had limited buying which lower Treasury yields.  Oil continued higher, up 1+ to the 83s, & gold was off 5 to 1967 (more on both below).

AMJ (Alerian MLP Index tracking fund)

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US applications for unemployment benefits fell slightly last week as companies held on to employees in an economy that has largely withstood rapidly rising interest rates, intended to cool hiring & spending, for more than a year.  The number of Americans applying for jobless benefits last fell week by 4K to 228K reported by the Labor Dept.  The 4-week moving average of claims, which evens out some of the weekly volatility, rose by 250 to 237K.  Jobless claim applications are seen as representative of the number of layoffs in a given week.  Economists believe US employers added 170K jobs in Aug.  The Labor Dept will issue official monthly jobs numbers tomorrow.  On Tues, gov data showed that job openings dropped to 8.8M last month, the fewest since Mar 2021 & down from 9.2M in Jun.  However, the numbers remain unusually robust considering monthly job openings never topped 8M before 2021.  Besides some layoffs in the technology sector early this year, companies have mostly been trying to retain workers.  Many businesses struggled to replenish their workforces after cutting jobs during the pandemic & sizable amount of the ongoing hiring likely reflects efforts by firms to catch up to elevated levels of consumer demand that emerged since the pandemic recession.  While the manufacturing, warehousing & retail industries have slowed their hiring in recent months, they aren't yet cutting jobs in large numbers.  Overall, 1.73M people were collecting unemployment benefits in the latest week, about 28K more than the previous week.

US applications for jobless claims inch back down

Americans felt more pessimistic about the economy in Aug, following 2 straight months of growing confidence.  The Conference Board’s Consumer Confidence Index, which gauges Americans' attitudes towards the economy & job market, fell to a reading of 106.1 in Aug, down from 114 in Jul, reversing the improvements made in the summer.  The falling optimism was mostly due to inflation worries, with some concerns about the labor market.  Expectations of economic conditions in the coming months declined sharply.  “Consumer confidence fell in August 2023, erasing back-to-back increases in June and July,” said Dana Peterson, chief economist at The Conference Board.  “August’s disappointing headline number reflected dips in both the current conditions and expectations indexes. Write-in responses showed that consumers were once again preoccupied with rising prices in general, and for groceries and gasoline in particular.”  Gas prices have risen in recent weeks & student loan repayments resume in Oct, which could also weigh on US consumers' moods.  The Labor Day holiday, coupled with Hurricane Idalia’s threat of taking gasoline refinery facilities offline, could further push up gas prices & overall inflation.  The University of Michigan's consumer survey last week also showed a deterioration in Americans’ attitudes toward the economy in Aug, though at a more subdued pace, according to a final reading.  Federal Reserve officials have emphasized that long-term inflation expectations remain in check.  But if inflation stays stubbornly high for longer than expected, US consumers could get used to what they perceive to be permanently higher prices.  That could make it extremely hard for the Fed to bring inflation back down to its stated target of 2%.

US consumers' mood soured at the end of summer on inflation

Tesla (TLSA) is reportedly facing 2 new federal probes over possible misuse of company resources by or for the personal benefit of CEO Elon Musk.  It was reported that federal prosecutors with the US Attorney's Office for the Southern District of New York &, separately, the Securities & Exchange Commission, are seeking information about how much TSLA has spent to plan & build a secretive project, reportedly a spacious glass house in greater Austin, Texas, thought to be for Musk's personal use.  The report also said that the Manhattan federal prosecutors were separately looking into whether TSLA had deliberately misrepresented the battery range for its electric cars.  A report in Jul said that TSLA electric cars often fall short of the company's advertised range & that the cars' touchscreens display inaccurate remaining range to drivers.  In its last quarterly earnings report, TSLA disclosed: “We receive requests for information from regulators and governmental authorities, such as the National Highway Traffic Safety Administration, the National Transportation Safety Board, the SEC, the Department of Justice (“DOJ”) and various state, federal, and international agencies. We routinely cooperate with such regulatory and governmental requests, including subpoenas, formal and informal requests and other investigations and inquiries.”  The stock rose 1.18.
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Tesla reportedly facing DOJ, SEC probes over plans to build Elon Musk a large glass house

Gold futures finished lower as the Federal Reserve's preferred inflation gauge showed an increase for Jul, contributing to a monthly loss of more than 2%.  Gold for Dec fell $7 (0.4%) to settle at $1965 an ounce, after ending at its highest since Aug 4.  Prices for the most-active contract logged a loss of 2.2% for the month. Gold futures finished lower after a reading of the US Jul personal consumption expenditures index revealed a increase of 0.2%, matching the forecast.  Overall inflation, however, crept higher & remained stuck above 3%.  Against that backdrop, the $ strengthened, with the ICE US Dollar index up 0.4% at 103.594, pressuring $-denominated prices of gold.

Gold futures fall for the session, lose more than 2% for the month

US oil futures ended at their highest in about 3 weeks, finding support from expectations for tighter global supplies in the coming months.  The session's gain contributed a monthly rise of 2.2% for front-month West Texas Intermediate crude.  The Oct WTI contract climbed $2 (2.5%) for the session to settle at $83.63 a barrel, the highest front-month finish since Aug 9.

U.S. oil futures settle at a 3-week high, up over 2% for the month

Traders wanted to extend this week's rally.  However in the PM it ended as profits were taken.  For the month Dow fell 838.

Dow Jones Industrials

Markets rise after PCE data hints at cooling inflation

Dow went up 58, advancers over decliners better than 3-2 & NAZ gained 70.  The MLP index was steady in the 239s & the REIT index was off 1+ to the 368s.  Junk bond funds were mixed & Treasuries had a little buying which reduced yields (more below).  Oil climbed 1+ to 83 & gold slid back 3 to 1969.

AMJ (Alerian MLP Index tracking fund)

 

 

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An inflation measure closely watched by the Federal Reserve ticked higher in Jul as steep prices continue to squeeze Ms of US households.  The personal consumption expenditures (PCE) index showed that consumer prices rose 0.2% from the previous month, according to the Labor Dept.  On an annual basis, prices climbed 3.3% – up from 3% the previous month, underscoring the challenge of taming high inflation.  The figures were both in line with estimates.  Core prices, which strip out the more volatile measurements of food & energy, climbed 0.2% from the previous month & 4.2% from the previous year.   While the Fed is targeting the PCE headline figure as it tries to wrestle consumer prices back to 2%, Chair Jerome Powell previously said that core data is actually a better indicator of inflation.  Both the core & headline numbers point to inflation that is still running above the Fed's preferred 2% target.  Other figures included in the report showed that consumer spending jumped 0.8% in Jul, compared with a 0.6% increase in Jun.  Still, many economists anticipate that spending will slow in coming months as spenders continue to grapple with expensive goods, high interest rates & the resumption of federal student loan payments.  "Consumers spent freely in July even if it meant dipping into their savings amid slower income growth," said Gregory Daco, EY chief economist.  "We anticipate the trend will slow in August and September as elevated prices for goods and services, higher borrowing costs and moderating income limit consumers’ spending appetite."

Key inflation gauge spells bad news for American families

Treasury yields fell as investors looked to the release of key jobs data which could provide insight into the state of the US economy.  The 10-year Treasury yield was trading 2 basis points lower at 4.098%, but the 2-year Treasury yield, most sensitive to the Federal Reserve's fed funds interest rate, ticked up less than 1 basis point to 4.89%.  Yields & prices move inversely to one another & 1 basis point equals 0.01%.  The personal consumption expenditures index, closely monitored by central bank policymakers, ticked up 0.2% month-over-month in July and & 4.2% year-over-year, matching estimates.  Personal spending, however, great at a faster pace, expanding by 0.8% versus economists' forecast of 0.7%.  Fed Chair Jerome Powell said last week at the central bank’s annual Jackson Hole symposium that inflation remains too high & indicated that interest rates may go higher still.  Investors had previously been hoping that the Fed's latest interest rate increase in Jul marked the end of the rate-hiking cycle which began in Mar 2022 & aimed to cool the economy & fight inflation.  Economic data released yesterday showed the economy may be pulling back, with the 2nd-qtr gross domestic product revised downward to a 2.1% annual growth rate.

Treasury yields ease ahead of big August jobs report on Friday

China's ambassador to the US, Xie Feng, has blamed US tariffs & export controls for a drop in trade between the 2 countries.  China-US trade fell by 14.5% in H1 of the year from a year ago, Xie pointed out.  “This is a direct consequence of U.S. moves to levy Section 301 tariffs on Chinese imports, abuse unilateral sanctions and further tighten up export controls,” he added.  “Livelihoods of many families have been affected, and businesses from both countries have born the brunt.”  The US is China's largest trading partner on a single country basis.  YTD US-China trade fell further in Jul with a 15.4% decline from the same period in 2022, China customs data showed.  “The biggest risk is any decoupling between China and the United States, and the largest source of insecurity comes from any confrontation between the two,” he said.  “To shut out China is to close the door on opportunities, cooperation, stability and development.”  Exports remain a major contributor to China's economy, although their share has fallen in recent years.

China says drop in trade with the U.S. is ‘a direct consequence of U.S. moves

The inflation data was expected to show mild inflation & it did.  Some traders are away, starting their weekend holiday early.  Next week serious trading will resume.

Dow Jones Industrials

 

Markets waver after ADP data showed a cooling labor market in August

Dow went up 37, advancers over decliners about 2-1 & NAZ climbed 735.  The MLP index continued with a fractional advance in the 239s & the REIT index added 1+ to the 369s.  Junk bond funds hardly budged & Treasuries had modest buying which reduced yields slightly following yesterday's drop in yields.  Oil rose a little higher above 80 & gold gained 6 to 1971 (more below).

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US economic growth was revised lower to a still-solid pace in the 2nd qtr, but momentum appears to have picked up early in the 3rd qtr as a tight labor market underpins consumer spending.  Gross domestic product (GDP) increased at a 2.1% annualized rate last qtr, the gov said in its 2nd estimate of GDP for the Apr-Jun period.  That was revised down from the 2.4% pace reported last month.  The forecast called expected GDP for the 2nd qtr would be unrevised.  The revision reflected downgrades to inventory investment as well as business spending on equipment & intellectual property products.  The economy grew at a 2.0% pace in the first qtr & continues to push ahead despite 525 basis points worth of interest rate hikes from the Federal Reserve since Mar 2022.  It is expanding at a pace well above what Fed officials regard as the non-inflationary growth rate of around 1.8%.  The economy's resilience raises the risk of borrowing costs remaining higher for a while, but slowing inflation is fueling optimism that the central bank is probably done hiking rates & could engineer a “soft landing.”  Most economists have walked back their forecasts for a recession this year.  Though the labor market is slowing, with job openings dropping to the lowest level in nearly 2½ years in Jul, employers are largely hanging on to their workers after difficulties hiring during the pandemic.  That is keeping wage growth elevated, helping to drive consumer spending.  Retail sales increased strongly in Jul, while single-family homebuilding was robust.  Economists have boosted their 3rd-qtr growth estimates to as high as a 5.9% rate, though this likely overstates the health of the economy.

U.S. second-quarter GDP growth revised lower

Signed contracts to buy previously owned homes in the US unexpectedly rose in Jul, even as buyers continued to confront a spike in mortgage rates.  The National Association of Realtors said that its pending home sales index climbed 0.9% over the course of Jul.  The forecasts called for a decline of 0.6%.  "The small gain in contract signings shows the potential for further increases in light of the fact that many people have lost out on multiple home buying offers," said Lawrence Yun, NAR chief economist.  Pending sales remain down 14% from the same time last year.  However, the stronger-than-expected report suggests the housing market is slowly recovering from the deep freeze that it entered as a result of the Federal Reserve's interest-rate hike campaign.  "Jobs are being added and, thereby, enlarging the pool of prospective home buyers," Yun added.  "However, rising mortgage rates and limited inventory have temporarily hindered the possibility of buying for many."  Still, the market remains bogged down by the astronomic rise in mortgage rates over the past year, as well as a worsening inventory shortage.  The problem is unlikely to be resolved anytime soon.  With mortgage rates hovering near the highest level in 2 decades, sellers who locked in a low rate before the pandemic began have been reluctant to sell, leaving few options for eager would-be buyers.  The number of available homes on the market at the end of Jul was down by more than 9% from the same time last year & down a stunning 46% from the typical amount before the COVID-19 pandemic began in early 2020, according to a recent report from Realtor.com.  Adding to the trouble is that builders have been slow to get new construction on the market.  New listings are being added at the slowest pace on record because many houses are still under construction.

Pending home sales rise at the fastest pace since January

Brown–Forman (BF.B) fell short of expectations for its first qtr of fiscal 2024, plagued by lagging whiskey sales, supply challenges & a significant inventory rebuild.  Net sales for whiskey products decreased by 1%, led by the brands Woodford Reserve & Gentleman Jack.  Sales for Jack Daniel's Tennessee Whiskey were flat, the company said, due to lower distributor inventories across the US.  “As anticipated, our first quarter growth was impacted by the difficult shipment comparison from fiscal 2023, when we rebuilt inventory impacted by prior glass supply challenges,” said Lawson Whiting, CEO of the wines & spirits company.  Net sales in the US market decreased 8% amid volume declines.  Meanwhile the company saw growth in its ready-to-drink (RTD) & tequila categories.  The company reported overall quarterly revenue up 3% year over year & maintained its full-year outlook.  EOS for the period was 48¢, down 7% from the prior-year period, when the company reported 52¢.  Marketing & operating costs soared during the qtr, outpacing revenue growth & weighing on profits.  Reported advertising expense grew 19%, driven by the launch of its Jack Daniel's & Coca-Cola RTD item, increased investment in Jack Daniel’s Tennessee Whiskey & acquisitions. The stock fell 2.75.
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Jack Daniel’s maker Brown-Forman reports lagging whiskey sales, narrower profit

Gold futures climbed for a 3rd session in a row, settling at their highest since early Aug.  The Federal Reserve is expected to keep a data-driven approach when it takes its next decisions on interest rates, & inflation & labor data will be the most relevant data points to keep track of for the central bank.  Monthly US jobs data will be released Fri.  In the meantime, gold has been holding its ground above $1900, a signal of strength for the precious metal, especially in the challenging context of a more hawkish Fed last week at the Jackson Hole summit.  Dec gold rose $7 (0.4%) to settle at $1973 an ounce, the highest finish for a most-active contract since Aug 4.

Gold futures climb for a third straight session

US crude futures finish higher for a 5th consecutive session, ending up 0.6% at $81.63 a barrel following an EIA report that showed yet another massive weekly drawdown of US crude-oil inventories.  The declines have been so exceedingly large in recent weeks, a 17M-barrel decline in late Jul was the largest on record going back 40 years, that traders say some investors are becoming reluctant to trade off the numbers & might explain why prices only ended moderately higher today.  Investors are also concerned about pushing prices too high ahead of important US data Fri on jobs, manufacturing & more.  Brent crude also ends higher, at close to $86.

Oil Prices Rise for 5th Straight Day on Tighter Supplies

News has not been creating much excitement for investors even though Dow has regained some of the big decline in early Aug (see below).  With just 1 trading left, Dow is down 670 in Aug.

Dow Jones Industrials