Dow fell 42, decliners over advancers 3-1 & NAZ crawled up 24. The MLP index stayed in the 242s & the REIT index was off 1+ to the 365s. Junk bond funds were mixed & Treasuries saw heavy selling, raising yields (more below). Oil, continued in demand, rising 1+ to the high 86s, & gold lost 14 to 1952.
AMJ (Alerian MLP Index tracking fund)
Federal Reserve Governor Christopher Waller said that the recent round of strong economic data will buy the central bank some time as it decides whether additional interest rate hikes are needed to control inflation. “That was a hell of a good week of data we got last week, and the key thing out if it is it’s going to allow us to proceed carefully,” Waller said. “We can just sit there, wait for the data, see if things continue.” Highlighting those data points was Fri's nonfarm payrolls report, which showed better-than-expected growth of 187K jobs in Aug while average hourly earnings rose just 0.2% for the month, lower than forecast. Earlier in the week, other reports showed that the Fed's preferred inflation gauge rose just 0.2% in Jul & that job openings, a key measure of labor market tightness, fell to their lowest level since Mar 2021. “The biggest thing is just inflation,” Waller said. “We got two good reports in a row.” The key now is to “see whether this low inflation is a trend or if it was just an outlier or a fluke.” Waller is generally considered one of the more hawkish members of the rate-setting Federal Open Market Committee, meaning he has favored tighter monetary policy & higher interest rates as the central bank battles inflation that in the summer of 2022 was running at its highest rate in more than 40 years. While he was encouraged by the recent reports on where prices are trending, he said they also indicate that the Fed can afford to hold rates higher until it is sure inflation is on the run. “That depends on the data,” Waller said when asked whether the rate increases can stop. “We have to wait and see if this inflation trend is continuing. We’ve been burned twice before. In 2021, we saw it coming down and then it shot up. The end of 2022, we saw it coming down, then it all got revised away.” “So, I want to be very careful about saying we’ve kind of done the job on inflation until we see a couple of months continuing along this trajectory before I say we’re done doing anything,” he added. Markets are assigning a near-certainty to the chances that the Fed skips a hike at its Sep 19-20 meeting. However, there’s a 43.5% probability of an increase at the Oct31-Nov 1 session, according to CME Group tracking of futures pricing, indicating some uncertainty. “I don’t think one more hike would necessarily throw the economy into recession if we did feel that we needed to do one,” Waller said. “It’s not obvious that we’re in real danger of doing a lot of damage to the job market, even if we raise rates one more time.”
Fed Governor Waller agrees the central bank can ‘proceed carefully’ on interest rates
The IAA in Munich, Germany is one of Europe's most high-profile auto shows. And it was dominated by Chinese electric car firms looking to expand their presence on the continent & challenge incumbents from BMV to Ford (F) in the new era of battery-powered vehicles. Chinese start-ups & players had some of the biggest stands at the event with high-profile press conferences & vehicle launches, underscoring their intention to make a splash in the European market. China, the world’s largest EV market, has seen a tidal wave of electric car companies pop up in the last few years, driven by government subsidies & venture capital funding. But a slowing market at home, due to tepid consumer spending after Covid-19 restrictions were lifted, coupled with an attractive market in Europe, has seen Chinese firms launch cars abroad & expand their footprint. “Europe is one of the largest (second after China) mass market vehicle markets ... If the Chinese EV makers want to secure a growth path beyond their local market, its very logical to look at Europe,” Daniel Roeska, senior research analyst at Bernstein Research, said. Roeska added that Europe, with its “stringent de-facto” ban on combustion engine cars in 2035, “is pushing the market faster towards EVs at a time when most EU brands ... do not have a perfect offering yet, making market share gains easier.” Many of the European carmakers have been seen lagging in their push into EVs at a time when Chinese players have launched dozens of new vehicles. A Chinese firm headquartered in Hangzhou, announced plans to bring its C10 sports utility vehicle, or SUV, to European markets next year. In the next 2 years, the company said it plans to introduce five “globally-oriented” products across the world. “All of Leapmotor’s subsequent products will be designed and developed with a global mindset and adhere to global standards,” Leapmotor CEO Zhu Jiangming said. Meanwhile, BYD, the carmaker backed by Warren Buffett, launched its Seal electric sedan for Europe on yesterday, starting at €45K ($48K). For comparison, in Germany, Tesla's (TSLA) Model 3, starts at €43K. And there were more announcements about continued expansion into new territories. Xpeng said it will expand sales of its cars into the German market in 2024. The company currently sells its P7 sedan & G9 SUV in Norway, Sweden, Denmark & the Netherlands. And Brian Gu, pres of Xpeng, said the company plans to bring its latest car, the G6, to Europe next year, underscoring the Guangzhou-headquartered firm's global push. “We recognise Germany is the most important and the highest standard market for all” carmakers, Gu said. The entrance of Chinese firms into Europe is seen as a threat to big automakers who have been perceived to be moving too slow on EVs.
Chinese electric carmakers ramp up push overseas, setting up clash with U.S., European auto giants
Treasury yields climbed as markets reopened after the Labor Day holiday & investors considered what could be next for the economy following last week's key data releases. The yield on the 10-year Treasury was last up more than 6 basis points at 4.236% & the 2-year Treasury yield was last at 4.918% after climbing by 5 basis points. Yields & prices move in opposite directions & 1 basis point equals 0.01%. Many investors took economic data last week as a sign that inflationary pressures could be easing & the Fed's interest rate hikes are taking effect. Cooling the labor market has been one of the central bank's key policy goals alongside slowing the overall economy. The data came as uncertainty about the Fed's monetary policy path has grown following mixed economic data, which has continued to reflect some resilience, along with comments from Fed officials. This includes Fed Chair Jerome Powell, who recently suggested that interest rates may go higher still. Markets are still expecting the central bank to leave rates unchanged at its next meeting later this month, but views about what could happen at other Fed meetings scheduled for later this year appear to be split.
U.S. Treasury yields rise as investors weigh economic outlook
Dow Jones Industrials
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