Markets waffle as oil rises to near 9-month highs

Dow was finished down 17 in choppy trading, advancers modestly ahead of decliners & NAZ retreated 144.  The MLP index rose 2+ to the 241s & the REIT index stayed in the 362s.  Junk bond funds fluctuated & Treasuries saw limited buying, reducing yields.  Oil went up 1+ to the high 88s & gold dropped 11 to 1936 (more on both below).

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Americans are bracing for high inflation to stick around over the next few years, according to a key Federal Reserve Bank of New York survey.   The median expectation is that the inflation rate will be up 3.6% one year from now, according to the New York Federal Reserve's Survey of Consumer Expectations, down from a high of 7.1% recorded in Jun 2022.  That marks a slight increase from the 3.5% recorded last month.  Consumers also anticipate that inflation will remain high in the coming years, estimating that it will hover around 3% 3 years from now, up from Jul's 2.9%, & just slightly to 2.8% 5 years from now.   That remains well above the Fed's 2% target, indicating that sticky inflation could be here to stay.  By comparison, central bank policymakers projected in their latest economic forecasts that inflation will fall to 2% by 2025.  Americans expect the cost of many necessities, like rent, gasoline, medical costs & food, to rise over the next year.  They also predicted an uptick in the cost of college tuition & are bracing for home prices to surge 3.1%, the highest reading since Jul 2022.  The survey, which is based on a rotating panel of 1300 households, plays a critical role in determining how Fed policymakers respond to the inflation crisis.  That is because actual inflation depends, at least in part, on what consumers think it will be.  It is sort of a self-fulfilling prophecy, if everyone expects prices to rise by 3% in the year, that signals to businesses that they can increase prices by at least 3%.  Workers, in turn, will want a 3% pay raise to offset the rising costs.  Chair Jerome Powell has repeatedly stressed that policymakers are committed to wrangling inflation back to the Fed's 2% target goal.

Americans' inflation expectations for next few years tick higher in latest NY Fed survey

Oil prices rose to their highest level of the year last week as concerns mounted about tight crude supplies after Saudi Arabia & Russia announced the extension of production cuts.  Prices for the 2 leading oil benchmarks.  Both benchmarks were up about 2% last week after significant gains the week before of about 5% for Brent & roughly 7% for WTI.  In 2023, the 2 benchmarks are up over 13%.  Those gains come after Saudi Arabia & Russia announced an agreement to continue to voluntarily trim their oil production cuts by a further one M barrels per day thru the end of 2023.  The state-owned Saudi Press Agency said that the new reduction will bring crude output to roughly 9M barrels per day & that production levels will be reviewed on a monthly basis.  Riyadh began scaling back output in Jul & has extended the cut twice so far.  Saudi Arabia & Russia coordinated their action with a group of oil-producing nations known as OPEC+, which had output cuts in place of about 3.6M barrels per day.  Treasury Secretary Janet Yellen called the previous OPEC+ production cut "regrettable" & said it was "not positive" for global economic growth.  American consumers are feeling the sting of high gas prices at the pump amid the global production constraints.  On Sun, the US national average gas price had ticked up to $3.82 per gallon according to AAA, a historically high price for this time of year, although it is well below the record high of $5.01 recorded in Jun 2022.  The White House previously criticized the production cuts by Saudi Arabia, with Pres Biden saying last year that "there will be consequences" for the country's decision to coordinate with Russia on oil production.  The Biden administration last week announced the cancellation of several oil & gas leases that were issued to an Alaskan state economic development agency in 2021.  The Dept of the Interior rescinded seven 10-year leases spanning 365K acres in the Arctic National Wildlife Refuge (ANWR) that were held by the Alaska Industrial Development & Export Authority.

Oil prices soar as supply concerns mount over Russia and Saudi Arabia's latest move

American households' income fell last year as their cost of living jumped higher than it has in over 4 decades amid soaring inflation & marking the 3rd straight annual decline since the COVID-19 pandemic hit in 2020, according to data from the Census Bureau.  The federal agency reported that US real median household income fell by 2.3% to $74,580 in 2022, down from $76,330 in 2021, noting that inflation rose 7.8%, which is the largest annual increase in the cost-of-living adjustment since 1981.  Despite the drop in income, the official poverty rate was not statistically different in 2022 than the year before, at 11.5%, with 37.9M Americans living in poverty.  However, the Supplemental Poverty Measure (SPM) rate, which accounts for participation in gov programs, doubled from 5.2% in 2021 to 12.4% in 2022.  The weighted average poverty threshold last year was $29,678 for a family of 4.  More US workers took on full-time, year-round jobs last year, which increased by 3.4% from 2021, while there was an 1.7% increase in the total number of workers.  The data showed that in 2022, 65% of employed women held full-time year-round positions, which is the largest share ever recorded.  Inflation reached a peak of 9.1% in Jun 2022 on an annual basis, & while it has cooled, it remains well above the Federal Reserve's 2% target, sitting at 3.2% in Jul.  Although average nominal wage growth grew 6.4% last year, it did not keep up with inflation for a majority of US workers, according to a report earlier this year from the Federal Reserve Bank of St Louis.

US household income fell in 2022 for third straight year, Census data shows

Gold futures declined to settle at their lowest in 3 weeks as investors await tomorrow's release of the consumer price index data.  The reading holds significant importance ahead of the Federal Reserve's policy meeting in Sep & may provide additional insights into the inflation scenario in the US, which could significantly impact investor expectations regarding the $ & consequently, gold trading.  Dec gold declined by $12 (0.6%), to settle at $1935 an ounce.  Prices based on the most-active contract settled at their lowest since Aug 22.

Gold Futures End at Lowest in 3 Weeks

Oil prices marked fresh settlement highs for the year with expectations that output cuts by major producers will lead to a global crude supply shortfall in Q4.  Analysis by the Organization of the Petroleum Exporting Countries shows that if the group of producers maintains its Aug production level of 27.5M barrels a day thru the end of the year, the global oil market will be over 3M barrels a day in deficit in Q4.  Oct West Texas Intermediate crude rose $1.55, or 1.8%, to settle at $88.84 a barrel.

Oil Futures Log Fresh Settlement Highs for the Year

Dow opened in the red, but buyers took it higher, climbing 250 off the lows.  However sellers returned & dragged it back into the red.  Higher oil prices send a bearish signal for the stock market.  Uneasy investors are waiting for the inflation data tomorrow.

Dow Jones Industrials