Dow was up 18, advancers over decliners almost 5-4 & NAZ gained 42. The MLP index rose 2+ to the 252s & the REIT index was steady in the 392s. Junk bond funds were mixed & Treasuries saw a little selling, raising yields (more below). Oil recovered 2+ to the 73s & gold was even at 2035.
AMJ (Alerian MLP Index tracking fund)
Chicago Federal Reserve Bank Pres Austan Goolsbee said that the Fed's fight against inflation isn’t over yet despite encouraging signs that inflationary pressures are easing without triggering a recession. The Federal Open Market Committee (FOMC), which acts as the Fed’s policymaking arm, last week opted against an additional rate hike & instead chose to leave the benchmark federal funds rate unchanged at 5.25-5.50%, the highest level in 22 years. The Fed began aggressively raising interest rates last year to tamp down inflation, which peaked at a 4-decade high of 9.1% in Jun 2022 & has gradually declined to 3.1% this Nov, though it's still well above the Fed's 2% target. Goolsbee said that the US has "made a lot of progress in 2023, but I still caution everybody it’s not done. And so the data is gonna drive what’s gonna happen to rates." "It’s too early to declare victory," Goolsbee said. "We made a lot of progress. So the thing to remember is every time in the past that the Fed or other central banks around the world have had to get inflation down a lot, it has basically always been accompanied by a major recession." "We still get one more month of data, but 2023 looks like it’s going to end up being a very substantial reduction in inflation without a big increase in the unemployment rate, that’s the golden path that I talked about, but we’re still above target," Goolsbee explained. "We gotta get inflation down to target," he added. "Until we are convinced that we’re on the path to that, it’s an overstatement to be counting the chickens." Goolsbee acknowledged that there has been some concerning economic data, such as a 12% year-over-year increase in homelessness, as well as delinquencies rising in credit card debt, auto lending and small business lending. He also noted that geopolitical risks like the war in Ukraine & the Middle East conflict between Hamas & Israel could weigh on the economy. "So if oil prices were to start rising substantially again, the way they have in the last few years, that would be a major supply shock problem facing the economy," Goolsbee said. "If we saw expansions of wars, if we saw collapse in China, if we saw a series of things around the world or if we got a big credit crunch in the United States and deterioration of the banking sector, all of those would be threats. And those kind of external shocks we call ‘em, they have derailed easier soft landings than this in the past in 1990 and 2001." At the Fed's policy meeting last week, the central bank’s economic projections showed that a majority of policymakers believed that interest rates would decline to 4.6% by the end of 2024.
'Too early to declare victory' on inflation, Chicago Fed president says
MSC, the world's largest shipping carrier, said it is no longer traveling thru the Suez Canal after its container ship, the MSC PALATIUM III, was attacked Fri while transiting the Red Sea under a subcharter to Messina Line. “Due to this incident and to protect the lives and safety of our seafarers, until the Red Sea passage is safe, MSC ships will not transit the Suez Canal Eastbound and Westbound. Already now, some services will be rerouted to go via the Cape of Good Hope instead.” MSC explained the new routing will impact the sailing schedules by several days for vessels booked for Suez transit. “We ask for your understanding under these serious circumstances,” the advisory continued. This announcement follows the announcement in the pause of Red Sea& Bab al-Mandeb Straight travel by shipping giants, Hapag-Lloyd & Maersk, following a series of attacks on their vessels by Iranian-backed Houthi militants from Yemen. Maersk, the world's 2nd-largest container shipping company, moves 14.8% of the world's trade. It said it would divert ships away from the Red Sea. The Houthi group backs Hamas, the Palestinian militant group & has said it is targeting vessels headed for Israel. A Maersk spokesman said the Danish company is deeply concerned about the highly escalated security situation in the southern Red Sea & Gulf of Aden. The recent attacks on commercial vessels in the area are alarming & pose a significant threat to the safety & security of seafarers, the spokesman added, saying that employees’ safety is the company's top priority. “Following the near-miss incident involving Maersk Gibraltar yesterday and yet another attack on a container vessel today, we have instructed all Maersk vessels in the area bound to pass through the Bab al-Mandab Strait to pause their journey until further notice,” the representative said. Hapag-Lloyd, which controls about 7% of the global container ship fleet, said that it will “pause all container ship traffic through the Red Sea until Monday. Then we will decide for the period thereafter.” The Bab el-Mandeb Strait is between the Horn of Africa & the Middle East. It connects the Red Sea to the Gulf of Aden & the Arabian Sea, which feed into the Indian Ocean. This waterway is used by container ships & exports of petroleum & natural gas from the Persian Gulf. Approximately 12% of the world's trade, which includes 30% of all global containers, move through the Suez Canal. That then feeds thru the Red Sea & Bab el-Mandeb. The significance of the Suez Canal was thrust into the spotlight in Mar 2021, when the container ship Ever Given was stuck for 6 days.
The 10-year Treasury note yield slipped as traders continued to digest the unexpectedly dovish tone of the Federal Reserve last week. The yield on the 10-year Treasury was more than 1 basis point lower at 3.913%. On Thurs, the yield fell below the 4% level, hitting its lowest since Jul. The 2-year Treasury yield eased by more than 3 basis points to 4.417%, below the closely watched 4.5% level. Yields & prices move in opposite directions & 1 basis point equals 0.01%. The Fed last week held its key interest rate steady & revealed that policymakers were penciling in at least 3 rate cuts next year, marking a more aggressive series of cuts than what was previously hinted. Deutsche Bank strategists described the Fed’s move as a “big shift” from the higher-for-longer narrative, though they noted some Fed officials went against the notion rate cuts are a current topic of discussion. “But the big question is now when these rate cuts might happen, and on Friday we had some mild pushback from Fed officials against the market excitement,” they added. On Fri, New York Fed Pres John Williams said, “We aren’t really talking about rate cuts right now.”
10-year Treasury yield slips to start the week
The bulls are struggling to extend the stock market's recent rally. But the stock market is extremely overbought & will need more helpful economic articles to take it higher. The war in the MidEast is getting more investor attention.Dow Jones Industrials
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