Dow retreated 284 near session lows, decliners over advancers more than 2-1 & NAZ gave back 173. The MLP index gained 2+ to the 257s & the REIT index dropped 9+ to 390 on concerns about future rate cuts. Junk bond funds remained weak & Treasuries continued in demand, bringing higher yields. Oil recovered 2+ to the 72s & gold dipped 28 to 2044 (more on both below).
AMJ (Alerian MLP Index tracking fund)
Federal Reserve officials in Dec concluded that interest rate cuts
are likely in 2024, though they appeared to provide little in the way of
when that might occur, according to minutes from the meeting. At
the meeting, the rate-setting Federal Open Market Committee agreed to
hold its benchmark rate steady at 5.25-5.50%. Members indicated that they expect 3 qtr-percentage point cuts
by the end of 2024. However, the meeting summary noted a high level of uncertainty over how, or if, that will happen. “In
discussing the policy outlook, participants viewed the policy rate as
likely at or near its peak for this tightening cycle, though they noted
that the actual policy path will depend on how the economy evolves,” the
minutes stated. Officials noted the progress that has been made
in the battle to bring down inflation. They said supply chain factors
that contributed substantially to a surge that peaked in mid-2022 to
have eased. In addition, they cited progress in bringing the labor
market better into balance, though that also is a work in progress. The
“dot plot” of individual members’ expectations released following the
meeting showed that members expect cuts over the coming 3 years to
bring the overnight borrowing rate back down near the long-run range of
2%. “In their submitted projections, almost all participants
indicated that, reflecting the improvements in their inflation outlooks,
their baseline projections implied that a lower target range for the
federal funds rate would be appropriate by the end of 2024,” the
document stated. However, the minutes noted an “unusually
elevated degree of uncertainty” about the policy path. Several members
said it might be necessary to keep the funds rate at an elevated level
if inflation doesn’t cooperate & others noted the potential for
additional hikes depending on how conditions evolve. “Participants
generally stressed the importance of maintaining a careful and
data-dependent approach to making monetary policy decisions and
reaffirmed that it would be appropriate for policy to remain at a
restrictive stance for some time until inflation was clearly moving down
sustainably toward the Committee’s objective,” the minutes noted. Despite the cautionary tone from Fed officials, markets expect the central bank to cut aggressively in 2024. Fed
funds futures trading points to 6 qtr-point cuts this year, which
would take the fed funds rate, which primarily sets what banks charge
each other for overnight loans but also influences multiple consumer
debt products, down to 3.75-4.00%. The minutes indicated that “clear progress” had been made against
inflation, with a 6-month measure of personal consumption expenditures
even indicating that the inflation rate has edged below the Fed’s 2%
target. However, the document also noted that progress has been
“uneven” across sectors, with energy & core goods moving lower but
core services still moving higher.
Fed officials in December saw rate cuts likely, but path highly uncertain, minutes show
Oil rose more than 3% as the US warned Houthi militants against further attacks in the Red Sea & OPEC pledged to remain united in supporting prices. Protests in Libya have also shut down the Sharara oil field, which produces 300K barrels per day. The West Texas Intermediate contract for Feb gained $2.31 (3.3%) to trade at $72.72 a barrel & the Brent contract for Mar added $2.32 (3.1%) to trade at $78.21 a barrel. Houthi militants, who are based in Yemen & backed by Iran, claimed that they targeted the CMA CGM Tage container ship. French shipping giant CMA CGM said that the vessel “did not suffer any incident.” This comes a day after Danish shipping giant Maersk halted all shipping thru the Red Sea until further notice due to repeated Houthi attacks on vessels. German shipping company Hapag-Lloyd confirmed today that it would continue to avoid the Red Sea. The US & 11 of its allies called today for the Houthis to immediately halt “these illegal attacks,” warning that militants would “bear the responsibility of the consequences should they continue to threaten lives, the global economy, free flow of commerce in the region’s critical waterways.” Oil prices have been volatile this week, with US crude & the global benchmark settling more than 1% lower yesterday despite Maersk's decision to continue avoiding the Red Sea due to attacks by the Houthis. OPEC & its allies issued a statement pledging to remain united in the group's “efforts to maintain oil market stability going forward.” Several members of the group pledged in Nov to cut 2.2M barrels per day thru the first qtr of this year to support prices. Traders have been skeptical of that pledge because it is voluntary & OPEC has struggled to maintain a united front. The promised voluntary cuts have done little to support prices as the US pumps crude at a record clip & demand weakens in China. US crude & the global benchmark fell more than 10% in 2023 on worries that the market is oversupplied.
Oil rises on mounting Middle East tensions, OPEC pledge to support market
General Motors (GM) US vehicle sales increased 14.1% last year to represent the
automaker's best year since 2019, prior to the effects of the Covid-19
pandemic & years long supply chain problems. The automaker reported sales
of roughly 2.6M vehicles in 2023, including 625K cars &
trucks sold during the 4th qtr, roughly flat compared to a year
earlier. The automaker sold about 2.3M vehicles in 2022 & 2.9M units in 2019. GM's sales are in line with expectations
for overall industry sales. Edmunds expects industrywide sales to hit
15.5M in 2023, which would be a roughly 14% increase compared to
2022. GM said it expects total US industry sales to hit 16M in
2024. That would mark the highest industry sales since more than 17M units in 2019 & the high end of industry forecasts. “GM
has tremendous momentum. We grew our market share in 2023, maintaining
strong pricing and low incentives,” Marissa West, GM’s senior VP & pres of North America, said. Sales of all-electric vehicles for GM were disappointing in 2023. Its EV sales totaled 76K units, or 2.9% of overall
sales last year. A vast majority of those were sales of its now
discontinued Chevrolet Bolt models. The
company has experienced problems in ramping up production of its newer
“Ultium” EVs, including a major issue with battery module assembly. To
assist EV sales this year, the company expects to increase production
of the vehicles & offer $7500 in incentives on models that no longer
qualify for up to $7500 in federal tax credits due to new, more
stringent requirements for assembly & materials for the vehicles their batteries that took effect Jan 1. “We
are committed to the future of EVs and will have the sales and
marketing support to sell these ineligible vehicles. Beginning in
January, GM will provide the equivalent EV tax credit purchase amount
for any vehicles that became ineligible due to the new guidelines,” GM
said. The stock fell 77¢.
GM’s 2023 U.S. vehicle sales were its best since 2019
Oil prices dipped slightly after sharp moves earlier in the week, with investors cautious about the US economy amid supply disruptions from persistent tensions in the Red Sea. Brent crude fell 39¢ to $75.50 a barrel, while US West Texas Intermediate crude futures slipped 51¢ to $69.87 a barrel. Prices had climbed around $2 earlier in the week following attacks on vessels in the Red Sea by Houthi rebels. Yesterday they fired 2 anti-ship ballistic missiles into the Southern Red Sea, though no damage was reported. A wider conflict could close crucial waterways for oil transportation & disrupt trade flows. Although the supply of oil has not been affected, as reflected in yesterday's oil price sell-off, the nervousness is conspicuous. Both benchmarks ended yesterday more than 1% down, with optimism about early & aggressive US interest rate cuts also ebbing ahead of the release of Federal Reserve meeting minutes & jobs data today.
Oil prices edge lower with investors cautious ahead of U.S. data
Investors are disappointed that Fed officials can not announce detail plans for rate cuts going forward because they are data dependent. That's nothing new. The goings on in the Red Sea will get a lot of attention. Among other things, shipping goods all the way around Africa will add the cost of the goods which becomes a negative for controlling inflation.Dow Jones Industrials
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