Markets struggle after Fed officiial's comments on rate cuts

Dow dropped 231, decliners over advancers better than 3-1 & NAZ fell 28.  The MLP index was off 1 to the 257s & the REIT index declined 2+ to the 288s.  Junk bond funds drifted lower & Treasuries were heavily sold, raising yields.  Oil was fractionally lower to 71 & gold pulled back 19 to 2031 (more on both below).

AMJ (Alerian MLP Index tracking fund)

One of the world's largest exporters of liquified natural gas reportedly has stopped sending tankers thru the Red Sea following recent joint US-UK airstrikes targeting Yemen's Iranian-backed Houthi rebels.  A source with knowledge said that QatarEnergy is directing tankers away from the busy shipping corridor.  The development comes was hit with a missile fired from Yemen, according to US officials.  "It is a pause to get security advice, if passing [through the] Red Sea remains unsafe we will go via the Cape" of Good Hope in South Africa, a source added.  "It is not a halt of production."  At least 6 tankers altered their course away from the Red Sea yesterday, bringing the total to divert since the US & British militaries launched retaliatory airstrikes against Yemen's Houthis last week to 15.  Throughout 2023, Qatar shipped more than 75M metric tons of liquefied natural gas, mostly to Europe & Asia.  The US Central Command said yesterday that the ship that was targeted in the Gulf of Aden was the M/V Gibraltar Eagle, a Marshall Islands-flagged bulk carrier owned by Eagle Bulk, a shipping company based in Connecticut.  "On Jan. 15 at approximately 4 p.m. (Sanaa time), Iranian-backed Houthi militants fired an anti-ship ballistic missile from Houthi-controlled areas of Yemen and struck the M/V Gibraltar Eagle, a Marshall Islands-flagged, U.S.-owned and operated container ship," US Central Command said.

QatarEnergy halts Red Sea LNG shipping following US-UK strikes on Yemen's Houthis: report

Federal Reserve Governor Christopher Waller acknowledged that interest rate cuts are likely this year, but said the central bank can take its time relaxing monetary policy.  The comments seemed to counter market anticipation for aggressing easing this year.  “As long as inflation doesn’t rebound and stay elevated, I believe the [Federal Open Market Committee] will be able to lower the target range for the federal funds rate this year,” Waller added in prepared remarks at the Brookings Institution.  “When the time is right to begin lowering rates, I believe it can and should be lowered methodically and carefully,” he added.  “In many previous cycles ... the cut rates reactively and did so quickly and often by large amounts. This cycle, however, ... I see no reason to move as quickly or cut as rapidly as in the past.”  Market pricing today indicated about a 71% chance the FOMC will begin cutting in Mar, according to the CME Group's FedWatch measure.  Traders have further ramped up expectations for 2024 & added another cut this week, bringing the anticipated total to 7 qtr-percentage point rate decreases by the end of the year.  At their Dec meeting, Fed officials indicated 3 cuts were likely this year.  The benchmark fed funds rate is currently at 5.25%-5.50%.  In making the pitch for rate cuts, Waller noted the progress made against inflation that has not come at the cost of the labor market.  “For a macroeconomist, this is almost as good as it gets. But will it last?” Waller said.  “Time will tell whether inflation can be sustained on its recent path and allow us to conclude that we have achieved the FOMC’s price-stability goal. Time will tell if this can happen while the labor market still performs above expectations.”  While the Fed has wrestled with the quandary of not tightening & enough & allowing inflation to expand & tightening too much that it chokes off growth, Waller said those risks are becoming more balanced.  In fact, he said that as the level of job openings compared to the size of the labor force declines, the Fed is now running more of a risk of doing too much.  “So, from now on, the setting of policy needs to proceed with more caution to avoid over-tightening,” he continued.  Waller said he thinks the Fed is “within striking distance” of achieving its 2% inflation goal, “but I will need more information” before declaring victory.  One data point he said he will be especially focused on is upcoming revisions to the Labor Dept's consumer price index inflation measure.

Fed’s Christopher Waller advocates moving ‘carefully’ with rate cuts

The British oil company Shell (SHEL) reportedly has suspended all shipments thru the Red Sea indefinitely amid the ongoing Houthi attacks from Yemen on commercial vessels on the key global trade route.  The move comes after BP paused shipments thru the Red Sea last week, as did Qatar Energy this week of its shipments of liquefied-natural-gas exports. an exec from the port & freight operator DP World predicted that the prices of consumer goods will be "significantly higher" as a result of the Houthi attacks, specifically impacting Europeans' pocketbooks.  Since Nov, Iranian-backed Houthi rebels in Yemen have launched dozens of missiles & drones at commercial vessels around the Red Sea.  They are claiming to avenge the Israel counter-operation in Gaza against Hamas terrorists, though the Houthi attacks have grown increasingly indiscriminate & have even imperiled tankers & container ships moving sanctioned Russian oil.  Houthis targeted a tanker by SHEL on its way to carry Indian jet fuel thru the Red Sea last month.  Around 12% of total global seaborne oil trade passes thru the Red Sea.  The stock fell 2.04.

Oil giant reportedly suspends Red Sea shipments amid Houthi attacks from Yemen

Gold extended declines, slipping the most in more than a month as aggressive bets on the Federal Reserve's interest-rate cuts were seen as overdone.  Traders reassessed their views on the timing & size of the US central bank's pivot to lowering borrowing costs after Fed governor Christopher Waller reiterated that policymakers should be methodical & careful with the pace of easing.  While Waller showed an openness to cutting rates, his comments also appeared to push back against market expectations for as many as 6 cuts this year.   Rising tensions & attacks on shipping in the Red Sea are threatening to boost consumer prices & adding a fresh element of risk to the global economic outlook.  That has provided support for assets such as bullion as investors tend to seek safety in times of geopolitical & economic uncertainty.  Continuing jobless claims later this week will be watched for a read on how the US labor market is holding up against elevated borrowing costs.  Gold fell 1% to $2026 an ounce slipping as much as 1.2%.

Gold Extends Drop as Fed’s Waller Dampens Hawkish Pivot Bets

West Texas Intermediate (WTI) crude oil closed lower as demand concerns persist & Middle East tensions have not interrupted supply from the region.  WTI crude for Feb closed down 28¢ to settle at $72.40 per barrel, while Mar Brent crude, the global benchmark, was last seen up pennies to $78.23.  The Houthi militant group struck a Greek-owned ship yesterday, continuing attacks on shipping in the Red Sea following US & UK strikes on the group last week.  An Iranian missile attack on on Kurdish groups in northern Iraq also added to Middle East tensions amid Israel's war on Hamas.  Still, oil prices have shown little change despite the turmoil in the the Middle East as demand concerns persist & supply remains robust as production outside OPEC+ rises, offsetting supply cuts from the group.

WTI Crude Oil Closes Lower, Remaining Rangebound Despite Mideast Tensions

Waller's comments today did not warm the hearts of investors on rate cuts.  Additionally, the Houthi rebels in Yemen are making their presence known & that's a major negative for global trade.

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