Dow jumped 401 (close to its record high), advancers over decliners about 4-1 & NAZ went up 202. The MLP index added 1+ to the 282s & the REIT index remained in the 379s. Junk bond funds slid lower & Treasuries edged higher which lowered yields. Oil remained down 1+ to the 81s & gold rose 27 to 2187 after the Fed meeting (more on both below).
AMJ (Alerian MLP Index tracking fund)
The Federal Reserve held interest rates steady as expected & signaled it still plans multiple cuts before the end of the year. Following its 2-day policy meeting, the central bank's rate-setting Federal Open Market Committee said it will keep its benchmark overnight borrowing rate at 5.25%-5.50%, where it has held since Jul 2023. Along with the decision, Fed officials penciled in 3-percentage point cuts by the end of 2024, which would be the first reductions since the early days of the Covid pandemic in Mar 2020. The current federal funds rate level is the highest in more than 23 years. The rate sets what banks charge each other for overnight lending but feeds thru to many forms of consumer debt. The outlook for 3 cuts came from the Fed's “dot plot,” a closely watched matrix of anonymous projections from the 19 officials who comprise the FOMC. The chart provides no indication for the timing of the moves. The plot indicated 3 cuts in 2025, 1 fewer than the last time the grid was updated in Dec. The committee sees 3 more reductions in 2026 & then 2 more in the future until the fed funds rate settles in around 2.6%, near what policymakers estimate to be the “neutral rate” that is neither stimulative nor restrictive. The grid is part of the Fed's Summary of Economic Projections, which also provides estimates for GDP, inflation & unemployment. The dot assortment skewed somewhat hawkish from Dec in terms of deviations from the median, but not enough to change this year's projections. Officials sharply accelerated their projections for GDP growth this year & now see the economy running at a 2.1% annualized rate, up from the 1.4% estimate in Dec. The unemployment rate forecast moved slightly lower from the previous estimate to 4%, while the projection for core inflation as measured by personal consumption expenditures rose to 2.6%, up 0.2 percentage point from before but slightly below the most recent level of 2.8%. The unemployment rate for Feb was 3.9%. The outlook for GDP also rose incrementally for the next 2 years. Core PCE inflation is expected to get back to target by 2026, same as in Dec. The FOMC's post-meeting statement was almost identical to the one delivered at its last meeting in Jan save for an upgrade on its job growth assessment to “strong” from the Jan characterization that gains had “moderated.” The decision to stand pat on rates was approved unanimously.
Fed holds rates steady and maintains three cuts coming sometime this year
The White House said Intel (INTC), a Dow stock, has been awarded up to $8.5B in CHIPS Act funding, as the Biden
administration ramps up its effort to bring semiconductor manufacturing
to US soil. INTC could receive an additional $11B in
loans from the CHIPS & Science Act, which was passed in 2022. The
awards will be announced by Pres Biden in Arizona. The
money will help “leading-edge semiconductors made in the United States”
keep “America in the driver’s seat of innovation,” Secretary of
Commerce Gina Raimondo said. INTC & the
White House said their agreement is nonbinding & preliminary & could
change. INTC has long been a stalwart of the US semiconductor
industry, developing chips that power many of the world's PCs & data
center servers. Even with its slide relative to its peers, INTC is uniquely situated in
the industry because it operates chip factories, or fabs, in addition
to designing processors. AMD (AMD) & Nvidia (NVDA), are fabless, which means they
design the chip, then send computer files & staff to Taiwan's TSMC for the manufacturing of the device. TSMC has dominated the leading edge of semiconductor manufacturing in
recent years, so all of the world's fastest processors are physically
built in Taiwan. That's a big reason why INTC was long expected
to be one of the largest beneficiaries of the CHIPS (Creating Helpful
Incentives to Produce Semiconductors) Act, which targeted the unlocking
of nearly $53B in incentives for domestic chip technology. A key
motivation behind the CHIPS Act was to encourage companies to build fabs
on US soil to prevent a supply disruption should China ever invade
Taiwan. INTC will spend its CHIPS Act funds on fabs & research centers in
Arizona, Ohio, New Mexico & Oregon. The company previously announced
plans to spend $100B on US programs & facilities & has
announced a plan to catch up in leading-edge manufacturing by 2026. INTC stock was up 15¢.
Intel awarded $8.5 billion in CHIPS Act grants to subsidize semiconductor manufacturing
The crisis in the Red Sea could lead to a shortage in the global tanker fleet if disruptions persist for another 6 months, the CEO of Kuwait Petroleum Corp (KPC) said. Houthi militants have been striking commercial shipping in the Red Sea since Nov in support of Palestinians as Israel wages war in Gaza. The attacks have forced many container shipping & tanker companies to divert traffic around the Cape of Good Hope in southern Africa, adding time & cost. “One of the things I think we may be concerned about is if this continues for another six months, that we will not have perhaps the tanker fleet available to continue to go around,” Shaikh Nawaf al-Sabah said of the global fleet. KPC has diverted a substantial amount of production around the Cape during the crisis, al-Sabah said, declining to provide specific numbers. The company is continuing to ship thru the Red Sea & is making decisions on which route ships should take on a daily basis, he said. “We maintain a strategic tanker tanker fleet for these types of reasons,” al-Sabah added. “We’re comfortable that we can supply our customers in the quantities that are required on time without issue, but I don’t know how many other producers have that strategic vision.” Al-Sabah does not see a risk of Middle East tensions leading to a conflict that could disrupt crude supplies in the wider region. The Persian Gulf has faced numerous wars but the only time Kuwait has been unable to ship was during Iraq dictator Saddam Hussein's invasion of the country in 1990, he continued. “I don’t see a supply fear,” the CEO said. “I am confident that the industry and the system is well equipped to handle potential supply crises that might happen.”
Red Sea crisis could lead to global tanker shortage, Kuwait Petroleum CEO says
Gold closed with a minor gain on Wed even as the $ rose prior to the end to the Federal Reserve's policy committee meeting that left interest-rates unchanged. Gold for Jun closed up $1 to settle at $2182 per ounce. The rise came ahead of the conclusion of the Federal Open Market Committee meeting, which will be followed by a press conference with Fed chair Jerome Powell. Optimism the central bank will soon begin lowering rates has faded with inflation remaining above its 2% target. Comments from the meeting & Powell will be closely watched for any dovish outlooks. The $ was higher ahead of the meeting's end. The ICE dollar index was last seen up 0.47 points to 103.9 & Treasury yields were lower. The 2-year note was last seen paying 4.63%, down 6.6 basis points, while the yield on the 10-year note was down 4.2 basis points to 4.256%.
Gold Closes with a Small Gain as the Dollar Climbs Ahead of the End of the Fed's Policy Committee Meeting
West Texas Intermediate (WTI) crude oil closed lower, retreating from a 5-month high even as a report showed a drop in US inventories as the $ rose ahead of the end of the 2-day meeting of the Federal Reserve's policy committee. WTI crude oil for Apr closed down $1.79 to settle at $81.68 per barrel, while May Brent oil, the global benchmark, was last seen down $1.49 to $85.89. Prices had been strengthening in recent days, breaking out of a range the commodity had been stuck in for months after the Intl Energy Agency last week raised its 2024 demand forecasts amid OPEC+'s 2.2M barrels per day of voluntary cuts, with the agency expecting those to be in place thru the year. Positive economic data from China from China has offered support. But the focus turned to today's conclusion of the Federal Reserve's policy committee which ended with interest rates unchanged as inflation remains above the central bank's 2% target. The central bank is targeting 75 basis points of cuts this year, but the timing remains uncertain. The Energy Information Administrations weekly survey showed US oil stocks fell by 2M barrels last week, while the consensus analyst estimate called for a small rise & gasoline inventories also fell as refineries produced less last week.
WTI Crude Oil Retreats Despite a Drop in US Inventories as the Dollar Rises Ahead of the Fed Rate Decision
Dow was even just prior to Powell's comments. Then stocks were bought, investors liked what they heard. Rates were not changed & 3 rate cuts are expected by the end of the year. In addition, they boosted the forecast for GDP growth rate to a little above 2%. All this suggests that interest rates would still be in high territory all year & GDP would be unimpressive. Gold is still close to record levels, remaining popular for nervous investors.
Dow Jones Industrials
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