Markets continued record-setting rally with optimism on inflation

Dow gained 59, advancers over decliners 3-2 & NAZ was up 90.  The MLP index added 3+ to the 275s & the REIT index edged up 1+ to the 383s.  Junk bond funds rose along with stocks & Treasuries were purchased which reduced yields.  Oil rose 2 to go over 80 & gold jumped 24 to 2078.

AMJ (Alerian MLP Index tracking fund)

Treasury yields declined as investors digested fresh economic data.  The yield on the 10-year Treasury dropped by more than 5 basis points at 4.199% & the 2-year Treasury yield was last down by 10 basis points at 4.544%.  Yields & prices move in opposite directions & 1 basis point equals 0.01%.  The final reading on Feb consumer sentiment missed expectations as inflation expectations ticked higher.  The University of Michigan's sentiment index came in at 76.9, below the estimate of 79.6 & was also lower than the Jan reading of 79.  This came on the back of the personal consumption expenditures index (PCE) report.  The PCE report, which is the Fed's preferred inflation gauge, was in line with expectations.  Headline PCE increased by 0.3% on a monthly & 2.4% on an annual basis in Jan, while core PCE, which strips out food & energy prices, rose by 0.4% for the month & 2.8% from a year earlier.  The annual figures were slightly lower than Dec's readings, but still remained above the Fed's 2% target range.  The PCE data comes soon after both the consumer & producer price index reports for Jan, which also track inflation, came in hotter than expected.  Fed officials have in recent weeks expressed caution about cutting rates too soon & made clear that data would continue to inform their decision-making.  Several speakers have indicated rate cuts were expected to come this year, but there have been few clues about a potential timeline.

Treasury yields are flat as investors weigh economic outlook

Microsoft (MSFT), a Dow stock, announced a new partnership with French start-up Mistral AI, Europe's answer to ChatGPT maker OpenAI, as the US tech giant seeks to expand its footprint in the fast-evolving artificial intelligence industry.  MSFT said that it was investing in the €2B ($2.1B), 10-month-old business to help it unlock “new commercial opportunities” & expand to global markets & confirmed that it was investing €15M, which would convert into equity in Mistral's next funding round.  Under the deal, Mistral’s large language models (LLM), the technology behind generative AI products, will be available on MSFT's Azure cloud computing platform, becoming only the 2nd company to host its LLM on the platform after OpenAI.  It will also see MSFT bolster the start-up's access to new customers as it rolls out its ChatGPT-style multilingual conversational assistant “Le Chat,” or “the cat.”  Pres Brad Smith said that the deal was an “important” signal of the company's backing of European technology.  The stock fell 89¢.

Microsoft invests in Europe’s Mistral AI to expand beyond OpenAI

Inflation in the 20-nation euro zone eased to 2.6% in Feb, flash figures showed, but both the headline & core figures were higher than expected.  The forecast called for a headline reading of 2.5%.  Core inflation, stripping out volatile components of energy, food, alcohol & tobacco, was 3.1%, above the 2.9% expected.  The European Union statistics agency said food, alcohol & tobacco had the highest inflation rate in Feb at 4%, followed by services at 3.9%.  Energy prices, which had swollen last year as a result of Russia's invasion of Ukraine, continued to reduce, with the rate of deflation moving from -6.1% to -3.7%.  The headline print previously came in at 2.8% in Jan, with further easing expected after price rises cooled in Germany, France & Spain.  Investors are hunting for clues on when the ECB will start to bring down interest rates, with market pricing pointing to a Jun cut.   Yet many ECB officials still stress that they need spring wage negotiations to conclude before they have a clearer picture of domestic inflationary pressures.  The Feb figures will be a mixed bag for policymakers, as core inflation is holding above 3% even as the headline rate moves toward the ECB's 2% target.  Price rises have nonethless cooled significantly from their peak of 10.6% in Oct 2022.

Inflation remains sticky in Europe, with core prices cooling less than expected

Dow slid lower at the open, then buyers took it into the black.  After the long multi month rally, nervous investors are buying a lot gold & Treasuries.  Gold is close to its record highs!

Dow Jones Industrials