Markets edge higher ahead of inflation data this week

Dow added 59, advancers over decliners 2-1 & NAZ was up 57.  The MLP index remained in the 287s after recent strength & the REIT index rose 3+ to the 378s.  Junk bond funds crawled higher & Treasuries continued to see selling, driving yields higher.  Oil was fractionally lower in the 86s & gold inched up 2 to 2347 after its latest rally.

AMJ (Alerian MLP Index tracking fund)

The Federal Reserve is determined not to reduce interest rates too soon & some economists say recent data has pushed a summer cut completely off the table.  Fri's jobs report reiterated the seemingly unwavering strength of the labor market & suggested further need for Fed caution.  All eyes will now be on Wed's consumer price index, after Feb's annual inflation rate of 3.2% came in slightly higher than expected.  It comes as a growing number of market participants have raised the possibility of no rate cuts at all this year, including Minneapolis Fed Pres Neel Kashkari who said last week that no reductions were a possible scenario if inflation continued to move sideways.  Whereas former Federal Reserve Vice Chair Roger Ferguson said last week he sees a 10%-15% chance of no cuts this year.  Other analysts and economists are still backing the Fed's own signaling in Mar that it expects 3 qtr-percentage point cuts this year.

‘They can’t get it wrong again’: Economists are uncertain about Fed rate cuts

Treasury Secretary Janet Yellen said yesterday during her trip to Beijing that the US & China have a "duty" to manage the complex relationship between the countries responsibly & raised concerns about the impact of Chinese firms' overproduction in several key industries.  Yellen met with Chinese Premier Li Qiang, the #2 official in the Chinese Communist Party (CCP) behind General Secretary Xi Jinping, for 80 minutes in Beijing yesterday & Li said the US & China should be partners rather than adversaries & touted the "constructive progress" made during her trip.  Yellen's trip to China is her 2nd in the last 9 months.  "While we have more to do, I believe that, over the past year, we have put our bilateral relationship on more stable footing," Yellen said.  "This has not meant ignoring our differences or avoiding tough conversations. It has meant understanding that we can only make progress if we directly and openly communicate with one another."  Among the issues that Yellen said the 2 countries need to have "tough" conversations about are China's overproduction of electric vehicles (EVS), solar panels & other clean energy components – which Yellen said have hurt producers & jobs in the US & in other countries.  China's subsidies for electric vehicles have helped Chinese automakers like BYD & Geely gain market share in the world's largest car market, as well as turning China into the world's largest auto exporter with production outpacing domestic demand.  The Economist Intelligence Unit forecasts that China's battery manufacturing capacity will outpace demand by a factor of 4 by 2027 as the EV industry continues to grow.  That rapid growth has meant that excess manufacturing capacity could be 5-10M EVs per year, according to consulting firm Automobility.  A senior Treasury Dept official later said that China's excess industrial capacity & the gov's support for those industries were discussed at length during the meeting, & that Li showed some willingness for US & Chinese economic teams explore the issue further.  Although there were some differences of opinion, "there was not ideological or inflammatory pushback," the official said.  "It was a much more legitimate conversation of policymakers."  Chinese state media outlet Xinhua yesterday quoted Li as saying the US should "refrain from turning economic and trade issues into political or security issues" & view production capacity from a market-oriented & global perspective.  The outlet quoted Li as saying that China's clean energy sector, where overcapacity concerns are most acute, will support the global energy transition.  "Overcapacity isn't a new problem, but it has intensified, and we're seeing emerging risks in new sectors," Yellen said during a meeting in China's southern export hub of Guangzhou.  China has doubled down on Xi's mantra of unleashing "new productive forces" thru investments in cutting-edge technologies such as EVs as well as commercial spaceflight & life sciences, areas where many US firms hold competitive advantages.

Yellen says where relationship with China stands after meeting with Xi's officials

Treasury yields were higher as investors digested Fri's jobs report & looked ahead to key data slated for the week that could provide hints about the outlook for interest rates.  The yield on the 10-year Treasury was 8 basis points higher to 4.456%, trading around its highest level so far this year & the 2-year Treasury yield was last at 4.786% after rising by 5 basis points.  Yields & prices move in opposite directions & 1 basis point equals 0.01%.  Investors considered the state of the economy & what this could mean for monetary policy after the Mar jobs report on Fri came in much higher than expected.  Nonfarm payrolls rose by 303K in Mar, according to the Labor Dept's Bureau of Statistics, above the estimate of 200K.  In Feb, nonfarm payrolls had increased by a downwardly revised 270K.  The data added to concerns from investors about whether resilience from the economy & labor market could mean interest rates will stay elevated for longer than anticipated.  Policymakers & investors will gain fresh insights into the state of the economy from key economic data slated for this week.  This includes the consumer price index & producer price index readings for Mar, which will reflect how inflation is developing.  Several Fed officials are also due to make remarks this week & the minutes from the Fed's last meeting will be released, giving investors additional insights into the thinking of central bank officials.

Treasury yields climb as investors weigh state of economy ahead of key data

Investors are concerned about the future of interest rate cuts & expectations for cuts are decreasing.  At the same time demand for gold, negative bets on the stock market, have pushed the price of gold up an impressive 270 this year.  Dow has been going sideways for more than a month (see below).

Dow Jones Industrials