Dow sank 396, decliners over advancers better than 3-1 & NAZ pulled back 156. The MLP index was up 1+ to the 287s & the REIT index dropped 4+ to the 374s. Junk bond funds remained weak & Treasuries continued to be sold, raising yields. Oil gained 1+ to the 85s & gold surged 35 to 2293 (more on both below).
AMJ (Alerian MLP Index tracking fund)
Cleveland Federal Reserve Pres Loretta Mester said she still expects interest rate cuts this year, but ruled out the next policy meeting in May. Mester also indicated that the long-run path is higher than policymakers had previously thought. The central bank official noted progress made on inflation while the economy has continued to grow. Should that continue, rate cuts are likely, though she didn’t offer any guidance on timing or extent. “I continue to think that the most likely scenario is that inflation will continue on its downward trajectory to 2 percent over time. But I need to see more data to raise my confidence,” Mester said. Additional inflation readings will provide clues as to whether some higher-than-expected data points this year either were temporary blips or a sign that the progress on inflation “is stalling out,” she added. “I do not expect I will have enough information by the time of the FOMC’s next meeting to make that determination,” Mester said. Those remarks come nearly 2 weeks after the rate-setting Federal Open Market Committee again voted to hold its key overnight borrowing rate in at 5.25%-5.50%, where it has been since Jul 2023. The post-meeting statement echoed Mester's remarks that the committee needs to see more evidence that inflation is progressing toward the 2% target before it will start reducing rates. Her comments would seem to rule out a cut at the Apr 30-May 1 FOMC meeting, a sentiment also reflected in market pricing. Mester is a voting member of the FOMC but will leave in Jun after having served the 10-year limit. Futures traders expect the Fed to start easing in Jun & to cut by 3-qtrs of a percentage point by the end of the year. San Francisco Fed Pres Mary Daly said that 3 reductions this year is a “very reasonable baseline” though she said nothing is guaranteed. Daly is an FOMC voter this year. “Three rate cuts is a projection, and a projection is not a promise,” she said, later adding, “We’re getting there, but it’s not going to be tomorrow, but it’s not going to be forever.” While looking for rate cuts, Mester said she thinks the long-run federal funds rate will be higher than the long-standing expectation of 2.5%. Instead, she sees the so-called neutral or “r*” rate at 3%. The rate is considered the level where policy is neither restrictive nor stimulative. After the Mar meeting, the long-rate rate projection moved up to 2.6%, indicating there are other members leaning higher. Mester noted the rate was very low when the Covid pandemic hit & gave the Fed little wiggle room to boost the economy. “At this point, we are seeking to calibrate our policy well to economic developments so we can avoid having to act in an aggressive fashion,” she added.
Fed’s Mester still expects rate cuts this year, but rules out May
General Motors (GM) reported a 1.5% decline in first-qtr US
vehicle sales compared to a year ago, as the overall auto industry
normalizes after years of disruptions & volatile results. The automaker said the decline to 594K vehicles sold during the
first 3 months of the year was largely due to a 22.9% year-over-year
decline in sales to fleet customers. Retail sales to customers were up
6%. GM's sales are below expectations for the overall industry, which Cox Automotive forecast to be up 5.5% from a year earlier. Buick
was the only GM brand to report a sales increase during the qtr, up
16.4% from a year earlier. The GMC truck brand was off about 5%, while
Cadillac & Chevrolet were both off about 2%. GM reported sales
of its full-size pickups totaled roughly 197K units during the first
qtr, up 3.6% from a year earlier, marking its best performance
during that time since the first qtr of 2020. “GM gained
retail market share year-over-year with strong mix and pricing, our
inventories are in good shape heading into the spring, and production
and deliveries of Ultium Platform EVs are rising, led by the Cadillac
Lyriq. We’re on plan,” GM North America Pres Marissa West said. Sales
of its all-electric vehicles remained
miniscule during the first qtr. EV sales totaled 16K units, 2.8% of overall sales. GM is in the process of ramping up production of its newest EVs, including the Cadillac Lyriq & the Blazer EV, while winding down sales of Chevrolet Bolt models, which were discontinued in Dec. The stock fell 50¢.
GM U.S. vehicle sales fall 1.5% during the first quarter, underperforming others
US job openings barely changed in Feb, staying at historically high levels in a sign that the American job market remains strong. The Labor Dept reported that employers posted 8.76MM job vacancies in Feb, up modestly from 8.75M in Jan & about what had been forecast. But the Job Openings & Labor Turnover Survey (JOLTS), showed that layoffs ticked up to 1.7M in Feb from 1.6M in Jan, highest since Mar 2023. The number of Americans quitting their jobs, a sign of confidence they can find better pay or working conditions elsewhere, rose modestly to 3.5M. Monthly job openings are down from a peak of 12.2M in Mar 2022 but are still at a high level. Before 2021, they'd never topped 8M. The high level of vacancies is a sign of the job market's strength & endurance. When the Federal Reserve began raising its benchmark interest rates 2 years ago to combat inflation, most economists expected the higher borrowing costs to send the US into recession. Instead, the economy has continued to grow & employers have been seeking new workers & holding on to the ones they already have. Although the unemployment rate rose to 3.9% in Feb, it's come in below 4% for 25 straight months, longest such streak since the 1960s. At the same time, the higher rates have brought inflation down. In Feb, consumer prices were up 3.2% from a year earlier, down from a 4-decade high year-over-year peak of 9.1% in Jun 2022. The combination of easing inflation & sturdy job growth has raised hopes the Fed is managing to pull off a “soft landing’’ — taming inflation without triggering a recession. The Fed stopped raising rates last Jul & has signaled that it plans to reverse course & cut rates 3 times in 2024. But it appears to be in no hurry to start, given the economy's strength & with inflation still above the central bank's 2% target.
US job openings rise modestly to 8.8 million in February in strong in strong labor market
Gold closed at a record for a 6th-straight session, pushing closer to the $2300 mark as the $ dipped & investors continue to move to the precious metal ahead of expected interest-rate cuts coming from central banks in the US & elsewhere. Gold for Jun closed up $24 to settle at $2281 per ounce. The precious metal pushed above the $2200 mark last week & is looking to push above the $2300 mark for the first time as the Federal Reserve is expected to begin lowering interest rates from 23-year highs this year, signaling 75 basis points of cuts this year & further cuts in 2025. Lower interest rates ease the carrying cost of owning gold. A lower $ following 5 days of gains helped push prices higher, making the metal more affordable for intl buyers. The ICE dollar index was last seen down 0.23 points to 104.79. Treasury yields were mixed. The 2-year note was last seen paying 4.705%, down 0.6 basis points, while the yield on the 10-year note was up 4.4 basis points to 4.364%.
Gold Rises Again to a Fresh Record on a Lower Dollar and Buying Momentum
West Texas Intermediate (WTI) crude oil rose to the highest in more than 5 months as supply remains tight amid signs of rising demand & geopolitical turmoil. WTI crude for May closed up $1.44 to settle at $85.14 per barrel, the highest since late Oct, while Jun Brent crude, the global benchmark, was last seen up $1.46 to $88.88. The rise comes as supply remains squeezed with OPEC+ continuing its voluntary cuts of 2.2M barrels per day. The group will meet tomorrow with no policy changes expected prior to a ministerial meeting in Jun. As well, Mexico also plans to limit an unspecified amount of exports as Pemex, its state oil company, opens a new refinery. Geopolitical risk is also buoying prices after Israel yesterday attacked an Iranian consulate in Syria, killing the commander of the Iranian Revolutionary Guards Corps' Quds Force in Syria & Lebanon, raising the prospect of a wider Middle East war if Iran decides on a significant response to the strike. Meanwhile, China over the weekend reported its manufacturing sector returned to growth last month, raising demand hopes for the #1 importer even as its key real-estate sector continues to struggle with a debt crisis, while demand from India remains solid.
WTI Closes at Highest Since October on Tight Supply and Fears of a Wider Middle East War
Strength in the stock market has been related to expectations for significant cuts in interest rates. While inflation is substantially lower than the high rates in recent years, it remains stubbornly above where the Fed would like to see it. Recent economic data is suggesting it may delay rate cuts which is not welcomed by investors. Meanwhile, the economy is struggling more than the bulls want to see & the stock market remains overbought after a 5 month rally. After stocks stayed in the dumps all day, there was limited buying in the last hour. There are plenty of mixed signals to evaluate.Dow Jones Industrials
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