Dow plummeted 422 (above session lows), decliners over advancers 7-1 & NAZ retreated 136. The MLP index fell 2 to the 282s & the REIT index collapsed, falling 15+ to the 368s on the Treasury yield rally. Junk bond funds remained weak & Treasuries were very heavily sold, raising Treasury yields sharply. Oil rebounded about 1 to the 86s & gold dropped 16 to 2345 (more on both below).
AMJ (Alerian MLP Index tracking fund)
Federal Reserve officials at their Mar meeting expressed concern that inflation wasn't moving lower quickly enough, though they still expected to cut interest rates at some point this year. The Federal Open Market Committee (FOMC) again voted to hold short-term borrowing rates steady, policymakers also showed misgivings that inflation, while easing, wasn't doing so in a convincing enough fashion. The Fed currently targets its benchmark at 5.25%-5.50%. As such, FOMC members voted to keep language in the post-meeting statement that they wouldn't be cutting rates until they “gained greater confidence” that inflation was on a steady path back to the central bank's 2% annual target. “Participants generally noted their uncertainty about the persistence of high inflation and expressed the view that recent data had not increased their confidence that inflation was moving sustainably down to 2 percent,” the minutes said. In what apparently was a lengthy discussion about inflation at the meeting, officials said geopolitical turmoil & rising energy prices remain risks that could push inflation higher. They also cited the potential that looser policy could add to price pressures. On the downside, they cited a more balanced labor market, enhanced technology along with economic weakness in China & a deteriorating commercial real estate market. They also discussed higher-than-expected inflation readings in Jan & Feb. Chair Jerome Powell said it's possible the 2 months' readings were caused by seasonal issues, though he added it's hard to tell at this point. There were members at the meeting who disagreed. “Some participants noted that the recent increases in inflation had been relatively broad based and therefore should not be discounted as merely statistical aberrations,” the minutes stated. That part of the discussion was partly relevant considering the release came the same day that the Fed received more bad news on inflation. The minutes noted that members believe a “cautious” approach should be taken.
Fed wants more confidence that inflation is moving toward 2% target, meeting minutes indicate
As recently as Jan, investors had high hopes that the Federal Reserve was about to embark on a rate-cutting campaign that would reverse some of the most aggressive policy tightening in decades. 3 months of inflation data have brought those expectations back down to earth. Mar's consumer price index report today helped verify worries that inflation is proving stickier than thought, giving credence to caution from Fed policymakers & finally dashing the market's hopes that the central bank would be approving as many as 7 rate cuts this year. There was little good news to come out of the Labor Dept's CPI report. Both the all-items & ex-food & energy readings were higher than the market consensus on both a monthly & annual basis, putting the rate of inflation well above the Fed's target. Headline CPI rose 0.4% on the month & 3.5% from a year ago, ahead of the central bank's 2% goal. Other danger signs beyond the headline numbers emerged. Services prices, excluding energy, jumped 0.5% & were up 5.4% from a year ago. A relatively new computation the markets are following which takes core services & subtracts out housing — it has come to be known as “supercore” & is watched closely by the Fed — surged at an annualized pace of 7.2% & rose 8.2% on a 3-month annualized basis. There's also another risk in that “base effects,” or comparisons to previous periods, will make inflation look even worse as energy prices in particular are rising after falling around the same time last year. All of that leaves the Fed in a holding position & the markets worried about the possibility of no cuts this year. The CME Group's FedWatch tool, which computes rate-cut probabilities as indicated by futures market pricing, moved dramatically following the CPI release. Traders now see just a slim chance of a cut at the Jun meeting, which previously had been favored. They have also pushed out the first reduction to Sep & now expect only 2 cuts by the end of the year. Traders even priced in a 2% probability of no cuts in 2024.
Hot inflation data pushes market’s rate cut expectations to September
Delta Air Lines (DAL) swung to a profit in the first qtr & CEO Ed Bastian said
bookings for both leisure & business travel are strong as the peak
travel season approaches, despite persistent inflation. “Consumers continue to prioritize travel as a discretionary investment in themselves,” Bastian added. DAL
forecast 2nd-qtr EPS of $2.20 - $2.50, while
analysts forecast $2.23. Revenue in the current period
could rise as much as 7%, ahead of estimates. DAL also
reiterated its full-year EPS forecast for $6-7 & free cash
flow of $3-4B. Business travel
improved in the last qtr & solid demand is likely to continue,
execs said, citing 14% growth in corp travel sales. They
called out the technology, consumer & financial services sectors as
particularly strong. DAL has slowed hiring, like other carriers, after a massive spree in the wake of the pandemic & is focusing more on efficiency. Bastian said that the company's headcount will likely be up low single digits this year compared with 2023. EPS was 6¢ in the first 3 months of the year, up from a loss of 57¢
per share, in the year-earlier period. Adjusted EPS of 45¢ rose from 25¢ in the first qtr of 2023. Revenue
of $12.6B, adjusted to strip out refinery sales, was up 6% from
last year, slightly below expectations. “Growth is normalizing and we are in a period of optimization, with a
focus on restoring our most profitable core hubs and delivering
efficiency gains,” CFO Dan Janki said. The stock fell 1.08.
Delta forecasts quarterly earnings ahead of expectations, focuses on efficiency
Gold slipped after a key inflation report bolstered speculation the Federal Reserve will be in no rush to cut interest rates. A measure of underlying US inflation topped forecasts in Mar for a 3rd month, signaling a bumpier path to taming price pressures. The core consumer price index, which excludes food & energy costs, increased 0.4% from Feb, according to gov data out today & from a year ago, it advanced 3.8%, holding steady from the prior month. Treasury yields & the $ advanced after the print, sending bullion as much as 1.1% lower to $2327 an ounce.
Gold Slumps After US Inflation Print Curbs Fed Rate Cut Bets
Oil futures finished sharply higher, buoyed by speculation that Iran will soon wage an attack on Israel following Israel's strike on Iran’s embassy in Syria earlier this month. Traders have been concerned that more direct confrontation between Israel & Iran would likely have a significant impact in the oil-rich Middle East. US oil prices had been spending part of the session trading lower after official data from the Energy Information Administration revealed a larger-than-expected weekly rise in US crude supplies. West Texas Intermediate crude for May rose 98¢ (1.2%) to settle at $86.21 a barrel & Jun Brent crude, the global benchmark, climbed $1.06 (1.2%) at $90.48 a barrel.
Oil prices finish higher on talk of potential for Iran strike on Israel
All 3 of the stock major indices fell precipitously after
the Mar Consumer Price Index report showed prices rose more than
expected last month. Prices rose 0.4% from Feb & 3.5% from last
year. Both measures were higher than had been expected. The
data largely led traders to rule out a rate cut at the Fed's Jun meeting. In addition, minutes from the FOMC meeting lacked any uplifting message.
Dow Jones Industrials
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