Dow gained 63 in choppy trading, decliners over advancers 3-2 & NAZ was off 19. The MLP index lost 1+ to the 271s & the REIT index fell 5+ to the 354s. Junk bond funds were flattish & Treasuries saw modest selling, raising Treasury yields. Oil inched up pennies in the 85s & gold finished up 26 to 2409 (more no both below).
AMJ (Alerian MLP Index tracking fund)
Federal Reserve Chair Jerome Powell said that the US economy, while otherwise strong, has not seen inflation come back to the central bank's goal, pointing to the further unlikelihood that interest rate cuts are in the offing anytime soon. Speaking to a policy forum focused on US-Canada economic relations, Powell said that while inflation continues to make its way lower, it hasn't moved quickly enough & the current state of policy should remain intact. “More recent data shows solid growth and continued strength in the labor market, but also a lack of further progress so far this year on returning to our 2% inflation goal,” the Fed chief added. Echoing recent statements by central bank officials, Powell indicated that the current level of policy likely will stay in place until inflation gets closer to target. Since Jul 2023, the Fed has kept its benchmark interest rate in a target range of 5.25-5.50%, the highest in 23 years. That was the result of 11 consecutive rate hikes that began in Mar 2022. “The recent data have clearly not given us greater confidence, and instead indicate that it’s likely to take longer than expected to achieve that confidence,” he continued. “That said, we think policy is well positioned to handle the risks that we face.” Powell added that until inflation shows more progress, “We can maintain the current level of restriction for as long as needed.” The comments follow inflation data through the first 3 months of 2023 that has been higher than expected. A consumer price index reading for Mar, released last week, showed inflation running at a 3.5% annual rate, well off the peak around 9% in mid-2022 but drifting higher since Oct 2023. Treasury yields rose as Powell spoke. The benchmark 2-year note, which is especially sensitive to Fed rate moves, briefly topped 5%, while the benchmark 10-year yield rose 3 basis points. Powell noted the Fed's preferred inflation gauge, the personal consumption expenditures price index, in Feb showed core inflation at 2.8% in Feb & has been little changed over the past few months. “We’ve said at the [Federal Open Market Committee] that we’ll need greater confidence that inflation is moving sustainably towards 2% before [it will be] appropriate to ease policy,” he said. “The recent data have clearly not given us greater confidence and instead indicate that it’s likely to take longer than expected to achieve that confidence.”
Fed Chair Powell says there has been a ‘lack of further progress’ this year on inflation
China's economy grew faster than expected in the first qtr, data showed, offering some relief to officials amid efforts to maintain growth. The gov released its fiscal & monetary policy measures in an effort to meet its 2024 GDP growth target of around 5%, which have been described as an ambitious goal, noting that last year's growth rate of 5.2% was likely boosted by a rebound from 2022, which faced limitations because of COVID-19. GDP grew 5.3% in Jan-Mar year over year, according to the National Bureau of Statistics. This was higher than expectations for a 4.6% increase & slightly faster than the 5.2% expansion in the previous 3 months. "The result is positive for the economy to hit its target. Momentum appears to be stable for now, evidenced by the March data not surprising on the upside," said Jeff Ng, head of Asia macro strategy at SMBC in Singapore. "I think sentiments are still leaning bearish. I'm anticipating some reversal, possibly from the last quarter of 2024," he added. The GDP on a qtr-by-qtr basis grew 1.6% in the first qtr, which is higher than the 1.4% forecast for growth. The Chinese economy, 2nd largest in the world, has struggled to see a strong & sustainable post-pandemic jump, as it has been hurt by a protracted property downturn, mounting local gov debts & weak private-sector spending. Fitch knocked its outlook on China's sovereign credit rating to negative last week, pointing to risks to public finances as Beijing allocates more spending toward infrastructure & high-tech manufacturing amid a shift away from the property sector. The gov is counting on infrastructure work to help boost the economy as consumers are cautious of spending & businesses are lacking the confidence to expand.
China's Q1 GDP growth surpassed expectations, data shows
European Central Bank (ECB) Pres Christine Lagarde said the central bank remains on course to cut interest rates in the near term, subject to any major shocks. Lagarde said the ECB would monitor oil prices “very closely” amid elevated fears of a spillover conflict in the Middle East. However, since Iran’s unprecedented air attack on Israel over the weekend, she said the oil price reaction had been “relatively moderate.” Her comments come shortly after the central bank gave its clearest indication to date that it could start cutting interest rates during its Jun meeting. “We are observing a disinflationary process that is moving according to our expectations,” Lagarde said. “We just need to build a bit more confidence in this disinflationary process but if it moves according to our expectations, if we don’t have a major shock in development, we are heading towards a moment where we have to moderate the restrictive monetary policy,” Lagarde added. “As I said, subject to no development of additional shock, it will be time to moderate the restrictive monetary policy in reasonably short order,” she noted. The ECB on Thurs held interest rates steady at a record high for the 5th consecutive meeting, but signaled that cooling inflation means it could begin trimming soon. In a shift from previous language, the ECB said “it would be appropriate” to lower its 4% deposit rate if underlying price pressures & the impact of previous rate hikes were to boost confidence that inflation is falling back toward its 2% target “in a sustained manner.” Asked whether a Jun rate cut might be followed by subsequent reductions, Lagarde replied, “I have been extremely clear on that and I have said deliberately we are not pre-committing to any rate path.” “There is huge uncertainty out there. … We have to be attentive to those developments, we have to look at the data, we have to draw conclusions from those data.”
Lagarde says ECB will cut rates soon, barring any major shocks; notes ‘extremely attentive’ to oil
Gold wavered as traders parsed policymaker’s remarks amid bets that the Federal Reserve will be in no rush to cut interest rates. As investors await Jerome Powell's speech later today, bullion climbed as much as 0.4% after earlier slipping as much as 0.9%. Treasury yields gained & the $ extended its advance into a 5th straight session. Traders are betting the Fed will only begin easing in Sep, after wagering on Jul a week ago. The repricing comes after a string of surprisingly strong US inflation readings that are shaking up the prevailing narrative for markets & stoking volatility. The precious metal remains in a weeks-long uptrend as investors seek safety amid growing geopolitical tensions, which helped bullion chalk a 1.7% gain yesterday. The Reserve Bank of India continued its gold purchases in Mar, according to a post from Krishan Gopaul, investment research analyst at the World Gold Council. YTD purchases of nearly 19 tons now exceed its 2023 net purchases of 16 tons, he added. Spot gold was little changed at $2383 an ounce.
Gold Fluctuates as Traders Digest Fedspeak and Await Powell
West Texas Intermediate (WTI) crude closed with a small loss on easing fears of a wider war in the Middle East, while China, the #1 importer, said its economy grew more than expected in the first qtr. WTI crude oil for May delivery closed down 5¢ to settle at $85.36 per barrel, while Jun Brent crude, the global benchmark, was last seen down a penny to $90.09. China reported its GDP grew by 5.3% in the first qtr of this year, topping the estimate for a 4.6% rise in the period. The rise comes as the country's gov concentrates on expanding manufacturing even as its key real-estate sector remains mired in a debt crisis. The Intl Energy Agency last week said it expects China to be the primary source of demand growth in 2024, accounting for 45% of the 1.2M barrels per day of new demand its expects this year. A geopolitical risk premium for oil is narrowing following the weekend drone & missile attacks on Israel from Iran to retaliate for Israel's Apr 1 strike on Iran's Syrian embassy that killed senior military personnel. The attack was mostly intercepted by aircraft & air-defense systems, causing little damage, though Israel's response to the attack is awaited amid worries over a wider Middle East war that could impact oil exports from the region. The current thinking is that the Israeli response will be measured, not least because of intl & US pressure to show restraints.
WTI Crude Oil Closes Lower Despite Better than Expected Q1 GDP Growth in China as Geopolitical Worries Ease
Today Powell said that it will take "longer than expected" to achieve the confidence needed to get inflation down to the central bank's 2% target, signaling that it will also likely take longer to cut rates. His new stance was a departure from comments just 2 weeks ago, when he offered assurances that the overall outlook had not changed much despite some hotter-than-expected readings at the start of the year. This is a major change for investors who have become addicted to low interest rates. Dow had rallied about 7K to almost 40K since the end of Oct. But since the decline in Apr, about 2K of that advance has been taken away. This could be a very tough time for stocks going forward. 39807 37856Dow Jones Industrials
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