Dow went up 50, decliners but over advancers 3-2 & NAZ added 30. The MLP index remained in the 276s & the REIT index was of 2+ to the 373s. Junk bond funds hardly budged & Treasuries were sold, raising yields (more below). Oil was up 1+ to the 79s (more below) & gold slid back 11 to 2337.
Dow Jones Industrials
Treasury bond yields ticked higher, following comments by Minneapolis Federal Reserve Pres Neel Kashkari indicating the central bank may not cut rates until Dec. The 10-year Treasury yield was trading more than 7 basis points higher at 4.289% & the 2-year Treasury note yield was also up around 6 basis points at 4.744%. Yields & prices move in opposite directions & 1 basis point is equivalent to 0.01%. The rise comes after Kashkari yesterday said that it was a “reasonable prediction” that the Fed would not cut interest rates until Dec, adding that more evidence was needed “to convince us that inflation is well on our way back down to 2%.” “It’s really going to depend on the data,” Kashkari added. “We’re in a very good position right now to take our time, [to] get more inflation data, get more data on the economy, on the labor market, before we have to make any decisions. … But, if you just said there’s going to be one cut, which is what the median indicated, that would likely be toward the end of the year.” Last week, the producer price index, a measure of inflation at the wholesale level, came in lower than expected for May, boosting hopes of a Fed rate cut & sending Treasury yields lower. The central bank opted to hold rates steady at 5.25% -5.50% last week & indicated that just 1 rate cut would take place this year. Key data due out this week includes May retail sales figures, expected tomorrow. Home sales & housing starts data are due later in the week. It's a short week in the US, with markets closed on Wed for the Juneteenth holiday.
Treasury yields rise as traders assess timeline of interest rate cuts
Crude oil futures rose following their best week since Apr as traders sifted through mixed economic data out of China. US crude oil & global benchmark Brent closed out last week nearly 4% higher, as analysts expect the market to tighten in the 3rd qtr as summer fuel demand draws down inventories. Oil stockpiles should fall by 850K barrels per day in the 3rd qtr, said Helima Croft, head of global commodity strategy at RBC Capital Markets. West Texas Intermediate, the Jul contract was $78.83 per barrel, up 38¢ (0.5%) & YTD US oil has gained 10%. Brent Aug contract was $83.02 per barrel, up 38¢ (0.5%) & YTD benchmark was ahead 7.7%. “After three weeks of losses the oil complex finally made amends and gained some traction,” said Tamas Varga, analyst at oil broker PVM. “The move higher was not unreservedly convincing, nonetheless developments over the past five trading sessions did not indicate any souring of investors’ sentiment either.”
Oil prices rise after booking best week since April
China's retail sales beat expectations in May, climbing 3.7% compared with a year ago, beating expectations of a 3% rise. However, other economic metrics, such as industrial output & fixed asset investment, missed forecasts. Industrial output grew by 5.6% year-on-year, compared to the 6% increase expected, while fixed asset investment rose 4% compared to last May, just shy of the 4.2% forecast. The country’s National Bureau of Statistics (NBS) elaborated that the total retail sales of consumer goods reached 3.9T yuan ($540B), with sales in urban areas up 3.7% year on year & sales in rural areas climbing by 4.1%. On the other hand, the miss in fixed asset investment was dragged by a steeper drop in real estate investment. NBS said that excluding real estate, total fixed asset investment was 8.6% higher compared to last May. Separately, the urban unemployment rate held steady at 5% in May, unchanged from Apr & 0.2 percentage points lower than that of May last year. China's exports have held up, growing by 7.6% year-on-year in May in $ terms, beating the forecast for a 6% increase. But imports missed expectations, rising by 1.8% during that time. Loan data pointed to continued lackluster demand. Outstanding yuan loans rose by 9.3% in May from a year ago, the slowest increase on record since 1978, according to Wind Information. M1 money supply, which includes cash in circulation & demand deposits, fell by 4.2% year-on-year in May, the most on record since 1986, according to Wind Information.
China May retail sales beat expectations, but industrial output and fixed asset investment missed
Dow began in the red, followed by some buying. Stocks are holding near record-high levels ahead of a holiday-shortened trading week as investors wonder if the bull rally has more room to run. Meanwhile gold is not far from recent records & Treasury yields are very high with little information on future rate cuts.
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