Dow went up 156 (220 below the early highs), advancers over decliners better than 5-1 & NAZ jumped 308. The MLP index added 1+ to the 281s & the REIT index jumped 8+ to the 379s as yields decline. Junk bond funds crawled higher & Treasuries were heavily purchased causing yields to plunge (more below). Oil added pennies to 78 (more below) & gold gained 17 to 2343.
Dow Jones Industrials
Inflation slowed more than expected in May, a welcome sign for the Federal Reserve even as prices remained uncomfortably high for Ms of Americans. The Labor Dept said that the consumer price index, a broad measure of how much everyday goods like gasoline, groceries & rent cost, was unchanged in May from the previous month. Prices climbed 3.3% from the same time last year. Both of those figures are lower than the 0.1% monthly increase & 3.4% headline gain forecast. Another data point that measures underlying inflationary pressures within the economy also moderated last month. Core prices, which exclude the more volatile measurements of gasoline & food in order to better assess price growth trends, increased 0.2% in May. From the same time last year, the gauge climbed 3.4%, the lowest reading since 2021. Altogether, the report indicates that inflation is loosening its stranglehold on the US economy, though prices remain well above the Fed's 2% target. The softer-than-expected report comes just hours before the Fed is scheduled to announce its latest interest-rate decision. Investors anticipate that the Fed will hold rates at a 23-year high, although they will be parsing updated economic quarterly projections & Fed Chair Jerome Powell's post-meeting press conference for clues about where monetary policy is headed this year. Housing costs were once again the biggest driver of inflation last month, accounting for more than 2/3 of the total monthly increase. Rent costs rose 0.4% for the month & are up 5.3% from the same time last year. Rising rents are concerning because higher housing costs most directly & acutely affect household budgets. The increase in rent offset a sharp drop in gas prices, which tumbled 3.6% over the course of May, the first decline since Jan. Consumers also saw a pick-up in food prices, which have been one of the most visceral reminders of inflation for many households. The cost of food rose 0.1% over the course of the month. Although grocery prices were unchanged in May, the price of food away from home jumped 0.4%.
Inflation rises less than expected — signaling price pressure may be easing
Treasury yields fell after a key inflation reading for May came in below expectations. The yield on the 10-year Treasury dropped 13 basis points to 4.271% & the 2-year Treasury yield sank 15 basis points to 4.68%. Yields & prices have an inverted relationship & 1 basis point is equivalent to 0.01%. The inflation report comes as the Federal Reserve is in the middle of its latest policy meeting. The Fed is expected to keep interest rates unchanged today as the meeting concludes. But investors will be closely watching the central bank's guidance & the post-meeting press conference for fresh clues about what the path ahead for interest rates could look like. Fed fund futures indicated traders were putting the odds of an interest rate cut in Sep at about 70% following the CPI data, up from even odds a day before. Futures now showed the market pricing in a 74% chance of a 2nd cut by the end of the year. Traders were still predicting no change at today's meeting or in Jul. The central bank is also due to release its quarterly economic projections, which will provide insights into policymakers' expectations for the economy & monetary policy, including how many interest rate cuts they anticipate this year.
10-year Treasury yield tumbles ahead of Fed decision after CPI is unchanged in May
US crude oil rose more than 1%, extending this week's rally as OPEC & the Dept of Energy see steady demand this year. The Dept of Energy raised its global consumption growth forecast to 1.1M barrels per day (bpd) up from a previous forecast of 900K bpd. The increased demand implies a supply deficit with world production expected to rise 800K bpd in 2024. West Texas Intermediate Jul contract was $79.16, up $1.29 (1.7%) & YTD US oil has gained 10.5%. Brent Aug contract was $83.22 per barrel, up $1.30 (1.6%) & YTD, the global benchmark is ahead 8%. OPEC, meanwhile, stuck to its demand growth forecast of 2.2M bpd on solid global economic growth of 2.8% this year. Those forecasts clashed with a bearish outlook from the Intl Energy Agency, which sees weakening demand & rising supplies. Citi analysts described the recent price action as rangebound, with volatility near a decade low. The bank also expects a tight 3rd qtr due to summer fuel demand, though it anticipates that the planned OPEC+ production increases will make for a “bear market” late in 2024 & into 2025 with Brent falling to $60 per barrel.
U.S. crude oil extends gains, trades above $79 as Department of Energy sees supply deficit
While stocks are higher, Dow has lost much of it's early gains at the opening. There is a lot of buying in Treasuries which has caused yields to retreat. High volatility in financial markets may continue after Powell gives his comments in a few hours.
No comments:
Post a Comment