Dow retreated 180, decliners over advancers about 3-1 & NAZ slid back 19. The MLP index was off 2+ to the 286s & the REIT index fell 3+ to the 422s while interest rates rose. Junk bond funds were little changed & Treasuries saw significant selling which raised yields (more below). Oil was steady just under 68 & gold fell 9 to 2608.
Dow Jones Industrials
Mass deportations of illegal immigrants working in the US would likely disrupt the labor supply at some businesses, but it's uncertain what impact it would have on inflation & the economy at large, Minneapolis Federal Reserve Pres Neel Kashkari said. Kashkari outlined his views on the impact of Pres-elect Trump's campaign pledge to deport illegal immigrants. "If you just assume people are working – either working in farms or working in factories – and those businesses now lose employees, that would probably cause some disruption," Kashkari added. "The implications are not entirely clear to me," he explained. "Ultimately, it is going to be between the business community and Congress and the executive branch to figure out how they would adjust." His comments come after there was a report that Trump's plan to conduct the largest mass deportation in US history could cost $88B a year or $968B over more than a decade, according to a liberal immigration group known as the American Immigration Council. Trump said last week that, "It's not a question of a price tag," when it comes to the immigration plan & that the country has "no choice" because "when people have killed and murdered, when drug lords have destroyed countries, and now they're going to go back to those countries because they're not staying here." Kashkari also discussed Trump's plan to impose broad tariffs on imported goods as well as tax cuts & explained that the impact of those policies on inflation would depend on how they are implemented. He said that a tariff, which is a tax assessed on an imported good when it enters the country, could prompt a 1-time increase in prices but have no significant impact on long-run inflation. However, Kashkari explained that "the challenge becomes if there is a tit-for-tat," &, "If it is one country imposing tariffs, and then responses, and it is escalating… we will have to wait and see what gets implemented and then how other countries might respond. Right now we are just all guessing."
Fed's Kashkari warns mass deportations could disrupt labor at some businesses
The Federal Reserve could carry out fewer interest rate cuts than previously expected next year should Pres-elect Donald Trump's proposed global tariffs take hold, former Fed policymaker Loretta Mester said. Mester indicated that the Fed's outlook was set to change under the incoming Rep administration's fiscal plans & that markets may be right in forecasting fewer than the 4 reductions previously forecast. “Next year, the pace of the cuts will be affected by where they’re seeing fiscal policy,” she said. “My own view is the market is right, they’re probably not going to have as many cuts next year as was assumed or expected in September,” added Mester, who was pres of the Cleveland Federal Reserve until her retirement earlier this year. Markets trimmed their forecasts for rate cuts following Trump's election victory last week, with speculation growing around his tariff proposals & their implications for the world economy. Mester also expects fewer than 4 reductions next year, though she said she still sees potential for the bank to cut at its next meeting in Dec. At that point, policymakers could be expected to provide a “first look” at how the Trump administration's fiscal proposals will affect their forecasts. However, further details of the full fiscal package, & its implications for monetary policy, are not expected until early next year. “It’s not just going to be tariffs. There’s things going on on immigration, there’s probably going to be things going on on the tax side, and there’ll be spending also,” Mester continued. “All of those together are going to have to inform — ‘has the outlook for the U.S. economy changed?’” she added. It comes as concern is growing among global policymakers about the implications of Trump's fiscal plans, particularly on tariffs.
‘The market is right’: Former Fed policymaker sees fewer rate cuts in 2025 after Trump win
Treasury yields jumped as investors continued to digest what Pres-elect Trump's election win could mean for interest rates, & awaited key economic data, including inflation, later this week. The 10-year Treasury yield rose by more than 8 basis points to 4.39% & the yield on the 2-year Treasury rose by more than 8 basis points to 4.334%. 1 basis point equals 0.01% & yields & prices move in opposite directions. It comes after the Federal Reserve cut interest rates for a 2nd consecutive time last week, by 25 basis points to a target range of 4.50-4.75%. Traders are pricing in a 65% chance of another qtr-point cut in the Fed's next Dec meeting, per the CME Group’s FedWatch tool. Looking further ahead, however, investors are digesting what Trump's economic pledges on taxes & trade could mean for interest rates & whether rates could remain higher for longer than previously expected.
U.S. Treasury yields move higher as traders digest Trump win, await key data
The roaring rally in stocks lost steam as investors assessed whether buying has been overdone & what Trump's Cabinet picks mean for policy. The breather in equities came as Treasury yields ticked higher. The prospect of tougher tariffs give weight to worries that Trump's economic plans could spur inflation.
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