Dow rose 308 (near session highs & topped 45K), decliners slightly ahead of advancers & NAZ was up 254. The MLP index sank 6 to 307 & the REIT index was off 1+ to the 426s. Junk bond funds fluctuated & Treasuries saw buying which lowered yields. Oil slid back 1+ to the 68s & gold was up 9 to 2676 (more on both below).
Dow Jones Industrials
The economy has entered a new phase with consumers able to push back on prices successfully, but new tariffs from Pres-elect Trump could usher in another round of price increases & after years of inflation, consumers will be more inclined to take it, says Federal Reserve Bank of Richmond CEO & Pres Tom Barkin. During the more-than-2-year stretch of inflation that was born out of pandemic shortages & supply chain issues & continued as companies raised prices, consumers largely stayed resilient & continued to spend. However, as consumer price fatigue finally hit a tipping point, major companies announced plans to reduce prices on groceries & goods, aiming to keep consumer wallets open. “What I started hearing around May, and then increasingly through the summer, was that finally consumers had the emotional capacity to start pushing back,” Barkin said. “What we’re seeing, I think very strongly now, is [that] consumers are frustrated — they’re frustrated by high prices.” Barkin added that amid the supply chain challenges and shortages of recent years, consumers “didn’t have the energy” to push back on pricing, but that has changed, something that is being reflected in recent company earnings calls. “The [companies] that seem to be maintaining momentum are [companies] who have put stuff on discount or selling things on promo, the consumers trading down from beef to chicken or moving channels from the mass market grocers to the Walmarts of the world,” Barkin said. “People are frustrated, and they’re trading down.” The threat of proposed tariffs from the Trump administration has many companies, retail trade groups & industry analysts warning that those moves could fuel higher prices on a wide range of purchases. For example, Walmart CFO John David Rainey said last month that the retailer could have to raise prices on some items if Pres-elect Trump's proposed tariffs take effect. “Our model is everyday low prices. But there probably will be cases where prices will go up for consumers,” Rainey said. While the specter of increased prices due to Trump tariffs loom, Barkin said 1 of the things that he is focused on is the changed relationship he believes that consumers have with price increases compared to during the first Trump presidency. “If you look forward a year or two, and you start imagining cost increases in sectors either because you’ve got commodity supply constraints or tariffs coming, I think the bar to raising prices is lower than it was five years ago,” Barkin continued. He said that in 2018 & 2019 he met with companies & asked if they were going to pass on Trump tariff-driven cost increases to consumers. “I heard a lot of people say things like, ‘Well I’ll pass it on where I can, but there’s just no way I’m going into Home Depot and giving a price increase. They’re not going to accept it.’”
Prepare for Trump tariffs to increase prices: Richmond Fed president
US economic activity has expanded slightly in most regions since early Oct, with employment growth "subdued" & inflation rising at a modest pace & businesses expressing optimism about the future, the Federal Reserve said in a summary of surveys & interviews from across the country known collectively as the "Beige Book." "Though growth in economic activity was generally small, expectations for growth rose moderately across most geographies and sectors," the central bank said in its regular temperature check on the economy, drawing on observations from the business & community contacts of each of its 12 regional banks thru Nov 22. "Business contacts expressed optimism that demand will rise in coming months." The findings will help shape Fed policymakers' thinking about how fast & how much further they may need to lower the policy rate, which is currently 4.50%-4.75% after reductions in Sep & Nov. The Fed's last rate-setting meeting of the year is in 2 weeks, & financial markets are betting it will deliver a qtr-percentage-point cut in borrowing costs despite inflation that has proven to be stickier than hoped for. Many Fed policymakers say they remain convinced that inflation is headed back down, particularly with short-term borrowing costs well above the neutral level where they would cease to be a significant drag on the economy. As of Sep, most policymakers estimated the neutral rate to be no higher than 3.5%. With the labor market still strong but gradually cooling, Fed officials are wary of leaving the policy rate too far above that level for too long.
US economy grew slightly in recent weeks, Fed survey says
Federal Reserve Chair Jerome Powell said he's confident he'll have a similar relationship with the incoming administration, including Treasury nominee Scott Bessent, as he has now. “I fully expect that we’ll have the same general kinds of relationships, institutional relationships, for example with the Council of Economic Advisers, but most importantly with the Treasury Department,” Powell said. Speaking of Bessent, Powell said he was “confident that I will have the same kind of relationship with him once he’s confirmed as I’ve had with other Treasury secretaries.” Bessent has backed the idea of nominating a “shadow Fed chair” well in advance of the end of Powell's term in 2026, a move that would effectively undermine the Fed leader's influence with financial markets. Powell said he didn't believe the incoming administration would pursue that idea. “I don’t think that’s on the table at all,” he said. On monetary policy, the Fed chair said he & his colleagues can afford to be cautious as they lower rates toward a neutral level, one that neither stimulates nor holds back the economy.
Powell Says He Expects Good Relations With Trump Administrationo
Gold edged higher after data showed US private payrolls rose at a moderate pace last month, while investors digested remarks from Federal Reserve Chair Jerome Powell & looked forward to Fri's non-farm payrolls report. Spot gold was up 0.4% at $2654 an ounce & US gold futures settled 0.3% higher at $2676. Private payrolls rose by 146K last month, the ADP report showed. The forecast called for private employment increasing by 150K positions. Powell said the recent performance of the economy will allow the central bank to be more judicious with the future path of interest rate cuts. Gold is seeing a muted reaction today, with a stronger impact expected from the upcoming nonfarm payrolls & if data points to weakening employment it would support prices. US central bankers yesterday signaled inflation is gradually heading toward the 2% target, hinting at potential interest rate cuts. Traders are pricing in a 77% chance of a 25-basis-point cut at the Fed's Dec 17-18 meeting. Bullion, which does not pay any interest, historically performs well in low-interest rate environments. Safe-haven gold was also supported by global geopolitical unrest, including South Korea's political turmoil, France's gov facing collapse, relentless Russian drone strikes in Ukraine & Israel threatening war with Lebanon if its truce with Hezbollah collapses.
Gold Prices Tick Higher on Benign US Employment Data
US oil futures finished lower as pressure from uncertainty a day ahead of a decision by major oil producers on output levels outweighed support from weekly US data showing a crude inventory drop of more than 5M barrels. Investors also weighed news of deepening US sanctions on Iranian oil exports. West Texas Intermediate crude for Jan fell $1.40 (2%) to settle at $68.54 a barrel after gaining 2.7% yesterday. Feb Brent crude, the global benchmark, lost $1.31 (1.8%) at $72.31 a barrel. The Organization of the Petroleum Exporting Countries &
its allies (OPEC+) are set to meet tomorrow, after postponing a gathering that had been set for Dec 1. OPEC+ had earlier this year approved a plan to begin unwinding around 2.2M barrels a day of production cuts in Oct but subsequently delayed that plan. At present, the plan is scheduled to take effect at the end of Dec, but it is expected to be pushed back further due to softness in the crude market & fears that a production increase would add to a surplus.
Oil Prices End Lower as Investors Look to OPEC+ Decision
Investors digested Powell's comments that the Fed can be "cautious" while lowering interest rates. He did little to shake investor confidence that the Fed will cut interest rates at its Dec meeting. Traders see near 77% odds of a 25 basis point cut, compared with around 67% a week ago.
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