Tuesday, January 14, 2025

Markets edge higher ahead of more inflation data

Dow finished up 221 in very chopping trading, advancers over decliners 5-2 & NAZ dropped 43.  The MLP index jumped 8+ to the 413s & the REIT index gained 4+ to the 391s.  Junk bond funds fluctuated & Treasuries saw a little buying & yields slid lower.  Oil was of 1 to the high 77s after a recent rise & gold rose 10 to 2689 (more on both below).

Dow Jones Industrials


The federal budget sank further into red ink during Dec, leaving the first fiscal qtr deficit nearly 40% higher than it was the prior year.  For the final calendar month of 2024, the shortfall totaled $87B, which actually represented a 33% decline for the same period a year prior, according to a Treasury Dept report.  However, that brought the 3-month fiscal year total to $711B, some $200B more than the comparable period in the prior year, or 39.4%.  Rising financing costs along with continued spending growth & declining tax receipts have combined to send deficits spiraling, pushing the national debt past the $36T mark.  Though short-term Treasury yields have held fairly steady over the past month, rates at the far end of the duration curve have surged.  The benchmark 10-year note most recently yielded close to 4.8%, or about 0.4 percentage point above where it was a month ago.  At the same time, outlays during the first qtr were 11% higher than a year ago while receipts fell by 2%.  Interest on the national debt has totaled $308B in fiscal 2025, up 7% from a year ago.  Financing costs are projected to top $1.2T for the full year, which would top 2024's record.  The gov this year has spent more on interest payments than any other category but Social Security, defense & health care.

Budget deficit rose in December and is now 40% higher than it was a year ago

Meta (META) is set to cut about 5% of its workforce, focusing on the company’s lowest-performing staffers.  CEO Mark Zuckerberg informed employees about the decision to “move out low performers faster” posted on the company's internal Workplace forum.  Zuckerberg told employees 2025 will “be an intense year.”  The company specified that it is “exiting approximately 5% of our lowest performers” in a separate message posted by a company director. META has more than 72K employees.  META said employees affected by the layoffs will be notified by Feb 10 & receive severance in line with what the company has provided previously.  The cuts represent its largest layoffs since it eliminated 21K jobs, nearly a qtr of its workforce, in 2022 & 2023.  The move follows several major operational changes within META aimed at building closer ties with Pres-elect Trump.  Last week, Zuckerberg announced META would end its 3rd-party fact-checking program in favor of a “Community Notes” model used on Elon Musk's platform X, where individual users provide more context to posts.  “The recent elections also feel like a cultural tipping point towards once again prioritizing speech, so we’re going to get back to our roots and focus on reducing mistakes, simplifying our polices and restoring free expression on our platforms,” Zuckerberg said in a video.  The stock dropped 14.08 (2%).

Meta announces 5% cuts in preparation for ‘intense year’

America's small business owners are feeling better about the economy than they have in 6 years, in anticipation of Pres-elect Trump returning to the White House.  The National Federation of Independent Business' (NFIB) latest Small Business Optimism Index jumped 3.4 points to 105.1 in Dec, the highest reading since Oct 2018.  This is the 2nd consecutive reading above the 50-year average, after the Nov index broke a 2.5-year streak that same month as Trump's win.  At the same time, the NFIB's Uncertainty Index plunged 12 points last month, falling to 86.  "Optimism on Main Street continues to grow with the improved economic outlook following the election," said NFIB Chief Economist Bill Dunkelberg.  "Small business owners feel more certain and hopeful about the economic agenda of the new administration."  Dunkelberg added, "Expectations for economic growth, lower inflation, and positive business conditions have increased in anticipation of pro-business policies and legislation in the new year."  The survey comes as the outgoing Biden-Harris administration continues to tout its economic policies, pointing to growth & low unemployment numbers.  But the high inflation & heavy regulations of the past 4 years were felt on Main Street.  Trump has vowed to slash regulations, as he did during his first term & to make his signature tax cuts permanent when he returns to the Oval Office.  In the NFIB's latest survey, the net percent of owners expecting the economy to improve rose 16 points from Nov to a seasonally adjusted 52%, the highest since the 4th qtr of 1983.  The percent of small business owners believing it is a good time to expand their business also climbed, rising 6 points to a seasonally-adjusted 20%, which is the highest reading since Feb 2020.  The net percent of owners expecting higher real sales volumes rose 8 points to a net 22%, which is the highest reading since Jan 2020.  Inflation remained small business owners' single most important problem in operating their business according to the Dec survey, with 20% of respondents listing it as their biggest headache.  But finding quality labor was not far behind, with 19% saying that was their greatest problem.

Small business optimism jumps to 6-year high following Trump win

Gold edged higher as the $ fell after a US inflation measure rose less than expected last month, while a report said the Trump Administration plans to gradually introduce tariffs on US imports.  Gold for Feb was last seen up $4 to $2683 per ounce.  The US Bureau of Labor Statistics reported the Producer Price Index (PPI) rose 0.2% in Dec from the prior month, under expectations for a monthly rise of 0.3%.  The data comes ahead of tomorrow's release of the Dec Consumer Price Index, which is expected to show a monthly rise of 0.3%, unchanged from Nov.  A report said Trump's economic team may be planning a slow ramp up in planned tariffs, raising levies monthly to boost negotiating leverage & avoid spiking inflation that could lead to interest-rate hikes from the Federal Reserve.  The $ fell following the inflation data & the report, with the ICE dollar index last seen down 0.67 points to 109.29.  Treasury yields were mixed, with the US 2-year note last seen paying 4.377%, down 1.7 basis points, while the yield on the 10-year note was up 1.2 points to 4.799%.

Gold Edges Up as the Dollar Weakens After a U.S. Inflation Measure Comes in Below Expectations

WTI crude fell to around $78.10 a barrel after a 3-day rally.  Yesterday, crude hit a 5-month high as tighter US sanctions on Russia's energy industry threatened global supplies.  The restrictions have targeted major producers & hundreds of ships & tankers, forcing major buyers such as India & China to look for alternative sources.  Early signs of disruption are already visible, with a senior Indian official saying sanctioned ships would be barred from unloading, & China securing oil supplies from the UAE & Oman.  In a related move, 6 European countries asked the EU to ease a $60-a-barrel price cap on Russian oil to curb Russia's war efforts in Ukraine.  However, weaker demand from China could limit the impact of tighter supplies, after data showed the country's crude imports fell in 2024 for the first time in 2 decades, excluding the pandemic period.

Oil Halts Rising Rise

US stocks edged higher as investors took in the first of 2 key inflation reports this week, which showed prices rose less than expected in Dec.  Also in focus was a report that the incoming Trump administration could hike tariffs more gradually to ease inflationary pressures.  The Producer Price Index, which tracks price changes companies see at a wholesale level, rose 3.3% over last year, up from 3% in Nov but less than economists expected.  Meanwhile, Pres-elect Trump's team is considering a month-by-month rollout  of promised tariff increases rather than imposing higher levels in a single move in a bid to help prevent inflation spikes.

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