Markets bounce back but remain lower in February

Dow climbed 291, advancers over decliners better than 2-1 & NAZ went up 137.  The MLP index added 1+ to the 321s & the REIT index added 2+ to the 207s.  Junk bond funds were mixed & Treasuries had modest buying which lowered yields (more below).  Oil slid back into the 69s after yesterday's rally on worries over tariffs & gold dropped another 42 to 2853.

Dow Jones Industrials

The Federal Reserve's preferred inflation gauge showed prices rose as expected in Jan at a pace that remains above the central bank's target level as its efforts to tamp down inflation continue.  The Commerce Dept reported that the personal consumption expenditures (PCE) index was up 0.3% from the prior month & 2.5% on an annual basis.  Those figures were in line with the estimates.  Core PCE, which excludes volatile food & energy prices, rose 0.3% for the month & 2.6% from a year ago, in line with estimates.  Federal Reserve policymakers are focusing on the PCE headline figure as they try to slow the pace of price increases to their target of 2%, though they view core data as a better indicator of inflation.  Headline PCE declined slightly from 2.6% in Dec, while core PCE dropped from 2.9% last month.  Headline PCE showed that prices for goods increased 0.5% after they had been relatively flat in recent months.  Prices for services rose 0.2% last month, which was a slower pace than the 0.4% in Dec.  Wages & salaries were up 0.4% in Jan from a month ago, the same as the increase seen in Dec.  The personal savings rate as a percentage of disposable income was 4.6% in Jan, the highest rate recorded since 4.8% in Jun.

Inflation gauge favored by Fed showed prices grew as expected in January

China’s Ministry of Commerce said that it “firmly opposes” PresTrump's latest threat to ramp up tariffs on Chinese goods & vowed retaliation, if necessary.  “If the U.S. insists on its own way, China will take all necessary countermeasures to defend its legitimate rights and interests,” a Ministry of Commerce spokesperson said.  “We urge the U.S. side to not repeat its own mistakes, and to return as soon as possible to the right track of properly resolving conflicts through dialogue on equal footing.”  The statement followed Trump's announcement yesterday that the US would impose an additional 10% duty on Chinese imports on March 4, which coincides with the start of China’s annual parliamentary meetings.  The new tariffs would be on top of the 10% further tariffs that Trump levied on China on Feb 4.  Trump announced the 2 rounds of China duties were being imposed in response to the Asian country's role in the fentanyl trade.  The addictive drug, precursors to which are mostly produced in China & Mexico, has led to tens of thousands of overdose deaths each year in the US.  “In the short term, China’s response will likely include raising tariffs on select U.S. imports, adding more American firms to its unreliable entity list, and potentially further tightening export controls on critical minerals,” Neil Thomas, a fellow on Chinese politics at the Asia Society, said.  He noted he nevertheless expects Beijing’s retaliation will remain “measured,” as Chinese Pres Xi Jinping has an incentive to meet with his American counterpart & initiate negotiations to avoid measures that put greater pressure on already sluggish economic growth.  China's exports have been a rare bright spot in an otherwise slowing economy.  The US is China's largest trading partner on a single-country basis.  While Beijing may maintain a “restrained” stance, upcoming moves will likely target industries that matter the most to Trump supporters, said Alfredo Montufar-Helu, head of the China Center at The Conference Board.

China vows to retaliate as necessary after Trump threatens more tariffs

Treasury yields moved lower as investors sifted through new economic data, including inflation numbers that largely matched expectations.  The benchmark 10-year yield Treasury yield fell by about 5 basis points to 4.241% & the 10-year yield Treasury yield was down 4 basis points at 4.034%.  1 basis point is equal to 0.01% & yields & prices move in opposite directions.  The personal consumption expenditures index rose 0.3% month over month in Jan & 2.5% year over year. The core PCE index, which excludes volatile food & energy prices, also rose 0.3% last month compared to Dec & 10-year yield Treasury yield.  Those readings were in-line with expectations.  Investors are anxiously monitoring Pres Trump's various tariff threats & orders.  His plans for 25% tariffs on imports from Mexico & Canada will go into effect from Mar 4, after a 1-month pause.  Trump said that China, which is already being charged tariffs, will face an additional 10% tariff on the same data.  He also said he would impose 25% tariffs on imports from the EU but is walking back these threats after UK Prime Minister Keir Starmer visited the White House yesterday.  “I think there is a very good chance that in the case of these two great friendly countries, I think we could end up with a real trade deal ... where the tariffs wouldn’t be necessary. We’ll see,” Trump told reporters.

10-year Treasury yield eases slightly after inflation data comes in as expected

Stocks inched higher following a key inflation reading that largely met expectations & as fresh tariff threats added to uncertainty over Big Tech prospects.  Markets are heading into the last trading day of Feb facing sharp weekly & monthly losses after suffering the buffets of tariff moves.