Dow went up 140, advancers slightly ahead of decliners & NAZ slid back 152. The MLP index was off 1 to the 322s & the REIT index added 2+ to the 411s. Junk bond funds remained weak & Treasuries were purchased, lowering yields. Oil remained pennies higher but still below 71 & gold advanced 11 to 2964 (more on both below).
Dow Jones Industrials
Investors & economists expect the central bank to respond "strongly and systematically" to changes in inflation & the labor market, according to research published today by the San Francisco Fed that underscores the current sensitivity of financial markets to US economic data. The Fed's perceived responsiveness to economic data picked up notably in 2022, driven first by inflation data &, last year, by labor market data, based on the analysis of perceptions embedded in professional forecasts & in bond market moves published in the regional Fed bank's latest Economic Letter. The findings are in line with the Fed's actual response to inflation, which rose in 2021 but did not trigger any interest rate hikes until 2022. They also track with the Fed's reaction to labor market data, which weakened notably in the middle of last year & helped drive the Fed's decision to cut the policy rate by a full percentage point starting last Sep. The Fed's target policy rate is currently 4.25%-4.50%. Recent weaker economic readings, including a survey released on Fri showing business activity fell to a 17-month low this month, have helped firm up market bets on 2 qtr-percentage-point reductions to the policy rate this year. Worries about stalling economic growth appear to be outweighing fears of a resurgence in inflation, also evident in recent surveys, at least as far as market bets on how the Fed will react with monetary policy. Interest rate futures contracts are currently priced for the first Fed rate cut this year to come in Jun, with the 2nd to happen as early as Oct.
Fed expected to respond strongly to inflation, job market conditions, research shows
Tesla (TSLA) is recalling more than 376K of its Model 3 & Model Y electric vehicles in the US over a potential power steering issue. The recalled Model 3s & Model Ys could face a loss of power steering assistance "when the vehicle reaches a stop and then accelerates again" if they experience an "overstress condition" in the printed circuit board for electronic power-assisted steering (EPAS), TSLA said in a report submitted last week to the National Highway Traffic Safety Administration (NHTSA). All the potentially affected vehicles feature EPAS & used a software release prior to 2023.38.4, the report added. They belong to the model year 2023. "A loss of power steering assist can require greater steering effort, especially at low speeds, increasing the risk of a crash," NHTSA continued. TSLA said it designed the vehicles in a way that steering "will not be affected" if they suffer the "overstress condition" while driving above 0 miles per hour. "Tesla’s design avoids any unreasonable risk to safety by preventing a loss of EPAS while the vehicle is in motion," the automaker said. "In addition, Tesla does not believe that loss of EPAS when the vehicle reaches 0 mph is an unreasonable risk to safety because manual steering remains available." TSLA said it decided to recall the affected vehicles in all markets to "avoid confusion for our customers" after a "determination by regulator in a non-US market that loss of EPAS at 0 mph should be remedied through a recall." The stock fell 7.27.
Tesla recalls over 376K vehicles over potential power steering issue
Microsoft (MSFT), a Dow stock, has canceled an unspecified number of data center leases amid the AI spending boom. The development comes as investors are closely watching whether Big Tech hyperscalers will continue to spend heavily on AI infrastructure. MSFT operates data centers equipped with thousands of servers housing advanced computing chips such as Nvidia’s (NVDA) to power its Azure cloud & AI applications. A typical data center operated by a Big Tech "hyperscaler" firm like Microsoft uses over 100 megawatts of power. A MSFT spokesperson said, "While we may strategically pace or adjust our infrastructure in some areas, we will continue to grow strongly in all regions." The spokesperson added, "[O]ur plans to spend over $80B on infrastructure this FY remains on track as we continue to grow at a record pace to meet customer demand." MSFT, the largest backer of OpenAI, has said it plans to spend $80 billion in capital expenditures in its fiscal year 2025, driven by its push in the artificial intelligence market. MSFT stock fell 4.21.
Microsoft said to be canceling leases for AI data centers
Gold's price is higher, trading near $2947, supported by a weaker $ softer US yields in a reaction to the recent German federal election outcome. Although the far-right party Alternative for Germany (AfD) has gained 20% of votes, the Christian Democratic Union of Germany (CDU) is comfortable in the lead with 208 seats against AfD's 152. US yields dropped off & the CME Federal Reserve (Fed) Futures are now favoring a 25 basis points (bps) rate cut in Jun, where last week odds were rather for no rate cut in Jun. Meanwhile, traders will watch the US GDP release for the 4th qtr of 2024 later this week. Given the recent slowdown in US activity & economic data (for example, the softer Services Purchase Managers Index (PMI) reading on Fri, another drop in US yields could be triggered, with markets anticipating the Federal Reserve lowering its monetary policy rate to boost the economy & demand.
Gold positive after Germai election result rules out far right participation
Oil prices steadied as investors awaited clarity on talks to end the war in Ukraine & weighed up the prospect of a resumption in crude exports from northern Iraq. Brent futures were down 6¢ at $74.37 barrel while US West Texas Intermediate (WTI) crude futures declined 14¢ to $70.26. Both Brent & WTI dropped by more than $2 on Fri, registering weekly declines of 0.4% & 0.5% respectively. All eyes remain on efforts to end Russia's war on Ukraine, which enters its 4th year today. Officials said yesterday that EU leaders will meet for an extraordinary summit on Mar 6 to discuss additional support for Ukraine & European security guarantees. Ukrainian president Volodymyr Zelenskiy said that he was willing to step down if it meant peace for his country. Pres Trump has initiated talks with Russia without inviting Ukraine or the EU to the table. A senior Russian diplomat said Russian & USteams plan to meet for further discussions this week. Sanctions imposed by the US & EU on Russian oil exports have disrupted seaborne oil supply flows, but an end to the war in Ukraine would not necessarily increase Russian supplies to the market because the country is a member of the OPEC+ group that has curbed production. However, oil prices could still drop because of a decrease in geopolitical risk.
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