Dow added 54 with selling in the PM to finish near session lows, advancers over decliners 3-2 & NAZ was off 138. The MLP index rose 2+ to 171 & the REIT index fell 2+ to the 411s. Junk bond funds crept higher & Treasuries were weak. Oil shot up 2+ to go over 63 & gold pulled back 11 to 1736 (more on both below).
AMJ (Alerian MLP Index tracking fund)
Federal Reserve Chair Jerome Powell suggested the Fed would follow the same playbook it developed in 2013 & 2014 once it decides to reverse its asset-purchase program, meaning a tapering of asset purchases would come “well before” any interest-rate increase. The Fed is currently in emergency-policy territory that began when the coronavirus pandemic hit the economy last spring. The central bank cut its policy interest rate to zero last Mar & pumped Bs into financial markets to prevent a financial crisis. Since last summer, the Fed has been buying $40B in Treasuries & $80B in mortgage-backed securities each month to boost the economy & keep financial market conditions on an even keel. In a discussion, Powell was asked for the sequence of any future exit from the Fed's current monetary-policy accommodation. He said the central bank would likely taper asset purchases “well before the time we consider raising interest rates.” “We haven’t voted on that order, but that is the sense of the guidance that it would work in that way,” Powell said. The comments fill in some gray areas for economists seeking to gauge the Fed's plans for the inevitable exit. They are predicting the US economy will roar back to life this year, with GDP perhaps hitting a 10% annual rate in coming qtrs. That was the same policy playbook the central bank followed in 2013 & 2014. The Fed started tapering asset buying in 2013 & didn't raise interest rates for 2 years. Asked when the Fed would taper, Powell would not give any calendar date for a shift in policy — saying it would depend on the state of the economy. The Fed has said it won’t taper the size of the purchases until it has seen “substantial further progress” on its goals of maximum employment & stable 2% average inflation. It has said it would not raise interest rates until the economy is back to full employment, inflation has reached 2% &d is on track to be moderately above 2% for some time. After the financial crisis of 2008, “we were buying assets and then we gradually slowed the pace at which we were buying Treasurys and mortgage-backed securities,” Powell said. “When the purchases go to zero, the size of the balance sheet is constant and when bonds mature, you reinvest them,” he added. Any decision to actually shrink the balance sheet is “another step” that happened “late in the day in the last cycle” — when the Fed allowed bonds to start to run off, Powell noted. As of today, he said, “we haven’t decided whether to do that or not.” Also, the Fed didn’t sell bonds from its balance sheet into the market during the last cycle, & Powell said he didn't think the Fed would do that this time either. The Fed's balance sheet is now more than $7T.
The Federal Reserve sees inflation moving up towards its 2% annual target but doesn't see runaway price pressure, said Philadelphia Fed Pres Patrick Harker. “At this point, we don’t expect inflation to be running out of control,” Harker said. “We have time to move because we’re not seeing inflation running out of control. If it does, we’ll act accordingly,” he added. The consumer price index rose 0.6% in Mar, the largest month-on-month gain since 2012. The 12-month rate rose to 2.6%. The Fed expects its favorite measure, the personal consumption expenditure index, to accelerate to a 2.4% annual rate this year before retreating next year. In his remarks, Harker backed Powell's go-slow approach. “While the economic situation is improving, recovery is still in its early stages, and there’s no reason to withdraw support yet,” Harker said. Harker added the recovery remains a little fragile. The pause in the use of the Johnson & Johnson (JNJ) vaccine may fuel more vaccine hesitancy, he noted. “It’s a very fragile recovery with variants that we’re seeing. Job one is to control this virus. So right now pulling back accommodation for me doesn’t make sense,” he said.
Gold futures settled lower, pressured by a rise in Treasury yields, but showed little reaction to the latest comments on
monetary policy & the outlook for the economy from Federal Reserve
Chair Jerome Powell. Prices then moved lower after the central bank's Beige Book report showed a moderate acceleration in the economy. Jun gold fell $11 (0.7%) to settle at $1736 an ounce. Prices pulled back after posting a gain yesterday,
when data showing consumer prices in Mar rose for the 4th
month in a row boosted the metal’s appeal as a hedge against inflation.
The US economy grew faster in the early spring & more companies sought to hire new workers, a Federal Reserve survey showed, but inflation also picked up & companies faced an array of shortages that are hindering production. “National economic activity accelerated to a moderate pace from late February to early April,” according to the Federal Reserve's Beige Book survey of the economy. The survey covers the 6 weeks leading up to Apr 5. Consumer spending improved across the country after Treasury sent out $1400 stimulus checks to most Americans. What also helped, the Fed said, was an increase in hiring that put more people back to work & boosted incomes. The US added more than 900K new jobs in Mar. Yet many companies also said it's hard to find suitable talent or get people to take job offers, especially in lower-paying jobs. Many companies told the Fed the recent extension of unemployment benefits could be deterring some people from accepting new jobs. “Numerous contacts reported concern over the potential labor- dampening effects of renewed enhanced unemployment insurance benefits,” the Minneapolis Fed said. Some are raising wages or offering hiring bonuses to lure prospective workers. The level of inflation, meanwhile, increased slightly from earlier in the year. Companies paid more for lots of key supplies such as metals, fuel, food & lumber. In some cases, supply shortages were also holding back production. “Businesses also expressed concern about rising inflation over the rest of the year,” the Boston Fed said. The pace of inflation as measured by the consumer price index jumped to a more than 2½-year high of 2.6% in Mar, underscoring the growing worries about inflation. Senior Fed officials predict the spike in inflation is only temporary & will fade as the economy returns to normal & pentup demand is satisfied. The economy has sped up again this year after a big drop in coronavirus cases, rising vacations & looser gov restrictions. Businesses are hiring more workers & consumers are spending gobs of money after the gov doled out more stimulus checks. The US is expected to grow as much as 7% in 2021 & regain Ms of jobs erased by the coronavirus — but only if the pandemic continues to abate. The number of cases nationwide wide has stopped declining, & even risen in some parts of the country, despite an accelerating number of people being vaccinated.
Oil futures ended sharply higher, as the International Energy Agency (IEA) lifted its demand outlook for crude & a US gov report revealed a 3rd-weekly drop in weekly inventories, prompting prices to post their highest finish since mid-Mar. In its monthly report, the IEA raised its forecast for global oil demand in 2021 by 230K barrels a day from its previous forecast. It now sees an increase of 5.7M barrels a day from 2020 to 96.7M barrels a day this year. Yesterday, OPEC increased its 2021 demand forecast by 100K barrels a day. It expects global oil demand to climb by about 6M barrels a day to reach 96.5M barrels a day this year. OPEC also raised its forecast for global economic growth to 5.4% from 5.1%. Oil prices rallied, with latest demand updates pointing to higher uptake of the commodity as the global economy recovers from the pandemic. West Texas Intermediate (WTI) crude for May rose $2.97 (4.9%) to settle at $63.15 a barrel, after settling above $60 on Tuesday for the first time since Apr 1. Global benchmark Jun Brent crude picked up $2.91 (4.6%) at $66.58 a barrel. Both WTI & Brent crude prices tallied their highest front-month contract settlements since Mar 17. In a weekly report also, the Energy Information Administration (EIA) reported that US crude inventories fell by 5.9M barrels last week. That followed supply declines in each of the previous 2 weeks. The EIA data also showed crude stocks at the Cushing, Okla., storage hub edged up by 400KK barrels for the week, while total domestic petroleum production rose by 100K barrels to 11M barrels per day.
The US economy has been strong so far this year & the outlook is for an excellent year. Unfortunately a small percentage of the population & businesses are still hurting. Negative thoughts by investors today stalled the rally.
Dow Jones Industrials