Wednesday, April 14, 2021

Markets edge higher after Fed's Beige Book report

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).

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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.

Powell suggests Fed will follow the 2013–14 playbook when it starts to taper its asset purchases

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.

Fed doesn’t see inflation running out of control, Harker says

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.

Gold settles lower on strength in Treasury yields, moves lower after the Beige Book report

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.

Economy accelerates in the spring, Fed Beige Book finds

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.

Oil posts highest finish since mid-March on a stronger demand outlook and drop in U.S. supplies

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.

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Markets rise on strong bank earnings

Dow jumped 211, advancers over decliners 5-2 & NAZ went up 10.  The MLP index rose 2+ to 171 & the REIT index added 1 to 415.  Junk bond funds inched higher & Treasuries drifted lower in price.  Oil soared 2+ to the 62s & gold fell 8 to 1739.

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CL=FCrude Oil61.48

GC=FGold   1,736.00
-11.60 -0.7%



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JPMorgan (JPM), a Dow stock, reported Q1 proft spiked nearly 400% after the bank released cash that had been set aside to cover bad loans.  EPS rose to $4.50, as revenue climbed 14% year over year to $33.1B.  The company was helped by favorable comparisons after having to build up reserves in the year-ago period to protect against the economic slowdown caused by the COVID-19 pandemic.  JPM released $5.2B of reserves during the qtr, decreasing the size of its buffer to $26B.  The forecast expected EPS of $3.10 on revenue of $30.5B.  The results reflect a "strong underlying performance across our businesses, partially driven by a rapidly improving economy," CEO Jamie Dimon said.  Markets revenue rose 25% from a year ago to $9.1B & fixed-income trading revenue rose 15% to $5.8B, driven by strong performance in securitized products & credit.  Equities trading revenue jumped 47% to $3.3B.  The company also benefited from record issuance of special purpose acquisition companies, which saw more activity during the qtr than in all of the record-breaking 2020.  The firm reported investment banking revenue rose 222% from last year to $2.9B.  Assets under management jumped 28% to $2.8T.  The 90¢ div was maintained.  The stock was off 65¢.
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JPMorgan profit surges as bank releases cash set aside for bad loans

Wells Fargo (WFC) earnings soared in Q1.  The lender posted profit of $4.7B, up from $653M a year earlier.  A year ago, big banks set aside Bs of $s to prepare for a coronavirus recession, hammering their profits at the time.  Revenue of $18.06B, was up 2% from $17.72B a year earlier & beat the $17.52 estimate.  The 7fold rise in profits came during what is shaping up to be an economic resurgence.  That has prompted banks to release some of the money they stowed away last year to protect against soured loans, which has boosted their bottom lines.  The buoyant economy has been a boost for bank investors, lifting shares of the largest lenders far more than the broader market so far this year.  WFC, a laggard last year, has been among the biggest gainers this year, rising 32% so far in 2021.  While consumers & businesses could still default en masse when gov aid programs wear off, banks are deciding they pocketed more than they needed at the beginning of the crisis.  WFC released $1.05B from its reserves in Q1.  The stock gained 1.49.
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Wells Fargo earnings jump as economy bounces back

Europe's economy is on track to return to its pre-crisis levels in 2022, the IMF said, though this projection depends on the region's Covid-19 vaccination campaign.  European countries have been forced to introduce new restrictions or toughen previous public health measures in recent weeks as Covid infections have surged.  This led to a 0.2 percentage point drop in the IMF's growth forecast for this year, which currently stands at 4.5%.  “On the assumption that vaccines become widely available in the summer of 2021 and throughout 2022, GDP growth is projected at 3.9% in 2022, bringing Europe’s GDP back to the pre-pandemic levels,” the IMF said in its latest regional economic outlook.  However, uncertainty over how the pandemic will evolve continues to cloud the outlook, particularly when it comes to potential new variants & the speed of the vaccination rollout.  “There’s an unknown on how quickly the third wave can be defeated, that we don’t have in the forecast and that is certainly a downside risk,” Alfred Kammer, director of the IMF's European dept, said.  “A downside risk is also if the vaccination would be slower than we all currently expect,” he said, before adding: “We need to be ready that the virus is going to surprise us again.”  The IMF said it expected to see high prices in the continent throughout 2021.  “Inflation, currently contained by economic slack, is projected to edge up by 1.1 percentage points to 3.1% in 2021, partly due to higher commodity prices,” the Fund added.  Surging inflation could force the ECB to adjust its ultra-loose monetary stance.

Europe’s pandemic-stricken economy could return to pre-crisis levels next year, IMF says

Bank earnings were generally well received.  Investors hope that earnings season will continue with a positive tone.

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Tuesday, April 13, 2021

Mixed markets after US officials call for a pause in J&J vaccine

Dow was off 68, decliners barley ahead of advancers & NAZ shot up 146.  The MLP index was even in the 167s & the REIT index rose 2+ to the 413s.  Junk bond funds were in demand & Treasuries saw heavy buying.  Oil climbed above 60 & gold added 12 to 1745 (more on both below).

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The US budget deficit ballooned to a record $1.7T in the first ½ of the fiscal year as a 3rd round of stimulus checks included in Pres Biden's coronavirus relief package sent federal spending skyrocketing.  The deficit for the first ½ of the budget year, from Oct thru Mar, was up from $743B in the year-ago period, the Treasury Dept said.  In Mar, the gap between what the gov spent & what it collected hit $660, nearly 4 times what it was one year ago.  Revenue rose to $268B last month, while spending increased by 161% to $927B – the 3rd-highest total on record, after Jun & Apr of last year.  The figure comes on the heels of the $1.9T stimulus package passed by Congress in Mar, which sent a one-time payment of up to $1400 to most Americans, expanded unemployment benefits by $300 a month & temporarily expanded the child tax credit.  The stimulus payments in Mar totaled $339B.  Biden & congressional Dems are currently working to pass another massive economic spending proposal that could cost upwards of $2T & would make major investments in the nation's roads & bridges, as well as transit systems, schools & hospitals.  The 8-year proposal would be paid for by raising the corp tax rate to 28% from 21% – rolling back part of former Pres Trump's 2017 tax cuts – as well as increasing the global minimum tax on US corps to 21% from 13% & ending tax subsidiaries for fossil-fuel companies.  The budget deficit for fiscal 2020, which ended Sep 30, totaled a record $3.1T.  The Congressional Budget Office estimated in Feb that this year's shortfall will hit $2.3T, but that does not factor in the $1.9T American Rescue Plan, or the multitrillion-$ "Build Back Better" infrastructure proposal under consideration.

US deficit rises to record in six months, fueled by COVID relief spending

Boeing's (BA), a Dow stock, Mar aircraft sales outpaced cancellations for the 2nd month in a row as some airlines turn their attention to the industry'’s recovery from Covid-19's toll on travel.  The manufacturer reported gross orders of nearly 200 of its bestselling 737 Max aircraft, including a 100-plane sale to Southwest Airlines (LUV).  Accounting for cancellations, conversions & other order changes, it posted net positive orders of 40 planes.  BA's backlog stood at 4054 planes at the end of last month, up from 4041 at the end of Feb.  Deliveries in Mar totaled 29 aircraft, including 2 787 Dreamliners for United Airlines (UAL).  BA resumed handovers of the Dreamliners to customers late last month, a process that it paused last year after it detected production problems.  That's up from 22 deliveries in Mar & welcome news for the aerospace giant.  The bulk of an aircraft’s price is paid upon delivery & the company is still struggling from the pandemic's impact on jetliner demand & the 20-month grounding of its bestselling 737 Max plane.  Last week, airlines temporarily grounded more than 60 Max planes after BA flagged a manufacturing issue that could impact a backup power unit.  The stock rose 3.75.
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Boeing’s sales again outpace cancellations, jetliner deliveries pick up

Gold futures ended higher, with data showing US consumer prices in Mar rose for the 4th month in a row & the pace of inflation hit the highest level in 2½ years lifting the metal’s appeal as a hedge against inflation.  The consumer-price index (CPI) jumped 0.6% in Mar, spearheaded by the rising cost of oil.  The  forecast called a 0.5% increase in the CPI.  The 12-month rate of inflation rose to 2.6% in Mar from 1.7%.  Jun gold rose $14 (0.9%) to settle at $1747 an ounce, a day after the precious metal logged the lowest finish for a most-active contract since Apr 5.  The move for gold on the session thus far also comes as bond yields, which compete against gold for haven demand, moved lower after the inflation data.

Gold prices gain after higher-than-expected reading on U.S. inflation

Oil futures climbed, with US prices topping $60 a barrel, after a monthly report from OPEC forecasting a jump in economic activity and oil demand, aided by the US's $1.9T COVID aid package & the rollout of vaccines, helped buttress sentiment in crude markets.  A report on Chinese intl trade also provided further evidence that an economic rebound was taking hold in one of the biggest importers of crude.  However, concerns about a slowdown in the rollout of the COVID vaccine, including a call for an immediate pause in the rollout of the JNJ one-shot vaccine, has raised some concerns about how quickly the US economy will bounce back from the pandemic.  In  monthly report, OPEC said it expects the bulk of consumption of energy products to pick up in H2-2021, after fresh coronavirus outbreaks result in fitful economic recoveries in many parts of the world in the next few months.  “The year started with new waves of COVID-19 infections, necessitating renewed lockdown measures in many OECD economies. Therefore, the bulk of consumption growth is expected to take place in 2Q21 and 3Q21,” the report read.  OPEC increased its 2021 global oil demand forecast by 100K barrels a day from its previous expectations.  It expects global oil demand to climb by about 6M barrels per day to reach 96.5M barrels per day this year.  OPEC also raised its forecast for global economic growth to 5.4% from 5.1%.  The “upward revision mainly takes into account a stronger economic rebound than assumed last month…supported by stimulus programs and a further relaxation in COVID-19 measures, amid an accelerated vaccination rollout,” the report added.  Geopolitical tensions also were helping support crude values.  Oil futures finished higher yesterday, as reports that Yemen's Iran-backed Houthi rebels attacked a Saudi oil facility lifted tensions in the oil-rich Middle East.

U.S. oil prices top $60 a barrel on hints of an uptick in demand

Mixed signals for investors to digest.  The pause on JNJ vaccine puts a damper on the economic recovery.  However the popular stock averages are close to their records & oil went back over 60.  The bulls are feeling pretty good even with an uncertain future for the next spending bill from Congress.  But negative thinkers bought gold & Treasuries.

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