Thursday, February 25, 2021

Markets fall as yield on the 10 year Treasury rises to 1.49%

Dow tumbled 559, decliners over advancers a huge 7-1 & NAZ plunged 478.  The MLP index fell 3+ to the 158s & the REIT index dropped a very big 7+ to the 387s.  Junk bond funds declined along with stocks & Treasuries were heavily sold, taking the yield on the 10 year Treasury up 11 basis points to 1.49% (not seen in more than a year).  Oil edged higher in the 63s & gold sank 24 to  1773 (more on both below).

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The 10-year Treasury yield briefly topped the 1.6% level today, hitting its highest level in more than a year.  The yield on the benchmark 10-year Treasury note climbed was trading at 1.49%, up about 10 basis points on the session.  The yield on the 30-year Treasury bond rose to 2.29%.  Yields move inversely to prices.  The 10-year traded as high as 1.614% during the session, which was the highest level since Feb 14, 2020.  Some traders described the jump above 1.6% as a “flash move,” & yields quickly fell back to near 1.5%.   The move higher in rates is unnerving investors fearing it could be driven by inflation rather than economic recovery.  The 10-year yield ended Jan at 1.09% & closed 2020 well under 1%.  So it's moved more than a ½ percentage point in under 2 months, quite rapid for the bond market and relative to rates at these historically low levels.  The move marked the first time the 10-year has traded above 1.5% since Feb 21, 2020.  Market-based measures continue to show signs of inflation pressures.  Though consumer prices were up just 1.4% from a year ago in Jan, recent indicators of retail sales, durable goods purchases & service sector prices have shown inflation in the pipeline.  The 5-year breakeven rate, an indicator of the bond market's expectations for inflation, rose to 2.38% yesterday, its highest level since before the financial crisis in 2008.  Still, policymakers continue to downplay the possibility of troublesome inflation ahead as the US recovers from the Covid-19 pandemic.  “We could have a surge in spending as the economy reopens. We don’t expect that to be a persistent longer-term force, so while you could see prices move up that’s a different thing from persistent high inflation, which we do not expect,” Federal Reserve Chair Jerome Powell said during a Senate committee hearing yesterday.

The 10-year Treasury yield jumps above 1.6% in a rapid move, unnerving investors

Gold futures tallied a 3rd straight decline as gov bond yields extended their climb to the highest level in a year, raising the opportunity cost of owning nonyielding gold over sovereign debt.  A rise in bond yields, with the 10-year Treasury note advancing to above a psychological threshold at around 1.5%, has put pressure on stocks & gold, forcing investors to reassess the relative value of owning either asset against the backdrop of richer rates from risk-free Treasuries.  Gold for Apr fell $22 (1.3%) to settle at $1775 an ounce, following losses in each of the past 2 sessions.  Yesterday, prices marked the first finish below $1800 since Fri.  2 days of congressional testimony from Federal Reserve Chair Jerome Powell, as part of regular semiannual hearings helped to placate markets yesterday.  Powell told the House Financial Services Committee that the Fed will maintain ultralow interest rates and continue hefty asset purchases until “substantial further progress has been made” toward its employment & inflation goals, echoing what he said on Tues in front of the Senate Banking Committee.  Powell emphasized that the central bank's efforts to get the economy back to normal from the COVID-19 pandemic are “likely to take some time” to achieve.  Progress on vaccination rollouts & boosters for virulent variants of the deadly disease are also helping to support a bullish outlook for the economy in H2, which adds to pressure on bond prices, which fall as yields rise.  Data today showed that orders for durable goods—products meant to last at least 3 years — rose 3.4% in Jan, the biggest increase in 6 months.  The US economy, meanwhile, expanded at an annual 4.1% pace in Q,4-2020 instead of 4%.

Gold marks third straight session decline as 10-year Treasury yields tap 1.5% 

Concerns that the Federal Reserve could be repeating mistakes that led to an explosion of inflation in the late 1970s don't take into account that the central bank has a 2% inflation target, St Louis Fed Pres James Bullard said.  Last week, former Treasury Secretary Larry Summers recently said the central bank is facing “inflationary pressures of a kind we have not seen in a generation” & is making a mistake for promising to keep interest rates low.  “The Fed failed in the 1970s. And I think if the Fed wants not to fail, they are going to have to start recognizing the reality of those challenges and that is going to mean a significant change in their tone,” Summers said.  The consumer price index rose over 13% in 1979.  It has been a cautionary tale for the central bank ever since.  Former Fed Chair Paul Volcker pushed interest rates almost up to 20% to bring inflation under control.  Asked for comment, Bullard said that his view of the 1970s is that the Fed had little credibility & there was a debate over whether inflation was even the central bank’s responsibility.  “That’s completely different from the inflation-targeting era that began in the 1990s and continues today,” Bullard said.  In 2012, the Fed formally adopted a 2% longer-run inflation target.  “So I have a hard time mapping anything that’s going on now back to what was happening in the 1970s,” Bullard added.  Some economists are concerned that strong growth in money supply aggregates last year & early in 2021 could lead to higher inflation.  Bullard said the theory that money aggregates lead to inflation also assumes such growth will continue.  But under the Fed's 2% inflation target, the central bank is saying that it is going to act in such a way in the future that will keep inflation under control, he noted.  Bullard said that all 3 leading theories economists use to forecast inflation trends — money growth, higher fiscal deficits & strong growth — are pointing higher.  “No matter which of those three theories is your favorite as far as causes of inflation, all three are pointing to higher inflation in 2021,” he continued.  But the Fed will be less preemptive to hike rates at the first “whiff” of inflation pressure, Bullard said.  Inflation has been running at a 1.6% rate since 2012 so the Fed could miss on the “high side” by a ½-a-percent for some time & still achieve its 2% average inflation target, he said.  Bullard said the recent rise in the 10-year Treasury yield “is appropriate” given the improving growth outlook & rising inflation expectations.  He noted that the 10-year yield has not reached its pre-pandemic levels.  Asked if the Fed would begin to slow down its bond-buying purchases this year, Bullard said it was too soon the speculate.  “I gave a rosy outlook today… but I would definitely want to see whether this materializes or not before getting into any adjustments to policy,” Bullard said.  “I just think we’re going to have to see the further progress before we even start that conversation,” he added.  The Fed has said it will continue to purchase at least $120B of bonds & mortgage-backed securities each month until there has been “substantial progress” in meeting is goals of a healthy labor market & steady 2% inflation.

Fed’s Bullard dismisses concern of a repeat of the late-1970s inflation fiasco

Oil futures were mixed, with the US benchmark posting its highest close in nearly 22 months, while global benchmark Brent crude suffered its first loss in 4 sessions.  Speculation that major oil producers next week will discuss a potential increase in production levels put pressure on Brent, after 3 straight days of gains lifted it to 13-month highs.  Signs of a recovery in energy demand, following upbeat US economic data, as well tighter domestic oil supplies, provided some support for US oil.  West Texas Intermediate crude for Apr rose 31¢ (0.5%) to settle at $63.53 a barrel.  That was the highest front-month contract finish since May 1, 2019.  During the session, prices had also spent time trading lower, touching a low of $62.65.  The front-month Apr Brent crude, which expires tomorrow, lost 16¢ to $66.88 a barrel, while the most-active May Brent crude contract fell 7¢ to close at $66.11 a barrel.  OPEC & its allies (OPEC+) will gather next week & are expected to make a decision on production quotas that would likely take effect in Apr.  A report said OPEC+ may discuss a production increase of 500K barrels a day when the group meets.  OPEC+ will hold a committee meeting on Mar 3, followed by the main decision-making gathering Mar 4.

U.S. oil benchmark closes at a nearly 22-month high, while Brent crude suffers first loss in 4 sessions

Stocks traded lower as a rapid rise in Treasury yields spooked equity investors.  With the longer term bull markets, yields were not getting much attention.  But now they are & investors are worried about the future.  The Dems will be pushing their almost $2T relief package tomorrow which should be the major driver for stocks.

Dow Jones Industrials

Markets fall as interest rates climb

Dow dropped 180 from yesterday's record, decliners over advancers 5-2 & NAZ lost a big 185.  The MLP index slid back to the 161s & the REIT index added 1+ to the 396s.  Junk bond funds fluctuated & Treasuries were sold, raising the interest rate on the 10 year Treasury to 1.47%.  Oil was steady in the 63s & gold sank 22 to 1775.

AMJ (Alerian MLP index tracking fund)

CL=FCrude Oil62.89

GC=FGold   1,774.50



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The number of Americans filing for first-time unemployment benefits unexpectedly dropped last week as the labor market continues its slow recovery from the coronavirus pandemic.  The Labor Dept reported that 730K Americans filed first-time jobless claims last the week, lower than the 838K forecast.  The number of Americans applying for aid has remained stubbornly high for months, hovering around 4 times the pre-crisis level, although it's well below the peak of 7M that was reached when stay-at-home orders were first issued in Mar.  More than 70M Americans, 40% of the labor force, have filed for unemployment benefits during the pandemic.  There are roughly 10M fewer jobs than there were last year in Feb, before the crisis began.  Continuing claims, or the number of Americans who are consecutively receiving unemployment aid, fell to 4.4M, a decline of 101K from the previous week.  The report shows that roughly 19M Americans were collecting jobless benefits in the latest week, an increase of 701K from last week.  Many more Americans are receiving jobless aid from 2 federal programs that Congress established with the passage of the CARES Act in Mar:  One extends aid to self-employed individuals, gig workers & others who typically aren't eligible to receive benefits, & the other provides aid to those who have exhausted their state benefits.

Another 730,000 Americans filed for unemployment benefits last week

Moderna (MRNA) said it expects to generate $18.4B in sales from its Covid-19 vaccine this year.  In releasing Q4 earnings, MRNA also said its chief medical officer, Tal Zaks, will leave the company in Sep.  The news comes a day after the company said it was expecting to produce at least 700M Covid vaccine doses this year.  It also expects to produce up to 1.4B Covid vaccine doses in 2022.  MRNA has a deal with the federal gov for 300M doses & has shipped about 55M doses to the US.  It expects to complete delivery of the first 100M doses to the US by the end of Q1, the 2nd 100M doses by the end of May & the 3rd by Aug.  MRNA has been rapidly working to meet the demand for shots that hopefully will help bring an end to the pandemic, which has infected more than 112M people & killed at least 2.4M, according to Johns Hopkins University.  The company is in talks with the Food & Drug Administration on a proposal to fill its Covid vaccine vials with up to 5 additional doses to ease a bottleneck in manufacturing.  One vial of its 2-shot vaccine contains 10 doses, enough to inoculate 5 people.  The company also said it is in talks with the World Health Organization-backed COVAX initiative to supply doses this year & in 2022.  The stock rose 10.08 (7%).
If you would like to learn more about MRNA, click on this link: 

Moderna expects $18.4 billion in 2021 vaccine sales, chief medical officer exits

Inflation could quickly rise once more Americans are vaccinated & the central bank should monitor price signals closely, Kansas City Fed Pres Esther George said.  “It is worth recognizing that overall inflation could firm up quickly post-vaccination as demand for hard-hit sectors recovers,” George said.  Fed Chairman Jerome Powell told Congress this week that inflation was “soft.”  The Fed's favorite inflation measure, the personal consumption expenditure price index, has been below the Fed's target of 2% long-term inflation for most of the last decade.  Overall PCE inflation was running at 1.3% over the year ending in Dec.  George said aggregate inflation measures don't mean so much during the pandemic because prices have been moving dramatically both higher & lower.  “While some prices are down, other sectors, particularly durable goods, are recording their fastest price increases in decades,” George added.  Some households would be surprised to hear that overall inflation is subdued, she noted.  “While we would like for overall inflation to reveal the trend in prices across the entire economy, a wide dispersion in inflation across individual sectors makes overall inflation less informative for that trend,” George said.  She said it was too early to discuss pulling back on the central bank's easy policy stance.  The notable rise in longer-term interest rates does not warrant a monetary policy response, she added.  “Much of this increase likely reflects growing optimism in the strength of the recovery and could be viewed as an encouraging sign for increasing growth expectations,” George said.  “If this is indeed the reason that yields are increasing, they are unlikely to rise to the point of smothering the optimism that led to their increase in the first place, and measures of real yields remain deeply negative and only a touch off all-time lows,” she added.

Fed’s George says inflation could ‘firm up quickly’ after vaccinations  

Interest rates & oil prices are rising, which is keeping investors away from stocks.  Meanwhile the Dems are working on the stimulus bill & are already planing for another one.  The jobless claims data remains drab even though it showed improvement this week.

Dow Jones Industrials


Wednesday, February 24, 2021

Markets rally with the Dow reaching a new record

Dow jumped 432 to a new record near 32K, advancers over decliners 2-1 & NAZ rallied 132.  The MLP index added 3+ to the 161s & the REIT index rose 3+ to 395 (an 11 month high).  Junk bond funds remained mixed & Treasuries were hit with selling pressure.  Oil advanced 1+ to the 63s (another 13 month high) & gold was off 5 to 1800 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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The Federal Reserve's 2nd in command said the economy is primed to show big improvement this year owing to more Americans getting vaccinated & Congress approving more stimulus.  “The development of several effective vaccines and the passage by the Congress in late December of a package of fiscal relief measures indicat,e to me that the prospects for the economy in 2021 and beyond have brightened and the downside risk to the outlook has diminished,” Fed Vice Chair Richard Clarida said.  The Biden administration is set to up the ante with another relief package of almost $2T.  The pending bill would extend & expand emergency federal unemployment benefits to $400 a week from $300 & provide up to $1400 in additional stimulus checks for eligible families.  Clarida gave no indication on whether he would prefer the Fed to slow asset purchases before the end of the year.  The central bank has been buying $80B in Treasuries & $40B in mortgage-backed securities each month to keep interest rates low & goose the economy.  Low mortgage rates have help fostered the biggest boom in the housing market in more than a decade.  Clarida said the economy would need to make “substantial further progress” before the Fed began to reduce purchases.  Earlier this year he said he expected the Fed to keep buying $120B a month in bonds at least until the end of 2021.  Clarida also emphasized the Fed's new strategy on controlling inflation will be more flexible & less tied to old rules.  Inflation has been low for years & he expects it to stay that way.  No longer will the central bank raise rates, for example, if the unemployment rate falls to a very low level, as it used to do in the past.  “A low unemployment rate, in and of itself, will not be sufficient to trigger a tightening of monetary policy absent any evidence from other indicators that inflation is at risk of moving” significantly higher, Clarida said.  He doubted that low rates & massive federal spending were fueling a big bubble in stocks or other assets.  Some critics contend gov policies are creating bubbles.

Fed’s Clarida sees brighter economy in 2021, but he’s not worried about inflation

Shares of AstraZeneca (AZN) rose after a company exec testified before Congress that the drug maker expects to deliver 50M of its experimental COVID-19 vaccine in the US in Apr if it's authorized before then.  That would be enough to vaccinate 25M people.  Its COVID-19 vaccine has been authorized for use in some other countries, including the UK; however, it is currently in phase 3 clinical studies in the US.  "Based on current projections, assuming [emergency use authorization], we expect to deliver up to 50 million doses by the end of April," Ruud Dobber, pres of North America business for AZN, told members of the House Subcommittee on Oversight & Investigations.  The trial finished enrollment in Jan but the company has not yet released any clinical data for the US arm of the study.  The stock rose 79¢.
If you would like to learn more about AZN, click on this link: 

AstraZeneca exec tells Congress it could have 50 million doses of its COVID-19 vaccine ready in April 

Gold futures fell for a 2nd session, settling below the key $1800 mark for the first time this week.  Treasury bond yields have risen to their highest levels in about one year.  In his first day of congressional testimony yesterday, Federal Reserve Chair Jerome Powell tried to placate markets that had grown skittish about a rapid rise in bond yields as the economy attempts to recover from the COVID-19 pandemic.  Gold prices fell $8 (0.4%) to settle at $1797 an ounce, marking the first finish below $1800 since Fri.  The precious metal declined $1 in the previous session.  Powell yesterday emphasized the Fed's commitment to keeping easy monetary policies unchanged for the foreseeable future, which helped stem heavy losses among tech companies, a group that tend to be the most sensitive to rising rates & are also seen as richly valued.  Powell held his 2nd day of remarks about the state of the economy & market today to a House committee.  He said Fed wants to see “actual data” showing the Fed moving closer to its goals before it would slow down the pace of bond-buying.  Some commodity dealers said the outlook for gold remained precarious as the asset has been under pressure for weeks, but bullion bulls argue that the prospects for the yellow metal are upbeat given the expectations for further fiscal spending from the US gov & a long recovery for the labor market from the pandemic.

Gold down settles below the key $1,800 mark in 2nd day of losses

Toll Brothers (TOL) reported higher profit & sales for the fiscal Q1 as low mortgage rates, tight housing inventory, favorable demographic trends & the pandemic helped boost homeownership demand.  The luxury homebuilder said net income was $96.5M, up from $56.9M in the same period a year earlier.  EPS were 76¢, compared with 41¢ a year ago.  The forecast expected 46¢.  TOL generated $1.56B in revenue, a 17% increase from the year-ago qtr.  Analysts expected $1.34B.  Revenues from home sales, which represent a majority of its total revenue, rose 8.7% to $1.41B.  Contracted homes rose 60% from a year earlier to 2874 while the contract value increased 68% to $2.51B.  Homebuilding deliveries rose 10% to 1777 from last year   The stock rose 1.72.
If you would like to learn more about TOL, click on this link: 

Mortgage rates help spur Toll Brothers to profit

Oil futures settled at fresh 13-month highs, as data from the US gov showed weekly crude supplies edged up on the back of a sharp decline in distillate inventories.  The inventory changes hinted at larger supply losses in the weeks ahead, amid energy production declines brought on by winter storms that swept across much of the US last week.  West Texas Intermediate crude for Apr rose $1.55 (2.5%) to settle at $63.22 a barrel — the highest front-month contract finish since Jan 6, 2020.  Apr Brent crude climbed $1.67 (2.6%) at $67.04 a barrel, with prices also at their highest since early January of last year.  The most active May Brent contract added $1.70 (2.6%) to $66.18.  The Energy Information Administration (EIA) reported that US crude inventories climbed by 1.3M barrels last week.  That defied expectations for an average fall of 4.8M barrels.  The EIA data also showed crude stocks at the Cushing, Okla, storage hub rose by 2.8M.  The American Petroleum Institute reported a roughly 1M-barrel increase.

Oil prices mark 13-month highs as U.S. data hint at larger supply losses ahead

After 2 days of testimony by Powell, investors are feeling good.  Additionally, the vaccine news is getting better.  The daily number of new cases has fallen 80% from the peaks 6 weeks ago.  The vaccine shots seem to be making the difference.  Meanwhile the stimulus bill is stuck in the mud.  Dow is at a new record & NAZ is 500 below its recent record.

Dow Jones Industrials