Friday, March 5, 2021

Markets rise in wild reversal as rate fears ease

Dow soared 570, advancers over decliners almost 3-1 & NAZ short up 196 (both close to daily highs).  The MLP index was fractionally lower to the 168s & the REIT index rebounded 3+ to 377.  Junk bond funds were little changed & Treasuries finished even after buying in early trading was reversed by selling in the PM.  Oil rocketed ahead 2+ to the 66s & gold was off 3 to 1697 (more on both below).

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The nation's trade deficit widened 1.9% to $68.2B in Jan, the Commerce Dept said.  The forecast called for a $67.6B gap.  The trade deficit in Dec was revised to a gap of $67B versus the prior estimate of $66.6B.  The trade gap is close to a 14-year high of $69B reached in Nov.  Imports rose 1.2% in Jan to $260.2B, led by consumer goods such as pharmaceuticals.  Exports rose 1% to $191.9B.  Exports are still down more than 7.5% from last year.  Both imports & exports of services declined slightly in Jan.  The services surplus is near an 8-year low while the goods trade deficit is near record levels.  US economic growth is expected to push higher this year & the trade gap is seen widening as a result.  Pres Biden's nominee to be the top trade official signaled this week that the guys in DC won't ignore rising trade deficits as has been the case under prior administrations.  Katherine Tai, who Biden has nominated to become US Trade Representative, told Congress earlier this week that trade liberalization in the past led to less prosperity & higher unemployment.

U.S. trade deficit widens in January on stronger consumer demand

Gold futures ended below the $1700 mark, with prices for the precious metal posting a 3rd straight weekly loss.  The $ index touched its highest level in over 3 months & Treasury yields briefly topped 1.6% as the latest employment report showed a larger-than-expected job gains in Feb.  Higher gov bond yields & a stronger $ can make gold less attractive to investors seeking a safe-haven.  Gold for Apr fell $2 to settle at $1698 an ounce, after it lost 0.9% yesterday.  Prices for the most-active contract ended at their lowest since Jun 5.  For the week, gold suffered a 1.8% decline based on the most-active contract.  The Labor Dept indicated the US created 379K new jobs in Feb—the biggest gain in 4 months, perhaps undercutting some appetite for bullion as the economy looks to be on the recovery path from the COVID-19 pandemic.

Gold prices end below $1,700 as markets weigh hot February U.S. jobs report

China's #2 leader announced a healthy economic growth target & plans to make this nation self-reliant in technology amid tension with the US & Europe over trade, Hong Kong & human rights.  The ruling Communist Party aims for growth “over 6%” as the world's 2nd-largest economy rebounds from the coronavirus, Premier Li Keqiang said in a speech to China's ceremonial legislature.  3000 delegates gathered for its annual 2-week meeting, the year's highest-profile political event, under intense security & anti-virus controls.  The party is shifting from fighting the virus that emerged in central China in late 2019 back to its longer-term goal of becoming a global competitor in profitable technologies including telecoms, clean energy & electric cars.  The NPC meeting usually focuses on domestic issues but increasingly is overshadowed by geopolitics as Pres Xi Jinping's gov pursues more assertive trade & strategic policies abroad, cracks down on dissent at home & faces criticism over its treatment of Hong Kong & ethnic minorities.  Also, the gov announced a 6.8% rise in military spending to 1.4T yuan ($217B) as China faces tension with India & other neighbors over conflicting territorial claims & ambitions to match the US & Russia in ballistic missile, stealth fighter & other weapons technology.  That figure in a budget report released while Li spoke is less than the double-digit increases of earlier years but outpaces economic growth & is a marked rise in real terms at a time when inflation is close to zero . Foreign analysts say total military spending is up to 40% more than the reported figure, which is the world's 2nd-highest after the US.

China sets economic-growth target of 6%, aims to be more self-reliant on tech

US & global benchmark crude-oil prices log their highest settlements since 2019, up more than 7% for the week, a day after OPEC & its allies (OPEC+), in a surprise move, said they would rollover current production cuts to the end of Apr.  Saudi Arabia also extended its voluntary output cut of 1 M barrels per day, which was due to expire at the end of Mar, thru the month of Apr, though Russia & Kazakhstan have been allowed a modest production boost for next month.  West Texas Intermediate (WTI) crude for Apr rose $2.26 (3.5%) to settle at $66.09 a barrel.  Front-month contract prices saw their highest finish in 2 years after US benchmark crude prices surged 4.2% on Thurs.  May Brent crude, the global benchmark, gained $2.62 (3.9%) to settle at $69.36 a barrel, following its 4.2% rally on Thurs.  Prices settled today also at the highest in years.  For the week, WTI crude ended 7.5% higher, while Brent crude logged a weekly climb of 7.7% — its 7th straight weekly gain.  Thurs's OPEC+ decision is viewed by market participants as the group adopting a cautious approach to the global economic recovery from the pandemic that has disrupted uptake of fossil fuels & pummeled crude values.  Data from Baker Hughes today showed that the number of active US oil-drilling rigs edged higher for a 2nd straight week, up by one to 310 rigs.

WTI, Brent oil settle at highest levels since 2019 after OPEC+ decision

In early trading, Treasury yields rose to about 1.6%, hovering around a one-year high after the Labor Dept's Feb jobs report showed the economy made additional strides to bring back payrolls early this year, with jobs rising by a better-than-expected 379K during the month.  The above average payroll report, upward revisions, & a falling unemployment rate (to 6.2%) point to continued recovery.  But the impact of the massive stimulus bill is being evaluated.  For the week, Dow gained 600 while NAZ fell 270 because of selling in the last 3 days.        

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Markets pare advance when rate fears rise after strong jobs report

Dow fell 55 (400 below the opening highs), decliners over advancers 4-3 & NAZ dropped another 260 (off more than 10% from its recent record).  The MLP index was even in the 169s & the REIT index slid back 3+ to 370.  Junk bond funds drifted lower & Treasuries were sold again (more below).  Oil jumped 1+ to the 65s & gold fell 6 to 1693.

AMJ (Alerian MLP index tracking fund)

CL=F    Crude Oil    65.92     +2.09    +3.3%   

GC=FGold        1,696.60
     -4.10   -0.2%



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The US economy added 379K jobs in Feb, evidence the labor market's recovery is gaining steam nearly one year into the pandemic as coronavirus caseloads fall nationwide & many states ease restrictions on business activity.  The unemployment rate fell slightly to 6.2% — well below the Apr peak of 14.7% but about twice the pre-crisis level, the Labor Dept said in its monthly payroll report.  The foercast expected the report to show that unemployment remained unchanged at 6.3% & the economy added 182K jobs.  In total, the US has recovered roughly ½ of the 22M jobs lost during the first 2 months of the pandemic.  There are still 9.5M more Americans out of work than there one year ago, before the crisis began.  But the report — which marks the most jobs created since Oct — is a sign of renewed momentum in hiring.  After a sharp contraction in Mar & Apr, the labor market quickly rebounded, adding 9.3M jobs in the span of just 3 months.  In the months since then, job growth cooled dramatically, with employment falling by 306K in Dec, revised figures show.  Jan gains were revised higher, to 166K from 49K.  Economists attributed the better-than-expected report to more people receiving the COVID-19 vaccine, a lower level of infections & fewer restrictions on businesses.

Job growth surges above expectations as recovery picks up steam

Treasury yields climbed after the Feb jobs report showed higher-than-expected job gains, adding to doubts whether the Federal Reserve will able to stay as accommodative for as long as they have signaled.  The 10-year Treasury note yield rose 6.2 basis points to 1.612%, a Feb high, while the 2-year note rate was up 0.6 basis point to 0.151%.  The 30-year bond yield rose 3 basis points to 2.33%. 

10-year Treasury yield shoots above 1.60% after jobs report 

Federal debt is poised to double to 202% of GDP over the next 30 years, according to the Congressional Budget Office (CBO), heightening the risk of a financial crisis in the US.placeholder  The nonpartisan office projected that federal debt will be 102% of GDP by the end of this year & will nearly double that by 2051.  Such high debt levels could increase borrowing costs, slow economic output & increase the danger of a financial crisis, the CBO added.  The outlook does not take into account the additional spending that Congress is expected to approve this year, including Pres Biden's $1.9T coronavirus relief package that Dems hope to enact in the coming weeks, as well as an expensive infrastructure bill.  Rep lawmakers unanimously oppose the latest stimulus measure, criticizing the size & scope of the legislation & pointing to the nation's ballooning deficit — which hit $3.1T in fiscal year 2020 — as a reason to avoid extraneous spending when they say the economy is already poised for a strong recovery from the pandemic.  “The risk of a fiscal crisis appears to be low in the short run despite the higher deficits and debt stemming from the pandemic,” the CBO said.  “Nonetheless, the much higher debt over time would raise the risk of a fiscal crisis in the years ahead.”  The federal budget deficit, the gap between what the US spends & what it collects in taxes & other revenue, is expected to reach 10.3% of GDP this year, the 2nd-highest level since 1945.  The budget deficit could balloon to 13.3% of GDP in 2051 after dropping slightly in 2031 as the economy rebounds from the pandemic-induced recession.  Driving the deficit surge is the increasing cost of serving the debt:  Net spending on interest will triple relative to GDP in the 2 decades leading up to 202%.  Spending on programs like Social Security & Medicare is also expected to rise.  "High debt levels will slow income and wage growth, increase interest payments, place upward pressure on interest rates, reduce the fiscal space available to respond to a recession or other emergency, place an undue burden on future generations, and heighten the risk of a fiscal crisis," the Committee for a Responsible Federal Budget, a non-partisan group, said in a statement.  They added: "While policymakers are rightly focused on responding to the current crisis, they cannot and should not continue to ignore our long-term fiscal situation."

US debt on track to double by 2051, raising risk of financial crisis, CBO says

The gut reaction to the jobs data brought out buyer at the opening.  After thinking about what the announcement meant, they went home.  More attention will be be given to the reasoning for passing another whopper stimulus budget, mostly filled with unnecessary pork.  Going forward, rising interest rates will affect investors' thinking.  Expect stocks to be sold later today.

Dow Jones Industrials


Thursday, March 4, 2021

Markets dive after Powell comments trigger a jump in yields

Dow plunged 346, decliners over advancers better than 3-1 & NAZ sank 274.  The MLP index went up 2+ to the 168s & the REIT index fell 3+ to the 374s.  Junk bond funds slid lower & Treasuries were heavilty sold, taking the yield on the 10 year Treasury up 7 basis points to 1.54%.  Oil soared 2+ to the 64s & gold was off a big 18 to 1697 (more on both below).

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Federal Reserve Chair Jerome Powell said that he expects some inflationary pressures in the time ahead but they likely won't be enough to spur the central bank to hike interest rates.  “We expect that as the economy reopens and hopefully picks up, we will see inflation move up through base effects,” Powell said.  “That could create some upward pressure on prices.”  Markets reacted negatively to Powell's comments, with stocks sliding & Treasury yields jumping.  Some investors & economists had been looking for him to address the recent surge in rates, with a possible nod toward adjusting the Fed's asset purchase program.  The Fed currently is buying $120B a month in Treasuries & mortgage-backed securities.  Recent market chatter has revolved around the central bank potentially implementing a new version of “Operation Twist,” in which it sells short-term notes & buys longer-dated bonds.  According to Fed officials, the central bank is far from any action to try to influence the long end of yields, despite expectations.  Powell instead reiterated past statements he has made on inflation in saying that he doesn't expect the move up in prices to be long lasting or enough to change the Fed from its accommodative monetary policy.  He did note that the rise in yields did catch his attention, as have improving economic conditions.  “There’s good reason to think that the outlook is becoming more positive at the margins,” he said.

Fed Chairman Powell says economic reopening could cause inflation to pick up temporarily

The central bank likely won’t raise its policy rate until 2023, said Philadelphia Fed Pres Patrick Harker.  In an interview, Harker was asked about the bond market starting to price in the first Fed rate hike next year.  “I can only speak for myself… I’m not looking at a hike anytime in 2022,” Harker said.  “I mean we’ve got a long ways to go.”  “There is so much uncertainty still in the economy. Let’s climb out of this pandemic and then see where we go,” he said.  Harker forecast economic growth at 4% in 2021, with the unemployment rate falling to around 5% from its 6.3% level in Jan.  Harker said inflation will come in at a 1.7% annual rate, still below the Fed's 2% longer-run target.  “We are climbing out of this situation, it is going to be bumpy,” he added.  Harker said his forecast only assumed a $900B stimulus package.  Asked if he was worried that the larger package under consideration in Congress would lead to overheating, Harker said he saw no signs that inflation is running out of control.  If inflation rises slightly above 2%, that is “more than acceptable,” he said.  Asked if the Fed might need to push down longer-term interest rates, Harker said the Fed has its asset-purchase program & yield-curve control as tools if needed.  But Harker displayed no willingness to take any additional easing steps.  “At this point, I am firmly committed to holding where we are. When you are in the middle of the crisis, the fewer things you can change, the better,” he said.

Fed’s Harker sees no interest-rate hikes until 2023

Gold futures declined, with bullion settling at its lowest in 9 months, pressured by a strong rise in the $ & strength in Treasury yields.  During a webinar, Federal Reserve Chair Jerome Powell said he would be concerned about a disorderly move in the bond market, but suggested that hadn't yet had a material impact on financial conditions.  Against that backdrop, the $ moved up nearly 0.7% & headed for a weekly climb of 0.7%, while gold was heading for a weekly slide of 1.9% based on the most-active contract.  Gold for Apr lost $15 (0.9%) to settle at $1700 an ounce, after trading as low as $1691.  Prices based on the most-active contract marked their lowest settlement since Jun 5 after they lost 1% yesterday.  Commodity dealers also digested economic reports with the number of new applications for US unemployment benefits rising slightly to 745K last week, signaling the economy is still a long way from recovering all the jobs lost during the coronavirus pandemic.  The monthly jobs report will be released by the Labor Dept tomorrow.

Gold settles at 9-month low as Powell’s comments help strengthen the dollar, bond yields

Oil futures rallied, with US prices posting their highest finish since 2019 after OPEC & its its allies said they will rollover current production cuts to the end of Apr.  The group (OPEC+) approved a “continuation of the production levels of March for the month of April.”  Russia & Kazakhstan, however, will be allowed to boost production by 130K & 20K barrels per day, respectively, “due to continued seasonal consumption patterns,” it said.  Saudi Arabia also extended its voluntary output cut of 1M barrels per day, which was due to expire at the end of Mar, thru the month of Apr.  During the press conference, Saudi Arabia's Minister of Energy Prince Abdulaziz bin Salman said the Saudis will “gradually phase” back in the 1M barrels per day it has cut from its own production.  West Texas Intermediate crude for Apr rose $2.55 (4.2%) to settle at $63.83 a barrel, registering the highest front-month contract finish since Apr 2019.  May Brent crude, the global benchmark, rose $2.67 (4.2%) at $66.74 a barrel.  That was the highest settlement since Feb 25.  Crude had also rallied yesterday after it was reported that OPEC+ would consider rolling over existing curbs thru Apr.

U.S. oil prices log highest finish since 2019 as OPEC+ agrees to extend production curbs

The thought of higher interest rates is making investors nervous.  Meanwhile, back in DC, the Senate is working on the stimulus package so it can get passed.  They are talking about limiting payments to some of the upper income people & that is not going over well with progressives.  The Dow has pulled back to where it was a month ago while NAZ is back to where it was 2 months ago.  Tech stocks have lost their darling status.

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