Thursday, September 29, 2022

Markets tumble on growiing recessio fears

Dow dropped 458 with late day buying trimming losses, decliners over advancers 5-1 & NAZ retreated 314.  The MLP index was off 2+ to the 201s & the REIT index plunged 11+ to the 354s on rising interest rate fears.  Junk bond funds continued to be sold & Treasuries had more selling bringing higher yields.  Oil was fractionally lower to the 81s & gold was off 1 to 1668 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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A chorus of Federal Reserve officials are laying the need for further interest rate hikes in the coming months as they wrestle to bring the highest inflation in decades under control, even if it means slowing economic growth & raising unemployment.  Several policymakers this week endorsed the central bank's aggressive trajectory, disclosed after its 2-day meeting last week.  The outline shows the benchmark federal funds rate climbing to 4.4% by the end of the year.  That indicates at least one more 3-qtr percentage point increase is on the table either in Nov or Dec.  "This is a serious problem, and we need to be sure we respond to it appropriately," St Louis Fed Pres James Bullard said yesterday.  "We have increased the policy rate substantially this year and more increases are indicated."  His sentiment was echoed by Chicago Fed Pres Charles Evans & Minneapolis Fed Pres Neel Kashkari, who said the central bank needs to deliver on its promised rate increases & hold rates there until inflationary pressures start to ease.  "We are moving very aggressively," Kashkari said yesterday.  "There’s a lot of tightening in the pipeline. We are committed to restoring price stability, but we also recognize given these lags there is a risk of overdoing it."  The central bank has embarked on one of the fastest courses in history to raise borrowing costs & slow the economy.  Officials last week approved a 3rd consecutive 75 basis point rate hike, lifting the federal funds rate to 3.0-3.25% – near restrictive levels – & indicated that more super-sized increases are coming.  The CME Fedwatch Tool, which tracks trading, shows roughly a 1 in 3 chance of a 50 basis point increase at the Fed's Nov 1-2 meeting & a 2-3 chance of a 75 basis point hike from the current federal funds rate of 3% to 3.25%.  One basis point is one hundredth of one %.  Those hawkish expectations were reinforced this week.  During an interview with CNBC, Cleveland Fed Pres Loretta Mester said officials are resolute in their efforts to push rates into a restrictive territory.  "Real interest rates — judged by the expectations over the next year of inflation — have to be in positive territory & held there for a time," she said.  "We’re still not even in restricted territory on the funds rate."  There is a growing expectation that the Federal Reserve will trigger an economic downturn as it raises interest rates at the fastest pace in 3 decades to catch up with runaway inflation.  Economic growth already contracted in the first 2 qtrs of the year, with GDP contracting by 1.6% in the winter & 0.6% in the spring.

Fed officials warn of additional interest rate hikes to fight inflation

Ian, one of the most powerful storms to ever hit the US, wreaked havoc across the state, cutting power to 2.5M customers, leaving several hospitals without water & trapping thousands of residents in their homes.  Officials said it would take days or longer to assess the total destruction of the storm.  Florida Gov Ron DeSantis said there were 2 deaths potentially linked to the storm, adding that the total number of fatalities remained unconfirmed.  Fort Myers Mayor Kevin Anderson said that Ian was one of the most ferocious storms he had witnessed in decades, gutting him emotionally.  “Watching the water from my condo in the heart of downtown, watching that water rise and just flood out all the stores on the first floor, it was heartbreaking,” Anderson said.  Photos & videos on social media showed scenes of devastation: Orlando inundated by floodwater, boats wrecked in Fort Myers, trees snapped like toothpicks in Punta Gorda.  Part of the Sanibel Causeway was destroyed, blocking vehicles from crossing the bridge.  DeSantis said the storm would rank as “one of the top five hurricanes to ever hit the Florida peninsula.”  Ian was downgraded to a tropical storm today & Pres Biden declared a major disaster, freeing up federal aid to assist with local & state recovery efforts.  Ian had maximum sustained winds of near 65 mph with higher gusts today as it moved slowly thru central Florida on its way to the western Atlantic, according to the National Hurricane Center.

Florida confronts scenes of havoc as Hurricane Ian batters the state

Bed Bath & Beyond (BBBY) reported a loss of $366M in its fiscal 2nd qtr.  The company said it had a loss of $4.59 per share.  Losses, adjusted for asset impairment costs & restructuring costs, were $3.22 per share.  The results did not meet expectations.  The estimate was for a loss of $1.59 per share.  The home goods retailer posted revenue of $1.44B in the period, which matched forecasts.  BBBY shares have decreased 56% since the beginning of the year, while the S&P's 500 index has declined 22%.  The stock has declined 72% in the last 12 months.  The stock fell 27¢ (4%) today.
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Bed Bath & Beyond touts turnaround as losses widen

Oil futures finished lower on concerns over production disruptions from Hurricane Ian eased, but prices held ground above $80 a barrel following a 4.7% gain in the previous session.  The overall dynamic for crude remains largely unchanged.  Recession fears continue to weigh on demand prospects looking forward, which has been reinforced by accelerated by aggressive rate increases by the Federal Reserve & other central banks.  Nov WTI crude fell 92¢ (1.1%) to settle at $81.23 barrel. 

U.S. oil futures finish lower, but hold above $80 a barrel

Gold futures settled slightly lower, a day after rising to their highest level in nearly a week, as Treasury yields resumed their march higher following a precipitous pullback.  Gold for Dec fell $1 to $1668 an ounce.  Gold received a brief reprieve yesterday, with prices ending that session higher, as US stocks soared & Treasury yields recorded their biggest daily drop in more than 2 years following the Bank of England's announcement that it would do "whatever it takes" to calm the gilt market, which boosted fixed income markets in Europe & the US.  In today's dealings, the 10-year Treasury yield rose nearly 6 basis points to 3.767%.  The ICE US Dollar index edged down by 0.2% to 112.375, but trades more than 3% higher month to date.

Gold prices end lower after brief BoE-inspired reprieve

High interest rates along with inflation are on the minds of investors.  And there are worries that high interest rates will drag the economy into a serious recession.  These are gloomy times for investors.

Dow Jones Industrials

Wednesday, September 28, 2022

Markets bounce back as Treasury yields tumble

Dow jumped 547 (but selling into the close), advancers over decliners 7-1 & NAZ went up 222.  The MLP index shot up 9+ to the 203s & the REIT index climbed 7+ to the 364s.  Junk bond funds crawled higher after recent selling & Treasuries were very heavily purchased, driving down yields.  Oil recovered 3+ to 82 & gold gained 32 to 1668 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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Signed contracts to buy previously owned homes in the US plunged more than expected in Aug as rising mortgage rates & higher home prices continued to push entry-level homebuyers out of the market.  The National Association of Realtors (NAR) said that its pending home sales index tumbled 24% in Aug compared with the same month one year ago.  On a monthly basis, pending home sales dropped 2% — far more than the 1.5% decline projected.  "The direction of mortgage rates — upward or downward — is the prime mover for home buying, and decade-high rates have deeply cut into contract signings," said NAR Chief Economist Lawrence Yun.  "If mortgage rates moderate and the economy continues adding jobs, then home buying should also stabilize."  The once red-hot housing sector is in the midst of a severe correction as the Federal Reserve raises interest rates at the fastest pace in decades.  Mortgage rates have more than doubled to 6.29%, according to recent data from mortgage lender Freddie Mac & could continue to climb higher.  While home price growth has cooled over the past month, prices remain well above where they were just one year ago, putting affordability out of reach for many prospective buyers.  New home sales unexpectedly surged in Aug, with new single-family home purchases jumping nearly 29%.  However, economists largely think that surprise upside is an anomaly & merely represents an effort by buyers to lock in a lower mortgage rate as the average 30-year fixed rate average dipped closer to 5% from earlier highs.

Pending home sales tumble in August, falling for third straight month

Unite, the union representing dock workers at the Port of Liverpool currently engaged in a 2-week strike that ends Sun, will strike for a 2nd time from Oct 11-17 as they battle for wage gains to match record inflation in the UK.  Bobby Morton, national officer for Unite, said the union is resolute in its fight for a wage that matches the soaring inflation.  “We’ll never walk alone,” he added.  The Port of Liverpool announced the 2nd strike in an alert to customers after Unite rejected the offer of Peel Ports Group,  Britain's 2nd-biggest ports group, to increase the wages by 8.3%, in combination with a one-off payment of £750.  The shop stewards who represent union workers accepted Peel Ports request for a meeting at the union office yesterday.  David Huck, COO of Peel Ports, told the workers of the damage being done to the Port of Liverpool by the strike & asked the strikers to return to work for a few weeks in order to come to an agreement.  Union workers did not stop the strike & it is expected to continue until its scheduled end on Sun.  The time between the strikes will be used to try to find a solution.  The latest development comes amid mounting labor issues linked to inflation at UK ports, with workers at the nation's largest port, Felixstowe, beginning another strike this week after one in Aug.

New wave of UK port labor strikes to have ‘massive impact’ on Christmas business

People at risk for monkeypox who have not received a single dose of vaccine are 14 times more likely to get infected than those who have gotten a shot, according to the Centers for Disease Control & Prevention (CDC).  The preliminary data, collected from 32 states from the end of Jul thru early Sep, is the first concrete evidence that the Jynneos vaccine is providing at least some protection against infection from the monkeypox virus circulating in the current outbreak.  “These new data provide us with a level of cautious optimism that the vaccine is working as intended,” CDC Director Dr Rochelle Walensky said.  The data indicate that even a single dose of the vaccine provides some initial protection against infection as soon as 2 weeks after the shot, Walensky added.  The Jynneos vaccine, manufactured by the Danish company Bavarian Nordic, is administered in 2 doses 28 days apart.  Walensky said although the data on a single dose is promising, lab studies have demonstrated that the immune protection is highest 2 weeks after the 2nd dose.  “It is for that reason that we continue, even in light of these promising data, to strongly recommend people receive two does of Jynneos vaccine spaced out 28 days apart to ensure durable, lasting immune protection against monkeypox,” Walensky continued.

A single monkeypox shot provides some protection against infection, CDC says

Gold futures climbed to post their highest finish in nearly a week, supported by weakness in the $ & a drop in Treasury yields, as nervous traders boost haven buying of the metal ahead of the month's end.  Gold futures for Dec rose $33 (2.1%) to settle at $1670 per ounce after trading as low as $1622.  That was the highest most-active contract finish since Sep 22,  Gold prices climbed today on safe-haven buying amid a very nervous marketplace, as the calendar is set to turn to what can be a tumultuous month of Oct for stock & financial markets.  Gold currently trades higher for the week, but prices are still on track to post losses for the month, as well as the qtr.  Analysts have largely blamed rising bond yields & the rampaging & for diminishing gold's allure as a haven asset.  The ICE US Dollar Index a gauge of the $'s strength against a basket of rivals, was down 1.2% to 112.76.  The yield on the 10-year Treasury fell to 3.84% from 3.963% yesterday.

Gold prices post their highest finish in nearly a week

Oil futures rallied, with US prices settling above $80 a barrel for the first time in nearly a week as Hurricane Ian led to a slowdown in production in the Gulf of Mexico.  The Bureau of Safety & Environmental Enforcement reported that in response to the storm, 9.12% of oil production & 5.95% of natural-gas output in the Gulf has been shut in.  That was, however, lower than shut ins of 11% of Gulf oil output & 8.56% of natural-gas output yesterday.  Nov WTI crude rose $3.65 (4.7%) to settle at $82.15 barrel.  Oct nat-gas, which expired at the end of the session, rose 3.3% to settle at $6.868 per M British thermal units. 

U.S. oil futures settle back above $80 a barrel as Hurricane Ian disrupts Gulf output

Never a dull moment in the financial markets.  Volatile trading does not capture what was going on today.  Q3 ends on Fri & expectations are for a dismal reading.  Meanwhile the inflation readings are stuck in the mud at very high levels.  Trading tomorrow will need to have a major up day to show today's rally was meaningful.

Dow Jones Industrials


Friday, September 23, 2022

Markets nosedive to new yearly lows

Dow tumbled 483 but above session lows, decliners overwhelmed advancers 9-1 & NAZ slumped 198.  The MLP index sank 12+ to the 196s & the REIT index dropped a big 4+ to the 384s while interest rates were rising sharply.  Junk bond funds remained weak along with other debt & Treasuries closed with a little buying for the new, high yields.  Oil sold off 4+ to the 78s & gold gave back 29 to 1651 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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Stocks fell sharply, bond yields rose & the $ strengthened today as investors heeded the Federal Reserve's signal that its battle with inflation could result in much higher interest rates & a recession.  The sell-off was global, in a week where the Fed boosted rates by another 3-qtrs of a point & other central banks raised their own interest rates to combat global inflation trends.  The S&P 500 & Dow were careening toward a new low close for 2022 & European markets were down more, along with the UK FTSE, German DAX & French CAC were also were sharply lower.  Weak PMI data on manufacturing & services from Europe today & the Bank of England's warning yesterday the country was already in recession added to the negative spiral. The UK gov also shook markets today with the announcement of a plan for sweeping tax cuts & investment incentives to help its economy.  As the US stock market opened, Treasury yields were off their highs & other sovereign rates eased as well.  The UK gov's announcement of a sweeping plan to cut taxes added to turbulence in that country's debt and hit British sterling hard.  The US 2-year Treasury was at 4.19%, off a high above 4.25%.  Bond yields move opposite price.

What’s behind this latest selloff in financial markets

For the businesses that survived the worst of the Covid-19 pandemic shutdowns & supply chain issues, the economic recovery brought back customers willing to spend.  But, more recently, business-owners have had to contend with record inflation driving up the cost of doing business while also making customers think twice about their spending habits.  The result has been something of a mixed bag: Small business owners nearly doubled their revenues between Jul 2021 & Jul 2022, according to a new report from Kabbage, the small business lender owned by American Express (AXP).  However, while revenues grew by 87% over that time, small businesses' profits were almost stagnant during that period, actually dropping by 4%.  The reason: Higher cost of goods & a competitive labor market that favors workers have forced small businesses to increase spending to remain competitive, eating into any profits they might have enjoyed from the large overall jump in revenue.  75% of the 550 small business owners & operators that Kabbage surveyed said inflationary pressure had affected their bottom line over the past year.  And 56% of respondents expect to continue feeling the crunch from inflation through at least the summer of 2023.  The US economy has seen record-high inflation, with the consumer price index up 8.3% over the past year.  That inflationary pressure means higher costs for small business owners who then have to make the difficult decision of how much of those costs they can afford to pass on to their customers without risking losing business.  The Federal Reserve tried to tamp down inflation Wed with an interest rate hike announcement, but the central bank still does not expect inflation to fall to its 2% goal until 2025.  The survey found that raising prices is the most popular remedy for business owners, with 37% saying that was their plan.  Another 22% of respondents said they plan to negotiate better deals with suppliers in order to lower costs.  While inflation is the economic factor on most business-owners' minds these days, many of them are also preparing for the possibility that the US economy could fall into another recession.  Experts have pointed to rising inflation as a potential indicator that a recession could be looming, but economists have mostly been split of late on the issue, though some argue the economy is already in another downturn.

Inflation is eating up small business owners’ profits, says new survey

Moderna (MRNA) has asked the Food & Drug Administration (FDA) to authorize its omicron booster shots for children.  Moderna filed 2 separate FDA authorization requests, one for adolescents ages 12-17 & another for kids ages 6-11.  The biotech company said it will also ask the FDA to clear the shots for the youngest children, 6 months thru 5-years-old, later this year.  The Centers for Disease Control & Prevention (CDC) said it expects children to become eligible for the omicron boosters by mid-Oct pending authorization by the FDA.  The CDC's vaccine advisory committee has meetings scheduled for Oct 19-20.  US health regulators cleared MRNA's omicron boosters for adults earlier this month.  The new shots target the omicron BA.5 subvariant as well as the original strain of Covid that first emerged in China in late 2019.  The FDA & CDC expect the new boosters to provide superior protection against infection & disease because they target the most common omicron subvariant.  The stock fell 68¢.
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Moderna asks FDA to authorize omicron Covid boosters for children as young as 6 years old

Gold futures settled at their lowest price since Apr 2020, under pressure as the $ soared versus major rivals & short-term bond yields jumped amid fears aggressive monetary tightening by central banks could spark a global recession.  Gold for Dec fell $25 (1.5%) to settle at $1655 an ounce, the lowest for a most-active contract since early Apr 2020.  For the week, prices ended 1.7% lower.  Gold failed to benefit today from its status as a haven during periods of geopolitical & economic uncertainty.  The pressure on gold is coming under in the current macroeconomic environment, with interest rates going up across the world & likely to continue doing so for a number of months yet, means it is hard to see how the metal can make gains with the question more about how low it will go.  The $ continued ita march higher with the ICE US Dollar Index at its highest in more than 20 years.  A rising $ makes commodities prices in unit more expensive to users of other currencies.  The main supportive factor for gold remains the war in Ukraine, after Russian Pres Vladimir Putin this week moved to escalate the conflict & hinted at the potential use of nuclear weapons 

Gold futures settle at lowest in more than 2 years as dollar, yields soar

Oil futures declined with US prices dropping below $80 a barrel to settle at their lowest since Jan.  Economic turmoil is putting oil on track for its first quarterly loss in 2 years as the market focuses on the potential coming recession inspired by aggressive Federal Reserve policy & is not focused currently on the undersupplied supply squeeze that is facing the world this winter.  Nov WTI crude fell $4.75 (5.7%) to settle at $78.74 barrel. 

U.S. oil futures drop below $80 barrel to settle at lowest since January

There was a little bargain hunting into the close, but not enough to make big difference.  The Dow finished down 1230 this week & closed below the important 30K support level.  The outlook continues to be gloomy as the effects if higher interest rates are just beginning to be felt by so many people.  

Dow Jones Industrials