Dow sank 413 (session lows), decliners over advancers 2-1 & NAZ declined 299. The MLP index fell 2+ to 210 & the REIT index dropped 6+ to the 481s. Junk bond funds fluctuated & Treasuries continued to be sold, raising yields. Oil sank 4+ to the 94s on increased oil being released to the markets & gold added 7 to 1953 (more on both below).
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Americans' inflation fears skyrocketed again in Mar, with concerns over rising prices hitting the highest level in more than a decade, according to a key Federal Reserve Bank of New York survey. The median expectation is that the inflation rate will be up 6.6% one year from now, topping an 11-year-high recorded in Feb, according to the New York Federal Reserve's Survey of Consumer Expectations, which dates back to 2013. 3 years from now, consumers see inflation hitting 3.7% – down slightly from 3.8% the previous month & well below the peak of 4.2% recorded in late 2020. "Median inflation uncertainty—or the uncertainty expressed regarding future inflation outcomes—increased at the short-term horizon, reaching a new series high," the survey added. "At the medium-term horizon, median inflation uncertainty remained unchanged at a series high." With consumers raising their expectations for inflation over the next year, they believe that things like gasoline, food, medical care, rent & college tuition will get more expensive for them to buy. The report is based on a rotating panel of 1300 households. The survey plays a critical role in determining how Fed policymakers respond to the recent inflation spike. That's because actual inflation depends, at least in part, on what consumers think it will be. It's a sort of self-fulfilling prophecy – if everyone expects prices to rise by 3% in the year, that signals to businesses that they can increase prices by at least 3%. Workers, in turn, will want a 3% pay raise to offset the rising costs. Chair Jerome Powell expressed concern during the central bank's Mar policy-setting meeting that a recent oil & gas price spike triggered by the Russian war in Ukraine could push already very steep prices even higher, causing concern for consumer inflation expectations. "The risk is rising that an extended period of high inflation could push longer-term expectations uncomfortably higher," Powell said.
Americans' inflation fears go through the roof, hitting 11-year high
US banks have a streak of increasing deposits as a group every year since at least World War II. This year could break it. Over the past 2 months, bank analysts have slashed their expectations for deposit levels at the biggest banks. The 24 institutions that make up the benchmark KBW Nasdaq Bank Index are now expected to see a 6% decline in deposits this year. Those 24 banks account for nearly 60% of what was $19T in deposits in Dec, according to the Federal Deposit Insurance Corp. While some analysts doubt the full-year decline will happen, even the possibility would have been unthinkable a few months ago. Bank deposits have grown sharply at unprecedented during the pandemic. At the end of Feb, analysts were forecasting a 3% increase. But they have cut $1T from their estimates since then. The swift change in expectations is an important indication of how the Federal Reserve's hiking cycle is landing on the financial economy. Forecasts from Fed officials & economists now call for sharp increases in the Fed's core interest rate to combat inflation. That will ripple through the banking industry in myriad, somewhat unpredictable ways. How consumers & businesses handle their stored-up cash will be among the most closely watched results of the Fed's action. A decline isn't going to hurt the banks. The flood of deposits had become a headache as it had big banks nearing regulatory limits on their capital. Banks had already been pushing many depositors aside because they weren't able to put the money to work as loans. The industry has $8.5T more in deposits than loans. While loan demand is expected to increase & the banks need deposits to fund the lending, that is more than enough.
Bank deposits could drop for first time since World War II
As Americans feel increased pressure at the pump, the average driver is spending 2.24% of their monthly income on gas, while pickup truck & SUV drivers shell out as much as 3.12%, on average, according to a recent report by FinanceBuzz based on data from the Dept of Transportation, the Census Bureau & AAA. Nearly 75% of S drivers said they are already suffering financially due to the high cost of fuel, according to a separate report by NBC News poll also found 8 in 10 Americans worry the war between Russia & Ukraine will continue to increase gas prices. More than 25% of those polled by DebtHammer said they’re either racking up debt or can't afford to pay a bill because of the extra money they’re spending on gas. Another 44% said they've had to cut back in other areas, such as clothing & eating out, to offset the additional expense. To combat the spike in energy costs nationwide, the White House said it will release 1M barrels of oil per day from the strategic reserves. The increased supply should help push prices down, since more than 50% of the cost of gasoline is based on the price of oil, according to the Energy Information Administration. Already, the national average for a gallon of regular gasoline fell 3¢ last week to $4.15 but remains significantly higher than the $2.87 seen one year ago. Some states have also introduced “gas tax holidays” to ease the burden on drivers.
Report: Americans spend more than 2% of income on gasoline
Gold futures settled higher for a 3rd straight session, as investors shook off a continued rise in Treasury yields to focus on inflation. Gold for Jun rose $2 to settle at $1948 an ounce, after rising 1.1% last week. Prices based on the most-active contract ended at their highest since Mar 31. Investors will look to the latest US economic data for hints on the outlook for gold, with US inflation running at its hottest in nearly 40 years. Earlier today, data from the New York Federal Reserve showed another rise in short-term inflation expectations, but medium-term expectations fell. The median one-year-ahead inflation expectations rose to a new series high of 6.6%, from 6.0% in Feb. The NY Fed also reported that median 3-year ahead inflation expectations fell to 3.7% from 3.8%. The Mar consumer-price index is due tomorrow, while the producer-price index for last month is set for release on Wed. Thurs brings the University of Michigan preliminary Apr consumer sentiment readings, including its gauge of 5-year inflation expectations.
Gold settles higher for a third straight session ahead of this week’s inflation data
Chicago Federal Reserve Bank Pres Charles Evans signaled he would not necessarily oppose getting interest rates up to a neutral setting of 2.25-2.5% by the end of the year, a pace that would require a couple of 50 basis-point rate hikes at upcoming Fed meetings. "Fifty is obviously worthy of consideration; perhaps it's highly likely even if you want to get to neutral by December," Evans said. But, he added, the Fed should not raise rates so fast that it doesn't have enough time to assess inflation pressures & adjust policy in response. "I think the optionality of not going too far too quickly is important," he added. "I would focus the attention on where do we want to be at the end of the year." The Fed raised rates last month for the first time in 3 years & with inflation accelerating is expected to ramp up its pace of rate hikes with ½-percentage-point increases for a couple meetings instead of the usual ¼-point increments. Evans, long on the dovish end of the Fed policymaker spectrum, said he had thought the Fed should get interest rates up to a 2.25-2.5% range over the next year, but today said he doesn't think that speeding that process up by 3 months will hurt the economy. "I think there's good momentum for the economy" & vibrant labor markets will continue as rates rise toward neutral, he said. But once rates get there, he said, the Fed needs to be "mindful" of the outlook for the economy & the state of inflation. "Is it going to be that some of these pricing pressures have crested, and they start coming down? Or are they going to stay high — or are they going to be higher?" Evans continued. "And if it's because of supply concerns, real resource pressures, there's going to be a lot of gnashing-of-teeth angst over the inflation versus the concern for the economy. And I think finding the right balance is going to always be at a premium."
Fed's Evans: half-point hike 'worthy' of consideration
Oil futures declined, with the global benchmark settling below the $100-a-barrel threshold for the first time since mid-Mar, as China's COVID-19 lockdowns amplified worries over crude demand. West Texas Intermediate (WTI) crude for May fell $3.97 (4%) to settle at at $94.29 a barrel after suffering back-to-back weekly losses. Prices logged the lowest finish since Feb 25. Jun Brent crude, the global benchmark, lost $4.30 (4.2%) to settle at $98.48, the lowest front-month contract finish since Mar 16. Brent fell 1.5% last week to leave it down 14.8% over the last 2 weeks. Oil has seen volatile trade since Russia’s invasion of Ukraine in late Feb, with WTI briefly trading above $130 a barrel & Brent nearly touching $140 in early Mar. Based on most actively traded contracts, WTI had closed at $92.10 a barrel on Feb 23, the eve of the invasion; & Brent had settled at $94.05. China's lockdown of Shanghai, the country’s largest city with more than 25M people that also serves as its financial hub, has also served to pull crude prices back down. Still, oil prices traded off the session’s lows as OPEC+ told the EU that current & future sanctions on Russia could create one of the worst ever oil supply shocks, according to Secretary General Mohammad Barkindo's speech to EU officials. Barkindo also said the market may lose more than 7M barrels per day of Russian oil & other liquids exports from current & future sanctions, or voluntary actions.
Global oil benchmark ends below $100 a barrel as China COVID lockdowns continue
There was heavy selling in the last hour. Investors, spoiled by low interest rates, are very nervous about what the inflation data will show this week.
Dow Jones Industrials
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