Markets edge higher after very choppy trading

Dow gained 92, advancers over decliners 4-3 & NAZ crawled up 1.  The MLP index inched higher in the 211s & the REIT index was off to the 367s,  Junk bond funds fluctuated & Treasuries continued to be sold, raising yields sharply.  Oil rose to 76 & gold soared 29 to 1826 (more on both beloow).

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The US national debt is on track to continue surging over the next 3 decades, spiraling to a new high that could ultimately endanger the economy, according to a new analysis.  The findings from the Penn Wharton Budget Model, a nonpartisan group at the University of Pennsylvania's Wharton School, found that under current law, the national debt will rise to 225% of US GDP by 2050.  "Current U.S. fiscal policy is in permanent imbalance as current debt plus projected future spending outstrips future tax revenue," the analysis said.  "Achieving fiscal balance would require the federal government to permanently increase tax revenues by over 40% or reduce expenditures by 30% or some combination of both."  The national debt already hit $31T in Oct amid a slew of new spending by Pres Biden & Dem lawmakers.  Biden signed into law a health care & climate change spending bill – dubbed the Inflation Reduction Act – in early Aug that would spend an estimated $739B over the next decade.  Most of that revenue stems from new revenue generated by higher taxes; about half is slated to go toward paying down the debt.  However, that deficit reduction was offset by Biden's decision over the summer to cancel $10K in student loan debt for Ms of low-income Americans & $20K in debt for Pell Grant recipients.  Estimates have suggested the policy – which remains tied up in the court system – could cost as much as $1T if the Supreme Court does not strike it down.  Congress is also seeking to pass a roughly $1.7T gov funding bill that will keep the govt operating through the end of its fiscal year on Sep 30, 2023.  Although details of the omnibus bill are still being hashed out, it will include a record $858B for defense, additional & for Ukraine & funding for different federal gov agencies.  However, as the debt climbs higher, so do the interest payments on it:  In fiscal year 2022, interest payments on the national debt are projected to be the fastest-growing part of the federal budget, according to the Congressional Budget Office.  Payments are expected to triple from $400B in fiscal year 2022 to a stunning $1.2T in 2032 – a total of $8.1T over the next decade.

US debt will likely spiral to new highs, Penn Wharton warns

The Treasury Dept is delaying plans to issue proposed guidance for the sourcing of electric vehicle batteries for federal tax incentives from the end of this month to Mar.  The sourcing of materials & batteries for EVs is a major part of the Inflation Reduction Act's federal tax credits of up to $7500 for consumers, which was signed into law by Pres Biden in Aug.  That means some electric vehicles that are not expected to comply with the new standards will continue to be eligible for the credits until the proposed guidance issued.  Other non-battery elements of the IRA will still take effect Jan 1, including new income caps for eligible buyers and restrictions on vehicle pricing.  Some have argued the sourcing guidelines for vehicle materials are unrealistic given the current supply chain.  Other countries & non-domestic automakers such as Hyundai have argued the rules should be defined more broadly to allow some exemptions.  The Treasury said that it will issue the “anticipated direction of the critical mineral & battery component requirements” by the end of this month, & that nothing will take effect until the proposed guidance is issued in Mar.  The Inflation Reduction Act limits EV tax credits to vehicles assembled in North America & is intended to wean the US off battery materials from China, which reportedly accounts for 70% of global supply of battery cells for the vehicles.  For a $3750 critical minerals credit, the law states that 40% must be extracted or processed in the US or in a country where the US has a free-trade agreement, or from materials that were recycled in North America.  Credit for the other $3750 requires that at least 50% of battery components were manufactured or assembled in North America.  The percentage requirements for both rise annually to reduce reliance on foreign countries.

Treasury Dept delays electric vehicle tax credit guidance until Mar

Amid an ongoing energy crisis & 2 months of negotiations, ministers of energy for th EU agreed to a gas price cap.  The cap will be effective for 27 countries across the continent as officials hope the measure will help drive down energy costs amid record-high inflation caused by the lack of Russian gas following the invasion of Ukraine earlier this year.  Ministers have set the cap to activate if energy prices surpass €180, equivalent to $191, per megawatt hour for 3 days.  The benchmark for the prices is based on the Dutch Title Transfer Facility.  Moreover, the cap will trigger if prices are €35 higher than a reference price for liquid natural gas for 3 consecutive days.  "We have succeeded in finding an important agreement that will shield citizens from skyrocketing energy prices," said Jozef Sikela, an energy minister for the Czech Republic, during a press conference.  "We did our job, we have the deal. Another mission impossible accomplished," Sikela added.  Starting on Feb 15, 2023, the cap will be able to be triggered under the previously mentioned price conditions.  The other EU member states will formally approve the measure.  Previously, officials from Germany had raised concerns that the policy cap would make Europe less attractive to gas suppliers in the global markets.  However, officials did agree upon certain safeguards that would suspend the cap if gas supplies ran short or if it caused a significant drop in TTF trading.

EU countries set up gas cap to counter mounting energy crisis

Gold closed higher on a lower dollar, moving back above the $1800 mark as the $ weakened while bond yields were sharply higher following a decision by Japan's central bank to raise a cap on the yield of its 10-year bonds.  Gold for Feb closed up $27 to settle at $1824 per ounce.  The rise came despite turmoil in the bond market after the Bank of Japan raised the cap on the yield for its 10-year notes, allowing them to trade at interest rates up to 0.5%, up from 0.25%.  The rise in the cap encourages domestic buying of its bonds, luring investors away from US debt.  US yields surged following the decision, bearish for gold since it offers no interest.  The US 10-year note was last seen paying 3.696%, up 21.7 basis points.   However a lower $ offered support for the metal, with the ICE $ index last seen down 0.64 points to 104.08.

Gold Rises as the Dollar Weakens, Yields Surge, After Japan Moves to Raise Trading Band for its 10-Year Notes

Oil futures ended a choppy session on the plus side, finding support from a weakening $ as traders monitored a continued surge in COVID-19 cases in China.  West Texas Intermediate crude for rose 90¢ (1.2%,) to end at $76.09 a barrel.  Feb WTI, the most actively traded contract, gained 85¢ (1.1%,) to finish at $76.23 a barrel.  Feb Brent crude, the global benchmark, gained, 19¢ to close at $79.99 a barrel.  While China's relaxation of COVID curbs is seen as a potential long-term positive for crude, a surge in infections & fears of a heavy death toll have offset initial optimism.  A weaker $ was providing support for crude,. The $ fell versus major rivals, with the Japanese ¥ jumping after the Bank of Japan widened the band around the yield on the country's 10-year gov bond allowing it to trade 50 basis points on either side of 0% versus its previous band of 25 basis points.  The ICE US Dollar Index a measure of the currency against a basket of major rivals, was down 0.7%.  Crude is also finding underlying support from the Biden administration’s plan, announced Fri, to buy 3M barrels of crude in Feb to replenish the Strategic Petroleum Reserve.

Oil shakes off China COVID worries to end higher; natural gas extends slide

Buyers were nibbling today, but nothing decisive.  Maybe there will see more excitement tomorrow.

Dow Jones Industrials