Dow rose 258, advancers over decliners 3-1 & NAZ gained 149. The MLP index added 1+ to the 232s & the REIT index went up 2+ to the 404s. Junk bond funds edged higher & Treasuries had limited buying which lowered yields (more below). Oil slid back pennies in the 79s & gold was off 11 to 1863.
AMJ (Alerian MLP Index tracking fund)
Americans in DC & Texas said how they're coping with rising prices at the supermarket, with some concerned about the surge. "I was really shocked at sparkling water prices today, the fact that they've gone up substantially," Kim, an Austin resident, said. Devontae, of DC, said he only recently noticed a spike in grocery prices. "I just went grocery shopping for the month," he said. "And last time I went grocery shopping for the month, I didn't really notice the price increase." "But this time I did," Devontae continued. "And it's probably because things have not just gone up a few cents or a dollar. It's like they've gone up $2, $3." Inflation & shortages of some food items have caused the price of grocery staples to surge in recent months. The price of eggs spiked 60% year-over-year in Dec, for example, after an Avian flu outbreak affected roughly 60M birds nationwide last year. Overall food prices in America increased 10.4% year-on-year in Dec, according to data from the Bureau of Labor Statistics. The same data showed that overall inflation spiked 6.5% in Dec compared to the previous year. "I think everything's kind of high right now," Kevin, of DC said. "Eating out and going to the grocery store, it's almost about the same price." Kim said she was uneasy at the prospect of supermarket prices continuing to rise. "Proteins and other sorts of grocery items are definitely a concern," the mother of 3 added.
Relentless inflation and surging grocery prices have Americans on edge
Treasury yields were mixed, as investors awaited key inflation data & fretted over the potential impact on future Federal Reserve monetary policy decisions. The yield on the 10-year Treasury was down by 1.7 basis points at 3.73% & the 2-year Treasury yield, meanwhile, gained 3.6 basis points to trade at 4.547%. Yields & prices move in opposite directions, & one basis point is equivalent to 0.01%. Key inflation data, including the consumer price index report for Jan, is expected tomorrow. Many investors are hoping for figures that indicate inflation is easing. The Federal Reserve has been working to cool the economy thru policy measures including increasing interest rates. Concerns have spread over the pace of rate hikes & the prospect that keeping them higher for longer will drag the US economy into a recession. Many investors are hoping for the Fed to pause rate increases this year. Last week, several central bank officials hinted that rates could go higher, but that they would base any policy decisions on economic data.
Treasury yields are mixed as investors consider the outlook for inflation
As the markets prepare for the latest consumer price index data tomorrrow, logistics managers are warning of a persistent source of inflation in the supply chain & saying consumers should be ready for the impact it will have on their wallets. While many sources of supply chain inflation that stoked higher goods prices have come down sharply, including ocean freight rates & transportation fuels, bloated inventories due to a lack of consumer demand are sustaining upward pressure on warehouse rates. “In 2022, we saw rate levels for international air and ocean and domestic trucking fall back down to earth,” said Brian Bourke, global chief commercial officer at SEKO Logistics. “But inflationary pressures remain where demand outpaces supply in 2023, including in warehousing through most of the United States, domestic parcel and labor.” One reason for the imbalance between warehouse supply & demand is the lack of new facilities coming into the market. “National warehousing capacity remains low and will remain tight for the foreseeable future as U.S. industrial construction starts have fallen considerably year-over-year due to rising interest rates,” said Chris Huwaldt, VP of solutions at WarehouseQuote. Consumer prices have come down sharply as goods inflation that surged during the pandemic has cooled. And Federal Reserve Chair Jerome Powell expressed confidence after the most recent FOMC meeting that “disinflation has begun.” Dec's CPI was the smallest year-over-year increase since Oct 2021, at 6.5% on an annual basis, down from a 9.1% peak in Jun 2022. The Fed is now more focused on services inflation, in particular labor prices, as it expects the pressure in goods inflation to continue a downward trend. But the logistics issues suggest there will be some elements of sticky inflation on the goods side of the equation.
A new inflation warning for consumers is coming from the supply chain
Tomorrow's inflation data is likely to be mild relative what was reported in recent months. However, consumers are still adjusting to higher prices & services on many products they buy. The yield on the 2 year Treasury is high (see above) which is a troubling sign from investors who are nervous about the negative impact high interest rates will have on the economy.Dow Jones Industrials
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