Friday, September 15, 2023

Markets fall as UAW launchs a historic strike at select auto plants

Dow dropped 187, decliners over advancers about 2-1 & NAZ retreated 183.  The MLP index was steady in the 243s & the REIT index was off 2+ to the 263s.  Junk bond funds were little changed & Treasuries had a little selling, driving yields higher (more below).  Oil rose again to almost 91 & & gold went up 18 to 1951.

AMJ (Alerian MLP Index tracking fund)


 

 




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The United Auto Workers (UAW) union went on strike at 3 plants owned by the Big Three automakers – General Motors (GM), Ford (F) & Stellantis (STLA) – after the 2 sides did not reach a new labor deal.  The workers are striking at a GM plant in Wentzville, Missouri; a STLA plant in Toledo, Ohio; & a Ford plant in Wayne, Michigan.  Plants that were not called upon to strike will work without a contract, UAW President Shawn Fain said.  "The UAW Stand Up Strike begins at all three of the Big Three," the union said in a post on X shortly after midnight.   Fain says this strategy will keep the automotive corps guessing, with leadership determining further strikes.  The main point of contention between the 2 sides is higher pay, with Fain saying the union is seeking a more than 40% general pay raise for rank-&-file members over 4 years.  Full-time assembly plant workers at Ford & GM earn $32.32 an hour, while part-timers currently make about $17 an hour.  Full-time employees at STLA earn $31.77 an hour & part-time workers earn close to $16 an hour.  The union is also pushing for making all temporary workers at the automakers permanent, cost-of-living adjustments, increases in pension benefits for current retirees & restoring pensions for new hires, among other benefits.  Fain has called the demands the "most audacious and ambitious list of proposals they've seen in decades."  Experts say the strike could cost the US economy Bs of $s.  That is according to a new analysis from the Anderson Economic Group, a Michigan-based think tank that specializes in the economic impact of labor strikes.  The report estimates that economic losses from a 10-day work stoppage could cost about $5.6B.

UAW strikes at Detroit Big Three after no new contract reached

Treasury yields climbed as markets absorbed the latest economic data & investors considered what it may mean for interest rates.  The 10-year Treasury yield was trading 3 basis points higher at 4.322% & the 2-year Treasury  yield was last up by less than 2 basis points to 5.0283%.  Yields & prices move in opposite directions & 1 basis point equals 0.01%.  Economic data points provided a mixed bag on inflation.  Import prices rose 0.5% in Aug, more than expected, on the back of higher energy costs, while export prices jumped 1.3%.  Both were the highest in more than a year.  However, the University of Michigan's consumer sentiment report showed a sharp drop in inflation expectations.  The one-year outlook slid to 3.1%, while the 5-year outlook dropped to 2.7%.  Those were tied for multi-year lows & likely to play a role in the Federal Reserve's thinking when it meets next week.  Those reports followed data earlier in the week on consumer & producer prices that also reflected inflation that was moderating, at least at the core level.  Yesterday, retail sales data came in far stronger than expected at 0.6% for Aug, higher than the previously anticipated 0.1%, suggesting consumer resilience.  The Fed is due to meet next week & markets are widely expecting rates to be kept unchanged.  However, the picture is less clear beyond then & investors will be looking for guidance about what to expect from the Fed's policy decisions slated for Nov & Dec. 

Treasury yields rise as investors digest inflation data

The average 30-year fixed-rate mortgage was 7.18% for the latest week, up from its 7.12% average last week, according to the latest data by Freddie Mac.  At the same time, the average 15-year fixed-rate mortgage rate was 6.51%, down from last week when it averaged 6.52%.  The movement comes as the Federal Reserve considers raising interest rates once more in light of heightened inflation, a resilient labor market and& robust consumer spending.  "Mortgage rates inched back up this week and remain anchored north of seven percent," Freddie Mac Chief Economist Sam Khater said.  "The reacceleration of inflation and strength in the economy is keeping mortgage rates elevated."  But experts are torn as to whether the Fed will hike interest rates a 12th time since last year at its next meeting scheduled for next week.  Savvy homebuyers could still find the best rates by exploring their options.  "Potential homebuyers can still benefit during these times of high mortgage rates by shopping around for the best rate quote," Khater said.  "Freddie Mac research suggests homebuyers can potentially save $600-$1,200 annually by applying for mortgages from multiple lenders."

Mortgage rates rise ahead of September Fed meeting

The strike has the makings of an ugly one.  Meanwhile high interest rates will continue to be a drag on the economy.

Dow Jones Industrials

 






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