Monday, August 12, 2024

Markets hesitate as events in the MidEast drive gold to a new record

Dow dropped 140 (not far from session lows), decliners over advancers better than 3-2 & NAZ edged up 35.  The MLP index declined 4+ to the 269s & the REIT index pulled back 3+ to the 406s.  Junk bond funds were little changed & Treasuries saw buying which reduced yields.  Oil shot up almost 3 to the 79s & gold surged 37 to 2510 for a new record (more on both below).

Dow Jones Industrials 

Consumers grew more confident in Jul that inflation will be less of a problem in the coming years, according to a New York Federal Reserve report that showed the 3-year outlook at a new low.  The latest views from the monthly Survey of Consumer Expectations indicate that respondents see inflation staying elevated over the next year but then receding in the next couple of years after that.  The 3-year portion of the survey showed consumers expecting inflation at just 2.3%, down 0.6 percentage point from Jun & the lowest in the history of the survey, going back to 2013.  The results come with investors on edge about the state of inflation & whether the Federal Reserve might be able to reduce interest rates as soon as next month.  Economists view expectations as a key for inflation as consumers & business owners will adjust their behavior if they think prices & labor costs are likely to continue to rise.  On Wed, the Labor Dept will release its own monthly inflation reading, the consumer price index, which is expected to show an increase of 0.2% in Jul & an annual rate of 3% estimates show.  That's still a full percentage point away from the Fed's 2% goal but about 1/3 of where it was 2 years ago.  Markets have fully priced in the likelihood of at least a ¼ percentage point rate cut in Sep & a strong likelihood that the Fed will lower by a full percentage point by the end of the year.  While the medium-term outlook improved, inflation expectations on the 1 & 5-year horizons stood unchanged at 3% & 2.8%, respectively.  However, there was some other good inflation news in the survey.  Respondents expect the price of gas to increase by 3.5% over the next year, 0.8 percentage point less than in Jun & food to see a rise of 4.7%, which is 0.1 percentage point lower than a month ago.  In addition, household spending is expected to increase by 4.9%, which is 0.2 percentage point lower than in Jun & the lowest reading since Apr 2021, right around the time when the current inflation surge began.

Three-year inflation outlook hits record low in New York Fed consumer survey

With many economists & Americans recently confirming their feelings of recessionary pressures, the head of 1 of the country's largest banks is giving his pulse on how people are spending their money & their impact on markets.  "The people who had an account with us in January 2020 before the pandemic, you look at them now, they're still sitting with much more, even inflation adjusted, much more in their account," Bank of America (BAC) Chair & CEO Brian Moynihan said.  "The problem is, [that] has started drifting down, which indicates that they're using that money now to maintain a lifestyle," he added.  At least 50% of Americans are carrying a higher balance today, on a month-to-month basis, than they were in Mar 2020, according to a recent survey from Bankrate.  This is up from just the 44% recorded this past Jan.  This comes at the same time that credit card debt hit another record high last week, rising to $1.14T, an increase of $27B (about 1%, from the previous qtr), Fed data shows.  It marks the highest level on record in Fed data dating back to 2003.  However, Moynihan pointed out that the bank has noticed consumers pulling slightly back on their spending throughout the 2024 summer months – but when they spend, it's at restaurants or on travel.  "But on the other hand, they are spending a little bit less. They're going to the food store the same number of times, [they’re] spending a little bit less, which means they're basically finding bargains and things like that," Moynihan said.  "And you're seeing corporations cut prices to respond to that. And so it's the way the economy works, and it's slowing down."  After the Federal Reserve's latest meeting left investors widely predicting a rate cut this Sep, he cautioned the central bank not to slow down "too much."  "Right now, where they are spending at is consistent," he added.

Bank of America CEO reveals where US consumer money is going and the 'problem' with it

The US is sending more troops & military hardware to the Middle East as it seeks to increase the resources available to “defend Israel,” the Pentagon said.  Defense Secretary Lloyd Austin “reiterated the United States’ commitment to take every possible step to defend Israel & noted the strengthening of US military force posture & capabilities throughout the Middle East in light of escalating regional tensions”  This includes sending a guided-missile submarine to the region, as well as accelerating the transit of a carrier strike group equipped with F-35C fighter jets.  The statement follows a call between Austin & Israel's defense minister, Yoav Gallant, yesterday.  It comes against the backdrop of Iran’s leadership vowing retaliation against Israel after the killing of Hamas' former political chief Ismail Haniyeh in Tehran on Jul 31.  Iran, which supports Hamas, says Israel carried out the assassination.  Tehran has not yet responded militarily to the act, leaving its adversaries & the wider region on tenterhooks.  The Biden administration has come under fire for its support of Israel, with critics saying that the US should be using its leverage to enforce a cease-fire & should halt its supply of arms to Israel.  Biden has criticized the Israeli offensive as “over the top” & repeatedly said that “too many” civilians have been killed.

U.S. sends more forces to the Middle East in anticipation of Iranian attack on Israel

Gold prices rose by more than 1% to hit the highest since Aug 2, driven by safe-haven inflows as traders awaited US inflation data this week that could shed more light on the Federal Reserve's interest rate cut path.  Spot gold rose 1.5% to $2468 per ounce & US gold futures settled 1.2% higher at $2504.  In the gold market there is some price support coming from bullish charts in gold prompting some technical buying.  Israeli forces pressed on with operations near the southern Gaza city of Khan Younis amid an intl push for a deal to halt fighting in Gaza & prevent a slide into a wider regional conflict with Iran & its proxies.  Investors will also be looking out for the US producer prices data tomorrow & consumer prices numbers on Wed for more clarity on inflation.  Bullion is considered a hedge against geopolitical & economic uncertainties & tends to thrive in a low-interest-rate environment.

Gold Rises Over 1% on Safe-Haven Demand

Oil prices rose for a 5th consecutive session, extending gains from the previous week's more than 3% rise, as US recession fears eased & Middle East supply risks provided support.  Brent crude futures were up 70¢ (0.9%) at $80.36 a barrel while West Texas Intermediate (WTI) crude futures rose 84¢ (1.1%) to $77.68.  Iran & Hezbollah have vowed to retaliate for the assassinations of Hamas leader Ismail Haniyeh & Hezbollah military commander Fuad Shukr.  In addition, the Israeli incursion into Gaza intensified on Sat when an airstrike on a school compound killed at least 90 people, according to the Gaza Civil Emergency Service, though Israel said the death toll was inflated.  Hamas cast doubt on its participation in new ceasefire talks yesterday.  The US deployed fighter jets and navy warships to the Middle East to bolster Israel's ability to defend any potential attack.  Brent gained 3.7% last week while WTI rose by 4.5%, buoyed by economic data & increased hopes of a cut to US interest rates.

Oil Extends Gains for Fifth Session on Mideast Tensions and US Data

Heightened tensions in the MidEast are getting more attention from investors & the nervous ones are buying gold.  One short term effect is the WTI is in the higher part its range in the last few years (mid 60s - mid 80s) & that may show up in inflation.

No comments: