Markets open lower as Pelosi's plane lands in Taiwan

Dow dropped 177, decliners over advancers 4-3 & NAZ went up 24.  The MLP index fell 2 to the 209s & the REIT index was off 1 to the 435s.  Junk bond funds edged higher & Treasuries were sold, raising yields.  Oil was flattish at 94 after yesterday's big drop & gold continues rising, adding 8 to 1796.

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The number of job openings declined more than expected in Jun, according to the latest data from the Labor Dept.  There were 10.7M positions available for the month, a slight dip from an upwardly revised 11.3M in May, the Bureau of Labor Statistics reported.  The latest check on hiring is also down from a record 11.85M in Mar.  The data, while improving, still reflects a historically tight labor market creating challenges for companies hiring & retaining workers.  The number of jobs that still need to be filled, about 6M, exceeds the number of people looking for work.  The data is also viewed as a precursor to the monthly jobs data due on Fri.  Employers are expected to have added 250K jobs last month, down from the 372K created in Jun & the unemployment rate is expected to remain at 3.6%.

Job openings dipped in June, labor market still tight

Pres Biden named a team of disaster management & health officials to lead the US response to the monkeypox outbreak as infections continue to rise.  Biden appointed Robert Fenton, an administrator with the Federal Emergency Management Agency, as the head of US efforts to quash the outbreak.  Fenton currently leads the FEMA region that includes California, one of the states hardest hit by monkeypox.  The pres named Demetre Daskalakis, director of the Centers for Disease Control & Prevention’s division of HIV prevention, as the US deputy monkeypox response coordinator.  Daskalakis is an expert on health issues affecting the LGBTQ community, the White House said.  Fenton & Daskalakis will work with state & local authorities to ensure they have enough tests, vaccines & antiviral treatments to fight the virus, according to the White House.  They will also assist with efforts to educate the public on how the virus spreads.  The US has reported nearly 6K cases of monkeypox across across 48 states, DC & Puerto Rico.  The outbreak has spread swiftly since health authorities in Boston confirmed the first US case in May.  California, Illinois & New York, home to the nation's 3 largest cities, are the hardest hit states.  The governors in all 3 states have declared emergencies in response to the outbreak.

Biden names team to manage U.S. monkeypox response as outbreak grows

US gov debt prices traded lower as investors awaited new jobs data & monitored House Speaker Nancy Pelosi's trip to Asia.  The yield on the benchmark 10-year Treasury note rose to 2.611% & the yield on the 30-year Treasury bond ticked up slightly to 2.927%.  Yields move inversely to prices.  The moves come at a time when many investors are questioning whether the Federal Reserve will have to reduce the pace of monetary tightening, given that several economic readings have shown the US economy is slowing down.  Investors are also monitoring US-China relations as Pelosi is expected to meet with Taiwanese officials despite objections from China.

U.S Treasury yields move higher ahead of Pelosi’s expected Taiwan visit

The goings on with China are bringing a high level of drama to the stock market.  All eyes are watching developments.  At the same time earnings are coming & new ones tend to be weaker.

Dow Jones Industrials

 

Markets churn on the first day of the month

Dow finished down 46 after staying fairly close to breakeven for much of the session, advancers ahead of decliners 5-4 & NAZ slid back 21.  The MLP index was steady in the 211s & the REIT index retreated 3+ to the 436s.  Junk bond funds continued in demand & Treasuries rose in price.  Oil sank 4+ to the 93s & gold added 5 to 1787 (more on both below).

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Economic activity in the manufacturing sector grew in Jul. with the overall achieving  ta 26th month of growth.  The report was from the Institute for Supply Management^® (ISM^®) Manufacturing Business Survey Committee:  "The July Manufacturing PMI^® registered 52.8%, down 0.2 percentage point from the reading of 53% in Jun.  This figure indicates expansion in the overall economy for the 26th month in a row after a contraction in Apr & May 2020, the lowest Manufacturing PMI figure since Jun 2020, when it registered 52.4%.  The New Orders Index registered 48 percent, 1.2 percentage points lower than the 49.2 percent recorded in Jun & the Production Index reading of 53.5 percent is a 1.4-percentage point decrease compared to Jun's figure of 54.9%.  The Prices Index registered 60%, down 18.5 percentage points compared to the Jun figure of 78.5%; the index's lowest reading since Aug 2020 (59.5%).  The Backlog of Orders Index registered 51.3%, 1.9 percentage points below the Jun reading of 53.2%.  The Employment Index contracted for a 3rd straight month at 49.9%, 2.6 percentage points higher than the 47.3% recorded in Jun.  The US manufacturing sector continues expanding — though slightly less so in Jul — as new order rates continue to contract, supplier deliveries improve & prices soften to acceptable levels.

Manufacturing PMI® at 52.8%; July 2022 Manufacturing

Inflation has been causing economic hardship for workers across all income levels.  As of Jun, 61% of Americans — roughly 157M adults — lived paycheck to paycheck, according to a new LendingClub report.  That's up from 58% who reported living paycheck to paycheck in May.  A year ago, the number of adults who felt stretched too thin was 55%.  Even top earners have been struggling to make ends meet, the report found.  Of those earning $200K or more, 36% reported living paycheck to paycheck, a jump from the previous month.  Another recent survey, from consulting firm Willis Towers Watson, estimated 36% of those earning $100K or more said they were living paycheck to paycheck.  Although average hourly earnings are up 5.1% from a year ago, prices have been rising even faster, especially for groceries and —until quite recently — gasoline, so paychecks can’t stretch as far.  The Consumer Price Index, which measures the average change in prices for consumer goods & services, jumped a higher-than-expected 9.1% in Jun, the fastest pace since 1981.

61% of Americans are now living paycheck to paycheck after inflation spike

Ford (F) is adding a new off-road-ready package to its Maverick pickup in a bid to extend the sales success of its hot-selling small truck.  The new Maverick Tremor package includes a beefed-up, higher-riding suspension & a new all-wheel-drive system system powered by Ford's 2-liter EcoBoost turbo 4-cylinder engine.  The package gives Maverick buyers access to an option that has proven popular on Ford's larger pickups, said Todd Eckert, manager of Ford's pickup marketing.  “Ranger, F-150 and Super Duty customers have embraced” the Tremor off-road packages that Ford has offered on those larger trucks, Eckert said.  With the new Tremor package for Maverick, Ford aimed to bring similar off-road capabilities to the small truck while retaining its easy-to-park size & affordable price.  The Tremor package will cost about $3000 & buyers will be able to order it starting in Sep.  The stock rose 64¢.
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Ford is adding an off-road package to its hot-selling Maverick compact pickup

Gold settled higher, continuing to rally after cementing their best weekly performance since Mar.  Gold futures for Dec gained $5 to settle at $1787 per ounce, with the yellow metal booking a 4th straight day in a row of gains, its longest streak since May 24.  Strategists warned that the latest rally has been driven by the perception that the Federal Reserve is planning to slow the pace of rate hikes.  The rally could reverse if investors abandon the view that the Fed already may be looking to curtail the pace of rate hikes in response to a slowing US economy.  A large portion of the recent bounce, which gold has also been a beneficiary of, has been predicated on future Fed rate hikes being smaller with fewer of them required.  But if this proves false dawn then a fresh slide of gold can be expected,

Gold, silver end higher Monday, extending rally after best week since March

Oil futures ended sharply lower after clinching their 2nd straight monthly loss in Jul as recession fears weigh on commodity prices.  West Texas Intermediate crude for Sep fell $4.73 (4.8%) to close at $93.89 a barrel.  Oct Brent crude, the global benchmark, declined $3.94 (3.8%) to settle at $100.03 a barrel.  Chinese manufacturing activity unexpectedly contracted in Jul, as Beijing's COVID-19 restrictions & weak demand undercut hopes for a more robust economic revival.  The official manufacturing purchasing managers index pulled back to 49.0 in Jul from 50.2 in Jun, China's National Bureau of Statistics said.  The result left the index below the 50 level that separates expansion from contraction & short of the forecast of 50.3.  The Institute for Supply Management reported that its closely followed manufacturing gauge dipped to 52.8% in Jul from a reading of 53% a month earlier.  Economists had expected the index to come in at 52.1%.  While any number above 50% signifies growth, the latest reading was the weakest since Jun 2020.  Oil traders were focused on the upcoming meeting of OPEC+, set for Wed.  Disappointing economic data out of China & other Asian economies also weighed on oil prices by undercutting hopes for a rebound.  The Markit-Caixin purchasing managers index, a monthly indicator of business conditions in China's manufacturing sector, came in weaker than expected  — coming in at 50.4, compared with the 51.5 estimate.

Oil ends sharply lower as traders fear slowdown will weigh on demand

Recent data is showing the economy is slowing.  At the same time, high inflation persists while Treasury yields are off sharply from mid Jun.  The Fed will have its hands full raising rates without causing damage to the economy.

Dow Jones Industrials

Markets edge higher waiting for earnings and the Friday jobs report

Dow rose 71, advanvers & decliners exactly even & NAZ went up 95.  The MLP index was off 1+ to 210 & the REIT index fell 2+ to the 437s after a strong week.  Junk bond funds crawled higher & Treasuries were purchased, lowering yields.  Oil pulled back 5 to the 93s & gold added 2 to 1765.

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The Federal Reserve Bank of Minneapolis Pres Neel Kashkari said that the current state of inflation is "very concerning" & "spreading out more broadly across the economy."  "It’s very concerning. We keep getting inflation readings, new data that comes in as recently as this past week, and we keep getting surprised. It’s higher than we expect," Kashkari added.  "And it’s not just a few categories. It’s spreading out more broadly across the economy and that’s why the Federal Reserve is acting with such urgency to get it under control and bring it back down."  He stressed that although wages are increasing for many Americans, so are the costs of goods and services, which means workers experience a "real wage cut" because inflation is growing so quickly.  He said wage-driven inflation is not happening & the cost of goods is partially due to disruptions in the supply chain, namely caused by the pandemic & now the war in Ukraine.  "For most Americans, their wages are going up, but they’re not going up as fast as inflation, so most Americans’ real wages, real incomes are going down," he added.  "They’re getting a real wage cut because inflation is growing so quickly. I mean typically, we think about wage-driven inflation where wages grow quickly and that leads to higher prices in a self-fulfilling spiral – that is not yet happening. High prices and wages are now trying to catch up to those high prices. Those high prices are now being driven by supply chains and the war in Ukraine among other factors. And so we need to get the economy back into balance before this really does become from a very wage drive inflation story."  Noting the recent results of the economic cost index, he stressed that it's a good thing Americans are earning more, but the Federal Reserve cannot wait for the supply chain to adjust to get prices down.  "Just at its basic level, inflation is when demand is outstripping supply. We know supply is low because of supply chains, because of the war in Ukraine, because of COVID. We hoped that supply would come online more quickly. That hasn't happened," Kashkari continued.  "So, we have to get demand down in the balance. Now, I hope we get some help on the supply side, but that doesn't change the fact that the Federal Reserve has its job to do, and we are committed to doing it."  "We cannot wait till supply fully heals. We have to do our part with monetary policy," he added.  Kashkari argued that the new bill introduced by Sens Chuck Schumer & Joe Manchin, dubbed the Inflation Reduction Act is "not going to have much of an impact on inflation" over the next several years, & it will be the Federal Reserve's job to adjust monetary policies to get it down.

Minneapolis Fed president sends dire warning about inflation

Treasury yields rose in early trading to begin Aug as investors continue to assess the prospects for an economic recession.  The yield on the benchmark 10-year Treasury note was up at 2.658% while the yield on the 30-year Treasury bond climbed to 3.02%.  Yields move inversely to prices.  The 2-year yield also gained to just above 2.9%, meaning the closely watched 2-year/10-year yield curve remains inverted, a situation often interpreted as a sign of impending recession.  The stock market is coming off its strongest month since 2020 as longer-term interest rates moderated slightly & investors found a relief rally after months of deepening pessimism, with corp earnings offering some reprieve.  The big data point this week will be Fri's nonfarm payrolls report from the Bureau of Labor Statistics, which will give more insight into the strong labor market.  So far this year, the solid growth of jobs has prompted economists to say the US is currently not in a recession, even with 2 consecutive qtrs of GDP contraction.

Treasury yields climb to start August as investors weigh recession prospects

Rising mortgage rates & inflation in the wider economy caused housing demand to drop sharply in Jun, forcing home prices to cool down.  Home prices are still higher than they were a year ago, but the gains slowed at the fastest pace on record in Jun, according to Black Knight, a mortgage software, data & analytics firm that began tracking this metric in the early 1970s.  The annual rate of price appreciation fell 2 percentage points from 19.3% to 17.3%.  Price gains are still strong because of an imbalance between supply & demand.  The housing market has had a severe shortage for years.  Strong demand during the coronavirus pandemic exacerbated it.  Even when home prices crashed dramatically during the recession of 2007-09, the strongest single-month slowdown was 1.19 percentage points.  Prices are not expected to fall nationally, given a stronger overall housing market, but higher mortgage rates are certainly taking their toll.  The average rate on the 30-year fixed mortgage crossed over 6% in Jun, according to Mortgage News Daily.  It has since dropped back in the lower 5% range, but that is still significantly higher than the 3% range rates were in at the start of this year.  Markets seeing the sharpest drops are those that previously had the highest prices in the nation.  The cooling in prices coincides with a sharp jump in the supply of homes for sale, up 22% over the last 2 months, according to Black Knight.  Inventory is still, however, 54% lower than 2017-19 levels.  Despite that, the strong demand in the market recently could present a problem for some.  About 10% of mortgaged properties were purchased in the last year, so price drops could cause some borrowers to edge much lower in their equity positions.

Home prices cooled at a record pace in June, according to housing data firm

Markets are meandering waiting for Jul data which will be released shortly.  Meanwhile the inverted yield curve (see above) is troubling for the bulls when they make their case.

Dow Jones Industrials