Markets mixed following the jobs report

Dow up 33 after a late day rally,  advancers ahead of decliners 5-4 & NAZ slipped back 31.  The MLP index added 1 to the 226s & the REIT index eased back 1+ to the 389s.  Junk bond funds were little changed & Treasuries had a little buying.  Oil fell 1+ to 80 & gold was off 4 to 1810 (more on both below).

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US households have seen an increase year-over-year in total "hidden" or "often-overlooked" bill pay costs, according to a report from the online bill pay service Doxo.  The company said that its "The Hidden Costs of Bill Pay 2022" report found US households spent a total of $128B on detrimental credit impacts, overdraft fees, late fees & identity fraud costs per year.  That marks a $9B increase from 2021, when the market impact was $119B.  "Moderate increases across the board contributed to this spike, with the biggest increase coming from biller late fees and penalties," Doxo report said.  Credit costs, at $85B, made up the largest proportion of the $128B total for the four "hidden" bill pay cost categories.  Late & overdraft fees amounted to $20B & $16B respectively, compared to $15B & $1B last year, while identity fraud costs were $7B total for US households.  On a per-household basis, the total of these costs equated to $986 on average, including $54 for identity fraud costs, $119 for overdraft fees, $155 for late fees & $658 for credit costs.  Doxo also found that 86% of households indicated they had concern to some extent about potential bill pay impacts on their credit scores. Similar percentages of bill-paying consumers had other bill-pay concerns, with 85% saying they worried about stolen payment information & 84% pointing to identity fraud.  Nearly ¾ of bill-payers (71%) expressed concern about late fees, while 59% said they were worried about overdraft fees.  The respective percentages of households surveyed who reported incurring late fees or overdraft fees in the past year were close, with 32% saying they’d had at least one instance of the former & 30% saying they'd had at least one of the latter.  The typical household spends just over $24K per year on 10 bill categories, according to a Doxo report released in Oct.

US households see annual increase related to bill paying

The pace of job cuts by US employers accelerated in Nov, with the number of layoffs climbing 127% from just one month ago, according to a report published by Challenger, Gray & Christmas.  Companies announced 77K job cuts in Nov, led by the technology sector.  That is 417% higher than the same time one year ago.  So far this year, employers announced plans to cut more than 320K jobs, a 6% increase from the nearly 303K cuts announced in the equivalent time period last year.  About 80K of the cuts this year stem from the technology sector.  "The tech sector has announced the most job cuts this year by far," said Andrew Challenger, senior VP of Challenger, Gray & Christmas.  "While other industries are cutting jobs at a slower pace, hiring appears to have slowed as well."  A growing number of companies, particularly in big tech, are battening down the hatches as they warn of a grim economic outlook.  Major companies are either implementing hiring freezes or letting workers go as the Federal Reserve moves to raise interest rates at the fastest pace in decades in order to combat inflation.  Economists widely expect the Fed to trigger a recession with higher interest rates, which could force consumers & ultimately businesses to pull back on spending.  Fed policymakers have made it clear that they anticipate unemployment to climb as a result of their interest-rate hike campaign.  Updated projections from the Fed's meeting showed unemployment rising to 4.4% by the end of next year, up from the current rate of 3.5%.  That is significantly higher than in Jun when policymakers saw the jobless rate inching up to 3.7%.  That could mean roughly 1M Americans lose their jobs between now & the end of 2023.  Fed Chair Jerome Powell has conceded that higher rates could "give rise to increases in unemployment."

Job cuts surge as companies brace for economic downturn

The EU agreed to cap Russian seaborne oil prices at $60 a barrel, after several days of intense negotiations over an appropriate level.  The announcement comes after the G-7 group of advanced economies agreed in Sep to impose a limit on Russian seaborne crude and therefore constrain revenues the Kremlin makes from the commodity.  However, details on how the cap would work in practice have been debated & hashed out since that point.  Russia, amid its onslaught in Ukraine, has warned that an oil price cap could wreak havoc on the energy markets & push commodity prices even higher.  The price limit will be reviewed regularly to monitor its market ramifications, but it should be “at least 5% below the average market price,” an EU document with details of the cap said.  Negotiations had been held up by Poland, with ministers in Warsaw scrutinizing but then agreeing to the 5% adjustment mechanism.  A formal announcement is expected Sun.  Energy analysts have warned that the G-7 will need support from other major buyers if the cap is to be effective.  China & India, for instance, increased their purchases of Russian oil following the invasion of Ukraine to benefit from discounted rates offered by Moscow.  Kadri Simson, European commissioner for energy, said in Sep that China & India should support the measure.  “It is unfair to pay excess revenues to Russia,” Simson said at the time.  But there seems to be little appetite from these nations to comply with the cap.  India's petroleum minister, Shri Hardeep S Puri, said in Sep he has a “moral duty” to his country's consumers.  “We will buy oil from Russia, we will buy from wherever,” he added.

European Union officials set Russian oil price cap at $60 a barrel

Gold futures declined, but held onto a more than 3% gain for the week.  Gold prices dipped after a shockingly hot [U.S.] nonfarm payroll report brought back the $ to life.  Financial markets had to increase their Federal Reserve rate hiking expectations after wages surged in Nov.  Still, gold has had a nice rally since early Nov & a significant pullback doesn't seem warranted as the economy is slowing down inflation should steadily decline & justify a pause in Fed rate hikes after the first qtr.  Gold for Feb fell $5 to settle at $1809 an ounce. Based on the most-active contracts, prices rose 3.2% for the week.

Gold futures fall, hold onto a gain for the week

Oil futures finished with a loss, but ended higher for the week.  The rebound in crude-oil prices recently is due to optimism that even though China is battling rising COVID rates, authorities will be much more flexible in how they implement restrictions & lockdowns.  There is also concern that OPEC+ might announce further cuts to production at their monthly meeting Sun.  However, oil prices fell today following news that the EU agreed on a price cap of $60 for Russian seaborne oil, which some analysts said would have little impact.  US benchmark WTI crude for Jan fell $1.24 (1.5%) to settle at $79.98 a barrel.  For the week, prices based on the front-month contract still gained nearly 4.9%.

Oil futures settle lower ahead of the OPEC+ meeting and EU ban on Russian oil

Traders were undecided today.  Once again data is coming in mixed.  For the week Dow was up a measly 80.       

Dow Jones Industrials 

Markets slide while waiting for the November jobs report tomorrow

Dow lost 194, advancers over decliners 4-3 & NAZ crawled up 14.  The MLP index was off 1 to the 227s & the REIT index pulled back 1+ to the 391s.  Junk bond funds were mixed & Treasuries  saw very buying & Treasury yields plunged.  Oil was up about 1 to the 81s & gold surged 55 to 1815 (more on both below).

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US manufacturing activity contracted in Nov for the first time since the early days of the COVID-19 pandemic as steeper borrowing costs weighed on demand for goods.  The Institute for Supply Management said that its gauge measuring factory activity fell to 49 from 50.2 in Oct, marking the first contraction & the weakest reading since May 2020.  Readings above 50 represent expansion in the manufacturing sector – which accounts for about 11.3% of the US economy – while readings below 50 represent contraction.  "The November composite index reading reflects companies’ preparing for future lower output," Timothy Fiore, chair of ISM’s Manufacturing Business Survey Committee, said.  Of the 6 biggest manufacturing industries, just 2 – petroleum & coal products & transportation equipment – registered growth last month.  In total, just 6 industries reported growth, while 12 shrank in Nov.  Meanwhile, the survey's forward-looking new orders sub-index fell further to 47.2, the 3rd straight month of contraction.  A measure of prices paid for materials used during production dropped for the eighth straight month, with input prices shrinking at the fastest pace since May 2020 – evidence that goods inflation could be starting to ease as supply chain disruptions fade.  The gauge comes amid growing fears that the Federal Reserve will trigger a recession as it embarks on the fastest tightening course since the 1980s in order to crush inflation.

US manufacturing activity shrinks for first time since 2020

The Federal Reserve's preferred inflation gauge, rose less than expected in Oct, but prices remained elevated near a 4-decade high, according to new data.  The Personal Consumption Expenditures (PCE) index showed that core prices, which strip out the more volatile measurements of food & energy, climbed 0.2% from the previous month & rose 5% on an annual basis, according to the Bureau of Labor Statistics.  Those figures are slightly lower than the 0.3% monthly increase & in line with the 5% annual increase forecast.  The more encompassing headline figure rose 6% on an annual basis after prices rose 0.3% from the previous month, the same as Sep & Aug.  While the Fed is targeting the PCE headline figure as it tries to wrestle consumer prices back to 2%, Chair Jerome Powell previously told reporters that core data is actually a better indicator of inflation.  "Core inflation is a better predictor of inflation going forward," Powell said.  "Headline inflation tends to be volatile."  Both the core & headline numbers point to inflation that is running well above the Fed's preferred 2% target, a troubling sign as the central bank is already hiking interest rates at the fastest pace in decades.  Policymakers have already approved 6 consecutive rate hikes, including 4 back-to-back 75-basis-point increases, & have shown no signs of pausing.  Although Powell yesterday signaled a preference for a slightly smaller, 50-basis-point increase at the central bank's meeting later this month, he stressed that policymakers have more work to do in order to crush inflation.

Inflation remains painfully high despite prices slightly cooling

Mortgage rates continued downward for a 3rd week, as the Federal Reserve's preferred inflation gauge showed prices cooled in Oct while still near a 4-decade high at 6% annually.  The Federal Reserve, while still likely to raise rates again in Dec, has become less hawkish on the extremity of the hikes.  The 30-year fixed-rate mortgage averaged 6.49%, down from 6.58% last week, according to Freddie Mac.  A year ago, the 30-year m m week when it averaged 5.90%.  A year ago, the 15-year FRM averaged 2.39%.FRM averaged 3.11%.  The 15-year fixed-rate mortgage averaged 5.76% also down from last week when it averaged 5.90%.  A year ago, the 15-year FRM averaged 2.39%.  "Even as rates decrease and house prices soften, economic uncertainty continues to limit homebuyer demand as we enter the last month of the year," said Sam Khater, chief economist at Freddie Mac.  Mortgage rates are still more than double what they were in early January, mirroring a sharp rise in the yield on the 10-year Treasury note.  The yield is influenced by a variety of factors, including global demand for Treasurys & investors’ expectations for future inflation, which heighten the prospect of rising interest rates overall.  The sharp rise in mortgage rates this year, combined with still-climbing home prices, have added hundreds of $s to monthly home loan payments relative to last year, when the average rate on a 30-year mortgage barely got up above 3% much of the time.  That's created a significant affordability hurdle for many would-be homebuyers, spurring this year’s housing market downturn. Last month, sales of previously occupied homes fell for the 9th consecutive month, hitting the slowest pre-pandemic annual sales pace in more than 10 years.

Mortgage rates decrease for third week in a row

Gold futures climbed to finish at their highest price since Aug buoyed by weakness in the $ & Treasury yields after Federal Reserve Chair Jerome Powell indicated that policy makers may deliver a smaller rate increase this month.  Gold for Feb rose $55 (3.1%) to settle at $1815 an ounce.  Based on the most-active contracts, prices ended at their highest since Aug 12.

Gold futures mark their highest settlement since August

Oil futures climbed, with US prices posting their highest settlement in 2 weeks.  Prices got a boost as China moved to ease some COVID-19 restrictions ahead of a meeting of major oil producers set for Sun.  With the apparent easing in China's COVID policy, the possibility that the Federal Reserve is going to slow its interest rate hikes, & the somewhat improved inflation news, it seems likely that OPEC+ will keep production steady.  US benchmark WTI crude for Jan rose 67¢ (0.8%) to settle at $81.22 a barrel, the highest finish for a front-month contract since Nov 17.

U.S. oil futures end at highest in 2 weeks

Dow saw selling.  Treasuries were heavily purchased causing yields to plunge, while tech heavy NAZ stayed near even.  Favorable data on the Fed's favored inflation index did not bring out many stock buyers & other economic figures are coming in mixed.  Fears of a recession appeared to outweigh easing inflation & signals of a slower pace & magnitude of rate increases later this month.  Investors will monitor the Nov jobs report tomorrow.

Dow Jones Industrials 

Markets slide after CBO projects slower economic growth next year

Dow dropped 317, but advancers over decliners 3-2 & NAZ eased back 4.  The MLP index stayed near 228 & the REIT index was slightly lower to 392.  Junk bond funds rose & Treasuries were heavily purchased, driving down Treasury yields.  Oil went up 2+ to the 82s & gold soared 52 to 1812.

AMJ (Alerian MLP index tracking fund)

 

 

 

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Federal Reserve Chair Jerome Powell signaled the central bank will slow its interest rate increases at its meeting next month, but stressed that policymakers have more work to do in order to crush stubbornly high inflation.  "The time for moderating the pace of rate increases may come as soon as the December meeting," Powell said.  "Given our progress in tightening policy, the timing of that moderation is far less significant than the questions of how much further we will need to raise rates to control inflation, and the length of time it will be necessary to hold policy at a restrictive level."  Still, he noted that "ongoing increases will be appropriate" & stressed that the focus on rate hike speed is less important than the question of how long rates should be held in restrictive territory.  Powell said rates are likely to reach a "somewhat higher" level than policymakers initially forecast in Sep, when they projected a median rate of 4.6% in 2023.  The Fed will release updated projections at the conclusion of its Dec meeting.  Although he acknowledged that inflation has shown early signs of cooling, consumer prices rose 7.7% in Oct from the previous year, the slowest pace since Jan.  Powell pushed back against any assumptions that inflation will continue to moderate.  "It will take substantially more evidence to give comfort that inflation is actually declining.  The truth is that the path ahead for inflation remains highly uncertain," he said, adding:  "Despite the tighter policy and slower growth over the past year, we have not seen clear progress on slowing inflation."  With inflation remaining stubbornly high despite the most aggressive rate hikes since the 1980s, traders are increasingly convinced the Fed will trigger a recession sometime in the next 12 months.  However, Powell said a soft landing, "softish" landing, remains "very plausible" & "still achievable," though he admitted the path to such an outcome is narrowing.  "We think that slowing down at this point is a good way to balance the risks," he added.

Fed officials give new update on interest rates as Americans struggle

Railroad unions that opposed a labor agreement brokered by the Biden administration are pressing the Senate to amend that deal to include 7 paid sick days for rail workers after the House just barely agreed to that addition in a narrow vote.  The House easily passed legislation yesterday to implement the labor deal that some unions rejected, a move that will require all unions to abide by that agreement & make it illegal for them to strike.  Dozens of Reps joined Dems in that vote to mandate the labor deal, which would retroactively give rail workers a 24% pay raise & boost their health care benefits.  Unions still opposed to that deal are also seeking more time off for health reasons.  In a nod to that demand, the House also passed legislation tweaking the deal to give them 7 paid sick days.  But that vote was much closer, 221-207, & just 3 Reps supported that language.  That has unions worried that Reps may not support language on sick days & that it may not get the 60 votes needed to pass the Senate.  While the Senate is expected to pass the main agreement, senators yesterday offered no indication how the separate vote might go on sick leave.  As a result, unions are working overtime to lobby the Senate.  "We absolutely are calling every Senate office," Clark Ballew, communications director for the Brotherhood of Maintenance of Way Employees Division of the Intl Brotherhood of Teamsters (BMWED), said.  "All 23,000 of our members are calling their U.S. senators to urge them and implore them to add sick leave to this contract."

Railroad unions press Senate on issue that barely passed the House

Higher than expected inflation & elevated interest rates will lead to slow economic growth, reduced purchasing power for families & larger budget deficits for the federal gov in 2023 & will likely lead to at least one qtr of negative growth next year, the Congressional Budget Office (CBO) predicted this week.  The CBO said in a Nov 30 letter to Sen Steve Daines that its most recent projections are worse than what it published in May, when the Federal Reserve had just begun to raise rates to tame inflation levels that have not been seen in 40 years.  "Higher interest rates, higher inflation, and slower economic growth lead to less purchasing power for households and increased deficits for the federal government," the CBO said.  The CBO stopped short of using the word "recession" to describe 2023, but it did acknowledge that GDP adjusted to adjust for higher inflation would likely range from -2.0% to 1.8%.  It said that "at least one quarter of negative real GDP growth between now & the end of 2023 is likely."  The CBO said growth would pick up in 2024 "as the economy recovers."  However, for the next year, higher interest rates are expected to act as an obstacle to growth just as they did in 2022.  "In particular, the federal funds rate — the rate that financial institutions charge each other for overnight loans — is likely to be greater in 2023 and 2024 than, respectively, the 2.4% and 2.6% estimated most recently for the fourth quarters of those years," CBO told Daines.  "The revisions stem mainly from greater increases in 2022 in the federal funds rate set by the Federal Reserve and in inflation than CBO had projected."  It said household purchasing power has fallen about $5500 in 2022 because of inflation, while household income has only increased about $3000.  The CBO added that if interest rates remain elevated over the next 2 years, that can be expected to increase the costs of buying houses & cars, & will weaken the demand for workers in industries such as residential construction.  Slower growth & elevated interest rates will also mostly likely lead to higher federal budget deficits & debt.  CBO simulations based on updated economic data indicate budget deficits in 2023 running higher by $200-300B &, & even more in 2024.

Slower economic growth expected in 2023 as high inflation plagues US households

The threat of a railroad strike along with the gloomy projection by the CBO for 2023 is driving heavy demand for safe haven assets, i.e. gold & Treasuries.

Dow Jones Industrials