Markets seesaw on concerns how strong jobs report will affect rate cuts

Dow dropped 25 (near session lows), advancers modestly ahead of decliners & NAZ fell 13.  The MLP index added 1+ to the 256s & the REIT index was flattish in the 389s.  Junk bond funds slid lower & Treasuries continued to be sold, bringing higher yields.  Oil gained 1+ to the 73s & gold was up 2 to 2052 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Workers are poised to get smaller raises in 2024 & their annual pay bumps are unlikely to increase again anytime soon amid a cooler job market, labor experts said.  US companies plan to give salary increases of 4%, on average, this year, down from 4.4% in 2023, according to a survey by Willis Towers Watson.  Similarly, a Mercer poll indicates companies' total salary budgets, which include money for all pay increases, such as raises & promotions, will be 3.8% in 2024, on average.  That's down from the 4.1% paid out last year.  “We certainly think it will continue to come down,” said Lauren Mason, senior principal in Mercer's career group.  “But how much it does is a big open question at this point.”  The current forecast isn't paltry by recent historical standards.  Raises averaged about 3% a year following the 2008 financial crisis, experts said.  Supply & demand of labor is the #1 driver of company decisions regarding raises, said Lori Wisper, who leads Willis Towers Watson’s work & rewards global solutions unit.  The demand for labor exploded in the spring of 2021 as the US economy reopened from its pandemic-era doldrums.  But the labor supply (i.e., available workers) was limited.  Workers had ample opportunity as businesses clamored to fill jobs.  Companies raised wages at the fastest pace in decades to compete & attract talent.

Why workers’ raises are smaller in 2024 — and may not go up from here

If demand for gas remains low, motorists will likely see pump prices gradually decrease.  The average price of gas dropped to $3.09 for the week ending Jan 4, a 3¢ drop from the week prior, according to the latest report from AAA.  Pump prices on average are 15¢ less than a month ago & 17¢ less than a year ago.  "January is a bit of blah time of year, and gas prices are in the doldrums as well," AAA spokesperson Andrew Gross said.  "Barring some unexpected shock to the global oil market, gas prices will likely shuffle up and down a few cents for a while."  The West Texas Intermediate (WTI), an oil price benchmark, increased by $2.32 to $72.70 at the close of Wed's formal trading session.  Gas demand fell from 9.17M to 7.95M barrels per day last week, according to new data from the Energy Information Administration (EIA).  Oil prices climbed this week amid heightened tensions in the Middle East, AAA noted.

Gas prices dip as holiday season ends

The number of Americans filing new claims for jobless benefits dropped to a 2-month low last week, pointing to underlying labor market strength even as demand for workers is easing.  With the report from the Labor Dept also showing the number of people on unemployment rolls remained elevated towards the end of Dec, financial markets continued to anticipate that the Federal Reserve would start cutting interest rates in Mar.  The gov reported on Wed that job openings fell to a near 3-year low in Nov.  Labor market resilience is expected to again shield the economy from recession this year.  "The labor market is not too hot and not too cold at the moment," said Christopher Rupkey, chief economist at FWDBONDS in New York.  "The total number of Americans on the jobless rolls receiving benefits remains elevated relative to prior year levels, but at the moment there is not enough unemployment to say the economy is on the downward slope to recession."  Initial claims for state unemployment benefits dropped 18K to a seasonally adjusted 202K last week, the lowest level since mid-Oct.  The forecast called for 216K claims for the latest week.  Claims data tend to be volatile around this time of year because of holidays.  They have largely bounced around in the lower end of their 194-265K range for 2023.

US weekly jobless claims fall more than expected

Gold closed with a small loss as the $ & treasury yields moved off early gains that followed a report showing the US added more new jobs than expected in Dec.  Gold for Feb closed down pennies to settle at $2049 per ounce, trading in a broad range of $2030-2071 during the session.  The US reported nonfarm payrolls rose by 216K jobs in Dec, well above the 199K positions added in Nov & ahead of expectations for a rise of 170K.  The stronger than expected result is likely to dampen hopes the Federal Reserve will swiftly move to lower interest rates this year.  The $ rose sharply following the report but soon fell back, with the ICE dollar index last seen down 0.07 points to 102.36 after earlier touching 103.10.  Treasury yields also rose, bearish for gold since it offers no interest.  The 2-year note was last seen paying 4.408%, up 2.5 basis points, while the yield on the 10-year note was up 3.7 basis points to 4.035%.

Gold Drops as the Dollar and Yields Jump

West Texas Intermediate (WTI) crude oil closed higher as turmoil & war in the Middle East offset demand concerns following a big rise in US product inventories.  WTI crude oil for Feb closed up $1.62 to settle at $73.81 per barrel, while Mar Brent crude, the global benchmark, was last seen up $1.35 to $78.94.  The rise comes amid concerns over a widening conflict in the Middle East, as Israel continues to attack the Gaza Strip in its war against Hamas, while Houthi militants continue to attack Red Sea shipping, with Maersk today joining other container shipping lines deciding to avoid the route following drone & missile attacks on their vessels.  The closure of a 300K barrel per day Libyan oil field amid protests also aided the rise.  While worries over a widening war in a region key to global oil supply support higher prices, demand concerns remain after the Energy Information Administration yesterday reported domestic oil inventories fell by a more than expected 5.5M barrels, but gasoline inventories rose by 10.9M barrels while distillate stocks rose by 10.1M barrels.

WTI Crude Oil Closes Higher as Middle East Tensions Remain High

The stock market started the new year with a little profit taking following the markets' 2 month extraordinary run.  The Dow finished the week with a decline of 223.  With all that's going on around the globe, headwinds will get more attention.

Dow Jones Industrials 

Markets rise on a stronger than expected jobs report

Dow rebounded 136, advancers over decliners about 4-1 & NAZ gained 100.  The MLP index advanced 2+ to the 247s & the REIT index climbed 2+ to the 391s on lower interest rates.  Junk bond funds inched higher & Treasuries had a little buying which lowered yields (more below).  Oil was up 1+ to the 73s & gold rose 16 to 2066.

AMJ (Alerian MLP Index tracking fund)

The labor market ended 2023 on solid footing as job growth continued to chug along at a healthy pace in Dec.  Employers added 216K jobs in Dec, the Labor Dept said, topping the 170K gain forecast & the unemployment rate held steady at 3.7%.  The report also contained sizable downward revisions to job growth during the previous 2 months.  Gains for Oct & Nov were revised down by a total of 71K jobs to a respective 105K & 173K, the gov said, suggesting that the labor market is weaker than it previously appeared.  In total, the economy added about 2.7M jobs over the course of 2023, down from 4.8M in 2022.  In another show of strength for the economy, average hourly earnings, a key measure of inflation, increased 0.4% for the month & remained up 4.1% from the same time one year ago.  Both of those figures came in slightly ahead of expectations.  The Federal Reserve has signaled that it is closely watching the report for evidence that the labor market is finally cooling after nearly 2 years of interest rate hikes.  Policymakers voted last month to leave their benchmark rate unchanged for a 3rd straight time & hinted they could soon begin cutting rates amid signs the economy is gradually slowing.  Job gains were mostly concentrated in a handful of sectors last month, with the biggest gains in the gov (52K), leisure & hospitality (40K) & health care (38K).  Hiring in construction also trended upward.  Those gains helped to offset job losses in transportation & warehousing, the result of a steep drop in the number of couriers & messengers.  The labor market has remained historically tight over the past year, defying expectations for a slowdown.  But there are some signs that cracks are beginning to appear after last year's blistering pace of growth.

US economy adds 216,000 jobs in December, beating expectations

Mortgage rates' steady downward trend hit a pause this week while demand fell, as data indicates would-be buyers are waiting on the sidelines until they see rates return to the levels of yesteryear.  Freddie Mac's latest Primary Mortgage Market Survey showed that the average rate for the benchmark 30-year fixed mortgage nudged up to 6.62% this week, a slight increase from 6.61% last week & the popular note averaged 6.48% a year ago.  At the same time, the rate on the 15-year fixed mortgage edged lower, averaging 5.89% after coming in last week at 5.93%.  One year ago, the rate on the 15-year fixed note averaged 5.73%.  "Between late October and mid-December, the 30-year fixed-rate mortgage plummeted more than a percentage point. However, since then rates have moved sideways as the market digests incoming economic data," said Sam Khater, Freddie Mac's chief economist.  "Given the expectation of rate cuts this year from the Federal Reserve, as well as receding inflationary pressures, we expect mortgage rates will continue to drift downward as the year unfolds," Khater continued.  "While lower mortgage rates are welcome news, potential homebuyers are still dealing with the dual challenges of low inventory and high home prices that continue to rise."  At the same time, the rate on the 15-year fixed mortgage edged lower, averaging 5.89% after coming in last week at 5.93%.  One year ago, the rate on the 15-year fixed note averaged 5.73%.  "Between late October and mid-December, the 30-year fixed-rate mortgage plummeted more than a percentage point. However, since then rates have moved sideways as the market digests incoming economic data," said Sam Khater, Freddie Mac's chief economist.  "Given the expectation of rate cuts this year from the Federal Reserve, as well as receding inflationary pressures, we expect mortgage rates will continue to drift downward as the year unfolds," Khater continued.  "While lower mortgage rates are welcome news, potential homebuyers are still dealing with the dual challenges of low inventory and high home prices that continue to rise."  The Mortgage Bankers Association's (MBA) index of mortgage applications fell 9.4% last week, compared with 2 weeks earlier.  Applications for a mortgage to purchase a home dropped 5% from 2 weeks earlier, while volume is down 12% compared with the same time last year.  Demand for refinancing also fell last week, declining 18% from the previous 2 weeks.  Compared with the same time last year, refinance applications are up about 15%.  Recent data released by a Realtor.com survey indicates many potential buyers & sellers alike are waiting for rates to show steeper declines before making a move.  A Realtor.com survey found 12% of prospective buyers say rates would need to drop below 6% to bring them into the market, while 28% say rates need to fall below 4% before they would make an offer on a home.

Mortgages rates tick higher for first time in 9 weeks

Treasury yields retreated as traders weighed the US economic outlook following the latest nonfarm payrolls data release.  The yield on the 10-year Treasury was down 1 basis point at 3.978% after briefly topping 4% & the 2-year Treasury  yield was last down 4 basis points at 4.345%.  Yields & prices move in opposite directions & one basis point equals 0.01%.  A hot labor market could keep the Fed from cutting interest rates as early as the market had come to expect.  Some analysts had recently expected a cut as soon as Mar, but the Fed has not provided a timeline.  Others speculate that rate cuts could happen later than expected, backed by minutes released this week from the central bank's Dec policy meeting suggesting a degree of uncertainty.

10-year Treasury yield falls back below 4% despite strong jobs report

After the market decline this week, buyers are nibbling today.  The rally does not appear to  be strong with all the uncertainty about unknowns on rate cuts.  Once again, nervous investors are buying gold which keeps it near record levels.

Dow Jones Industrials 

Markets sputter, looking for direction as interest rates rise

Dow finished up only 10 (close to session low), advancers over decliners 5-4 & NAZ lost 81.  The MLP index was steady in the 256s & the REIT index closed very near yesterday's in the 389s.  Junk bond funds hardly budged & Treasuries continued to be sold, increasing yields.  Oil was fractionally lower to 72 & gold gained 9 to 2052 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Ford (F) said that it sold almost 2M vehicles in the US in 2023, its best number since 2020.  That sales figure marked a 7.1% increase from 2022, when the automaker posted 1.86M in US sales.  Ford touted the sales performance of its F-Series trucks, which saw a year-over-year jump of 15% in 2023.  Annual US sales of the trucks hit 750K.  The F-Series recently celebrated its 47th year in a row as America's best-selling truck, in addition to its 42nd as the best-selling vehicle.  "In a year of challenges, from a labor strike to supply issues, our amazing lineup of gas, electric and hybrid vehicles and our fantastic dealers delivered solid growth and momentum. We have the products that customers want," CEO Jim Farley said.  Ford said hybrid vehicle sales were up 25% for the year & in the 4th qtr, it sold 37K hybrids.  Meanwhile, the automaker said that it sold 73K electric vehicles in 2023, an 18% increase from the prior year.  Its F-150 Lightning& Mustang Mach-E contributed to the growth, with the latter having its best year of sales since the vehicle's launch in 2021.  Ford remains the 2nd-most popular seller of electric vehicles in the US behind Tesla (TSLA).  The stock fell 36¢.

Ford US new vehicle sales climb 7.1%, highest since 2020

A key measure of home-purchase applications slumped over the holidays despite a sharp drop in mortgage rates over the course of Dec.  The Mortgage Bankers Association's (MBA) index of mortgage applications fell 9.4% last week, compared with 2 weeks earlier, according to new data.  The data also showed that the average rate on the popular 30-year loan ended the year at 6.76%.  While that is down from a peak of 8% in Oct, it is slightly higher than it was the previous week.  "Markets continued to digest the impact of slowing inflation and potential rate cuts from the Federal Reserve, helping mortgage rates to stay at levels close to the lowest since mid-2023," said Joel Kan, MBA's deputy chief economist.  "The recent decline in rates has given the housing market some cause for optimism going into 2024, but purchase applications have not yet picked up in response."  Housing demand remained muted even with the recent drop in rates.  Applications for a mortgage to purchase a home dropped 5% from 2 weeks earlier & application volume is down 12% compared with the same time last year.  Demand for refinancing also fell last week, declining 18% from the previous 2 weeks.  Compared with the same time last year, refinance applications are up about 15%.  "The recent decline in rates has given the housing market some cause for optimism going into 2024, but purchase applications have not yet picked up in response," Kan said.  "Refinance applications were still at very low levels, but were 15% higher than a year ago."  The interest rate-sensitive housing market has cooled rapidly in the wake of the Federal Reserve's aggressive tightening campaign.  Policymakers lifted the benchmark federal funds rate 11 consecutive times over the past 2 years in an attempt to crush stubborn inflation & slow the economy.  However, many economists believe the central bank is done raising interest rates, which has helped to bring down painfully high mortgage rates.  Higher rates have not only dampened consumer demand over the past year, but also severely limited inventory.  That is because sellers who locked in a low mortgage rate before the pandemic have been reluctant to sell with rates continuing to hover near a 2-decade high, leaving few options for eager would-be buyers.  "The housing market has been hampered by a limited supply of homes for sale, but the recent strength in new residential construction will continue to help ease inventory shortages in the months in come," Kan added.

Mortgage rates fall nearly 10% — but Americans aren't biting

Economist Alberto Musalem was named the next pres & CEO of the Federal Reserve Bank of St Louis.  Musalem, 55, will start on Apr 2.  He succeeds James Bullard, who joined Purdue University last August.  The St Louis Fed representative is an alternate member of the rate-setting Federal Open Market Committee & will vote in 2025.  St Louis Fed First VP Kathy O’Neill has been holding the position in the interim.  “Alberto will be an outstanding president and CEO of the St. Louis Fed,” said St Louis Fed director Carolyn Chism Hardy, pres & CEO of Chism Hardy Investments & deputy chair of the bank's search committee.  Hardy cited Musalem's experience as an economist & in financial markets as well as his extensive background with the Fed.  In his most recent work, he served as co-chief investment officer & was co-founder of Evince Asset Management.  Before that, he was exec VP & senior advisor to the New York Fed.  In addition, he has financial market experience at Tudor Investment Corp, working with the firm's founder, a financial titan Paul Tudor Jones.  “Alberto is a mission-focused leader, and I am confident he will work tirelessly to promote a healthy economy for all in representing the diverse views of the constituents across the Fed’s Eighth District,” Hardy said.

St. Louis Fed names former Tudor executive Alberto Musalem as new president

Gold closed with a gain as the $ edged down despite stronger than expected economic data, while treasury yields rose.  Gold for Feb closed up $7 to settle at $2050 per ounce, after closing at a record $2093 on Dec 27.  US initial jobless claims were 202K last week, down from 218K a week early & well under expectations for 219K claims.  Private-sector jobs rose by 164K positions in Dec, according the the ADP Employment report, up from 103K a month earlier & above expectations for a 130K rise.  The $ moved off early lows following the data but remains weaker than yesterday, with the ICE dollar index last seen down 0.09 points to 102.41.  Treasury yields were higher following the data, with the 2-year note last seen paying 4.408%, up 6.7 basis points, while the 10-year note yield was up 8.0 basis points to 4.0%.

Gold Closes Higher on a Weaker Dollar as Yields Climb Following Strong Employment Data

Oil prices fell today.  The West Texas Intermediate for Feb dropped 51¢ ( 0.7%), to settle at $72.19 & Brent crude for Mar decreased by 66¢ (0.84%) to settle at $77.59 a barrel.

Crude Futures Settle Lower

Investors looking for confirmation of bets on a Mar rate cut are getting uncertainty instead.  Many have become addicted to watching every comment made by Fed officials.  With the rise in yields so far this some are getting nervous.  Also, the GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the 4th qtr of 2023 is 2.5% on Jan 3, up from 2.0% on Jan 2.  That is substantially lower than 4.9% in Q3.  Meanwhile safe haven gold remains near its record high.

Dow Jones Industrials 

Markets struggle after online spending reached a record

Dow rose 197, advancers over decliners about 2-1 & NAZ was off 12.  The MLP index crawled up 1+ to the 258s & the REIT index added 1+ to the 391s.  Junk bond funds were mixed & Treasuries saw more selling which raised yields (more below).  Oil slid lower in the 72s & gold was up 9 to 2052.

AMJ (Alerian MLP Index tracking fund)

Consumers spent a whopping $222.1B online during the holiday season as usage of flexible spending options hit an all-time high, according to new data from Adobe.  The figure, up 4.9% year over year, marks a new record for online shopping throughout the holiday season, which spans from Nov 1 thru Dec 31., according to Adobe's holiday spending report.  Adobe noted that the boost in spending was driven in large part by such heavy reliance on "buy now, pay later" (BNPL) options, which allow consumers to pay in installments, often interest-free.  The payment option accounted for $16.6B in online spending, up 14% on an annual basis, during the season, underscoring how Americans were trying to manage their debt obligations amid persisting inflation, high interest rates & resumed student loan payments.  Throughout Nov, the payment option accounted for about $9.2B of the $123.5B spent.  That's up 17.5% year over year.  Cyber Monday was the biggest day of BNPL transactions overall, accounting for $940M in spending, up 42.5% year over year.  Usage of the payment method surged before the holiday season.  From Jan 1 to Dec 31, 2023, it accounted for $75B in online spending, about $9.4B more than the prior year.  Adobe Digital Insights lead analyst Vivek Pandya said that companies took advantage of flexible payment methods to pull in shoppers amid the uncertain economy.  And while it was effective, driving record spending online during both Cyber Monday & Black Friday, certain industry experts have drawn concern about how much consumers have been leaning on this method.  Financial experts are especially worried about whether consumers are overusing these services & digging themselves deeper into debt.  Those concerns come as total household debt reached $17.3T in the 3rd qtr of 2023, according to the New York Federal Reserve's latest quarterly report on household debt & credit.

Online holiday spending reaches record $222B driven by buy now, pay later trend

Hiring by US companies rose more than expected in Dec as the labor market remained resilient even in the face of higher interest rates, according to the ADP National Employment Report.  Companies added 164K jobs last month, beating the 115K gain that was predicted.  It marks the best month for job creation since Aug.  The stronger-than-expected report comes in the wake of an aggressive tightening campaign by the Federal Reserve, which has hiked interest rates to the highest level since 2001.  But policymakers have signaled in recent weeks that they are done raising rates amid signs that inflation is finally moderating & the economy is starting to slow.  In a welcoming sign for the Fed, wage growth continued to slow in Nov.  Annual pay rose 5.4% last month, the 15th straight month of slowing growth.  For workers who switched jobs, wages climbed 8%, down from 8.3% the previous month.  "We're returning to a labor market that's very much aligned with pre-pandemic hiring," said Nela Richardson, ADP chief economist.  "While wages didn't drive the recent bout of inflation, now that pay growth has retreated, any risk of a wage-price spiral has all but disappeared."  The leisure & hospitality industry drove the biggest job gains last month, adding 59K new employees.  But there were also notable gains in other sectors, including education & health services, financial activities & construction.  The gains helped to offset job losses in manufacturing, natural resources & mining & information.

Private sector job growth rises more than expected in December: ADP

Treasury yields ticked higher following the release of fresh employment numbers.  The yield on the 10-year Treasury was up by 8 basis points at 3.982% after crossing the 4% mark briefly yesterday.  The 2-year Treasury  yield was last up by 5 basis points at 4.372%.  Yields & prices move in opposite directions & one basis point equals 0.01%.  Investors are considering the outlook for Federal Reserve interest rate cuts, including when they could begin & how drastic they could be.  After its last policy meeting in Dec, the central bank said it expected 3 rate cuts to take place in 2024.  However, traders have been hoping that there will be more than extensive rate cuts this year & that the first one could be coming soon.  Minutes from the Fed's Dec meeting indicated uncertainty about the path ahead for interest rates even as policymakers believe rate cuts are likely.  Fed officials noted the importance of a “careful and data-dependent approach to making monetary policy decisions” & stated that restrictive policy would continue to be appropriate “for some time” until inflation sustainably falls to the central bank’s target range.  Investors now, but when it turn their attention to tomorrow's nonfarm payrolls report when a gain of 170K is expected.

10-year Treasury yield approaching 4% again after strong jobs data

Investors are becoming nervous on the future for interest rate cuts after rates have been climbing in the past week.  Retail sales data sounds good.  But when it is attributable to more borrowing sends the wrong message to the Fed which wants to control inflation.  Today's sort of rally is not impressive.

Dow Jones Industrials 

Markets slump after Fed meeting minutes were released

Dow retreated 284 near session lows, decliners over advancers more than 2-1 & NAZ gave back 173.  The MLP index gained 2+ to the 257s & the REIT index dropped 9+ to 390 on concerns about future rate cuts.  Junk bond funds remained weak & Treasuries continued in demand, bringing higher yields.  Oil recovered 2+ to the 72s & gold dipped 28 to 2044 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Federal Reserve officials in Dec concluded that interest rate cuts are likely in 2024, though they appeared to provide little in the way of when that might occur, according to minutes from the meeting.  At the meeting, the rate-setting Federal Open Market Committee agreed to hold its benchmark rate steady at 5.25-5.50%.  Members indicated that they expect 3 qtr-percentage point cuts by the end of 2024.  However, the meeting summary noted a high level of uncertainty over how, or if, that will happen.  “In discussing the policy outlook, participants viewed the policy rate as likely at or near its peak for this tightening cycle, though they noted that the actual policy path will depend on how the economy evolves,” the minutes stated.  Officials noted the progress that has been made in the battle to bring down inflation.  They said supply chain factors that contributed substantially to a surge that peaked in mid-2022 to have eased.  In addition, they cited progress in bringing the labor market better into balance, though that also is a work in progress.  The “dot plot” of individual members’ expectations released following the meeting showed that members expect cuts over the coming 3 years to bring the overnight borrowing rate back down near the long-run range of 2%.  “In their submitted projections, almost all participants indicated that, reflecting the improvements in their inflation outlooks, their baseline projections implied that a lower target range for the federal funds rate would be appropriate by the end of 2024,” the document stated.  However, the minutes noted an “unusually elevated degree of uncertainty” about the policy path.  Several members said it might be necessary to keep the funds rate at an elevated level if inflation doesn’t cooperate & others noted the potential for additional hikes depending on how conditions evolve.  “Participants generally stressed the importance of maintaining a careful and data-dependent approach to making monetary policy decisions and reaffirmed that it would be appropriate for policy to remain at a restrictive stance for some time until inflation was clearly moving down sustainably toward the Committee’s objective,” the minutes noted.  Despite the cautionary tone from Fed officials, markets expect the central bank to cut aggressively in 2024.  Fed funds futures trading points to 6 qtr-point cuts this year, which would take the fed funds rate, which primarily sets what banks charge each other for overnight loans but also influences multiple consumer debt products, down to 3.75-4.00%.  The minutes indicated that “clear progress” had been made against inflation, with a 6-month measure of personal consumption expenditures even indicating that the inflation rate has edged below the Fed’s 2% target.  However, the document also noted that progress has been “uneven” across sectors, with energy & core goods moving lower but core services still moving higher.

Fed officials in December saw rate cuts likely, but path highly uncertain, minutes show

Oil rose more than 3% as the US warned Houthi militants against further attacks in the Red Sea & OPEC pledged to remain united in supporting prices.  Protests in Libya have also shut down the Sharara oil field, which produces 300K barrels per day.  The West Texas Intermediate contract for Feb gained $2.31 (3.3%) to trade at $72.72 a barrel & the Brent  contract for Mar added $2.32 (3.1%) to trade at $78.21 a barrel.  Houthi militants, who are based in Yemen & backed by Iran, claimed that they targeted the CMA CGM Tage container ship.  French shipping giant CMA CGM said that the vessel “did not suffer any incident.”  This comes a day after Danish shipping giant Maersk halted all shipping thru the Red Sea until further notice due to repeated Houthi attacks on vessels.  German shipping company Hapag-Lloyd confirmed today that it would continue to avoid the Red Sea.  The US & 11 of its allies called today for the Houthis to immediately halt “these illegal attacks,” warning that militants would “bear the responsibility of the consequences should they continue to threaten lives, the global economy,  free flow of commerce in the region’s critical waterways.”  Oil prices have been volatile this week, with US crude & the global benchmark settling more than 1% lower yesterday despite Maersk's decision to continue avoiding the Red Sea due to attacks by the Houthis.  OPEC & its allies issued a statement pledging to remain united in the group's “efforts to maintain oil market stability going forward.”  Several members of the group pledged in Nov to cut 2.2M barrels per day thru the first qtr of this year to support prices.  Traders have been skeptical of that pledge because it is voluntary & OPEC has struggled to maintain a united front.  The promised voluntary cuts have done little to support prices as the US pumps crude at a record clip & demand weakens in China.  US crude & the global benchmark fell more than 10% in 2023 on worries that the market is oversupplied.

Oil rises on mounting Middle East tensions, OPEC pledge to support market

General Motors (GM) US vehicle sales increased 14.1% last year to represent the automaker's best year since 2019, prior to the effects of the Covid-19 pandemic & years long supply chain problems.  The automaker reported sales of roughly 2.6M vehicles in 2023, including 625K cars & trucks sold during the 4th qtr, roughly flat compared to a year earlier.  The automaker sold about 2.3M vehicles in 2022 & 2.9M units in 2019.  GM's sales are in line with expectations for overall industry sales.  Edmunds expects industrywide sales to hit 15.5M in 2023, which would be a roughly 14% increase compared to 2022.  GM said it expects total US industry sales to hit 16M in 2024.  That would mark the highest industry sales since more than 17M units in 2019 & the high end of industry forecasts.  “GM has tremendous momentum. We grew our market share in 2023, maintaining strong pricing and low incentives,” Marissa West, GM’s senior VP & pres of North America, said.  Sales of all-electric vehicles for GM were disappointing in 2023.  Its EV sales totaled 76K units, or 2.9% of overall sales last year.  A vast majority of those were sales of its now discontinued Chevrolet Bolt models.  The company has experienced problems in ramping up production of its newer “Ultium” EVs, including a major issue with battery module assembly.  To assist EV sales this year, the company expects to increase production of the vehicles & offer $7500 in incentives on models that no longer qualify for up to $7500 in federal tax credits due to new, more stringent requirements for assembly & materials for the vehicles their batteries that took effect Jan 1.  “We are committed to the future of EVs and will have the sales and marketing support to sell these ineligible vehicles. Beginning in January, GM will provide the equivalent EV tax credit purchase amount for any vehicles that became ineligible due to the new guidelines,” GM said.  The stock fell 77¢.

GM’s 2023 U.S. vehicle sales were its best since 2019

Gold fell for a a 4th session, under pressure from a strengthening $ as investors began the year in bearish mood.  European stocks & US futures extended declines, while the greenback rose to a near-2-week high.  That weighed on bullion, which declined as much as 0.3%.  The metal hit a record in early Dec & ended 2023 up 13% on speculation the Federal Reserve is set to loosen monetary policy in 2024 as inflation abates, which would benefit non-yielding assets.  Swaps traders still see 6 rate cuts over the next year, despite officials pushing back against rapid easing.  Recent swings in the US bond market suggest traders are tempering their bets on rate cuts this year.  US gold futures were $27 lower at $2046.

 

Gold Declines as Stronger Dollar Adds Pressure Ahead of US Data

Oil prices dipped slightly after sharp moves earlier in the week, with investors cautious about the US economy amid supply disruptions from persistent tensions in the Red Sea.  Brent crude fell 39¢ to $75.50 a barrel, while US West Texas Intermediate crude futures slipped 51¢ to $69.87 a barrel.  Prices had climbed around $2 earlier in the week following attacks on vessels in the Red Sea by Houthi rebels.  Yesterday they fired 2 anti-ship ballistic missiles into the Southern Red Sea, though no damage was reported.  A wider conflict could close crucial waterways for oil transportation & disrupt trade flows.  Although the supply of oil has not been affected, as reflected in yesterday's oil price sell-off, the nervousness is conspicuous.  Both benchmarks ended yesterday more than 1% down, with optimism about early & aggressive US interest rate cuts also ebbing ahead of the release of Federal Reserve meeting minutes & jobs data today.

Oil prices edge lower with investors cautious ahead of U.S. data

Investors are disappointed that Fed officials can not announce detail plans for rate cuts going forward because they are data dependent.  That's nothing new.  The goings on in the Red Sea will get a lot of attention.  Among other things, shipping goods all the way around Africa will add the cost of the goods which becomes a negative for controlling inflation.

Dow Jones Industrials 

Markets decline as yields rise and rate cut bets change

Dow fell 243, decliners over advancers 3-1 & NAZ was off 114.  The MLP index added 1+ to the 255s & the REIT index dropped 6+ to the 392s on concerns about higher interest rates.  Junk bond funds retreat & Treasuries are sold & rates climb.  Oil rose 2+ to the 72s & gold sank 30 to 2042.

AMJ (Alerian MLP Index tracking fund)

US job openings dropped in Nov to the lowest level in more than 2 years, the latest evidence that the Federal Reserve's interest-rate hike campaign is continuing to cool the labor market.  The Labor Dept said there were 8.79M job openings in Nov, a decrease from the upward revised 8.85M openings reported the previous month.  The forecast expected a reading of 8.85M.  It marked the lowest level for job openings since Mar 2021.  The Federal Reserve closely watches these figures as it tries to gauge labor market tightness & wrestle inflation under control.

Job openings fall in November to fresh 2-year low

Richmond Federal Reserve Pres Thomas Barkin expressed confidence that the economy is on its way to a soft landing, but obstacles remain that will require caution from him & his fellow policymakers.  While noting progress made on inflation as economic growth has stayed afloat, he said interest rate hikes remain “on the table” even though Fed officials at their most recent meeting in Dec indicated that this round of policy tightening is probably over.  “We’re making real progress,” Barkin, a voting member this year on the rate-setting Federal Open Market Committee, said in prepared remarks for a speech.  “Now, everyone is talking about the potential for a soft landing, where inflation completes its journey back to normal levels while the economy stays healthy. And you can see the case for that.”  Inflation by the Fed's preferred measure of personal consumption expenditures prices rose 2.6% in Nov from a year ago & was up 3.2% excluding food & energy.  That's well below its mid-2022 peak but still above the Fed's 2% target.  However, Barkin noted that PCE inflation on a 6-month basis is at 1.9%.  He compared the Fed's job to a pilot bringing an airplane in for a landing, and noted 4 risks ahead: The economy could “run out of fuel” & growth could reverse; “unexpected  & turbulence” such as geopolitical events or the banking shock that hit in Mar 2023; the possibility of “approaching the wrong airport,” where inflation holds above the Fed's 2% target; & a “delayed landing,” where demand holds unexpectedly high, boosting inflation.  “The airport is on the horizon. But landing a plane isn’t easy, especially when the outlook is foggy, and headwinds and tailwinds can affect your course,” Barkin added.  “It’s easy to oversteer and do too much or understeer and do too little.”  Barkin didn't indicate where his “dot” was on the Fed's closely followed dot-plot matrix of individual members rate hikes.  However, he noted risks that the central bank's job bringing down inflation may not be over.  “Longer-term rates have dropped recently, which could stimulate demand in interest-sensitive sectors like housing,” he said.  “While you might think this would be a first-class problem, strong demand isn’t the solution to above-target inflation. That’s why the potential for additional rate hikes remains on the table.”

Fed’s Barkin sees likely soft landing ahead but notes rate hikes still a possibility

The US national debt topped $34T for the first time ever, crossing a critical milestone at a time when gov spending is already under scrutiny.  The national debt, which measures what the US owes its creditors, hit $34T on Fri, according to new data published by the Treasury Dept.  By comparison, just 4 decades ago, the national debt hovered around $907B.   "We are beginning a new year, but our national debt remains on the same damaging and unsustainable path," said Michael Peterson, CEO of the Peter G. Peterson Foundation, which advocates for fiscal sustainability.  The historic debt level comes as Congress races to finalize critical funding bills in order to prevent a gov shutdown.  The national debt is expected to nearly double in size over the next 3 decades, according to the latest findings from the Congressional Budget Office.  At the end of 2022, the national debt grew to about 97% of GDP.  Under current law, that figure is expected to skyrocket to 181% at the end of 2053, a debt burden that will far exceed any previous level.  "Though our level of debt is dangerous for both our economy and for national security, America just cannot stop borrowing," said Maya MacGuineas, pres of the Committee for a Responsible Federal Budget.  Even more worrisome is that the spike in interest rates over the past 1½ years has made the cost of servicing the national debt more expensive.  That is because as interest rates rise, the federal gov's borrowing costs on its debt will also increase.  In fact, interest payments on the national debt are projected to be the fastest-growing part of the federal budget over the next 3 decades, according to the CRFB.  Payments are expected to triple from nearly $475B in fiscal year 2022 to a stunning $1.4T in 2032.  By 2053, the interest payments are projected to surge to $5.4T.  To put that into perspective, that will be more than the US spends on Social Security, Medicare, Medicaid & all other mandatory & discretionary spending programs.

US national debt tops $34T for first time in history

Stocks are being sold again on worries about higher interest rates.  Additionally the markets are vastly overbought & some traders are taking their profits in the new year.

Dow Jones Industrials 

Markets ease lower on supply disruptions in the Red Sea shipping route

Dow finished up 25 with buying into the close, decliners over advancers 4-3 & NAZ dropped 245.  The MLP index continued flat in the 254s & the REIT index went up 4+ to the 399s.  Junk bond funds inched higher & Treasuries were sold, increasing yields.  Oil was pulled back 1+ to go below 71 & gold eased back 1 to 2070, remaining in record territory (more on both below).

AMJ (Alerian MLP Index tracking fund)

Apple (AAPL), a Dow stock, fell after Barclays downgraded the stock to underweight & slightly trimmed its price target from $161 to $160.  Barclay analyst Tim Long wrote that the iPhone 15's current “lackluster” sales, specifically in China, presaged similarly weak iPhone 16 sales, weakness that Long expects will hold true for AAPL's hardware sales broadly.  “We are still picking up weakness on iPhone volumes and mix, as well as a lack of bounce-back in Macs, iPads and wearables,” Long wrote.  Analysts & investors had noted specific weakness in China iPhone sales as far back as Oct.  Bloomberg has previously reported that the Chinese gov has issued informal guidance forbidding state employees from using iPhones.  The Chinese gov has denied issuing such guidance.  Long expects that AAPL's lucrative services business will also see decelerated growth, in part due to regulatory scrutiny.  Gross margin in its services businesses is roughly double the margin AAPL makes on all its hardware products, & CEO Tim Cook highlighted “better-than-expected” growth in that unit on an earlier investor call.  But Barclays doesn't necessarily believe that growth is reliable in the long term.  “In 2024, we should get an initial determination on the Google TAC, and some app store investigations could intensify,” Long wrote, referring to the payments Google makes to AAPL to retain its default search status.  AAPL stock sank  7.96 (4%).

Apple shares slip after Barclays downgrade

Oil prices rose nearly 2% at the start of the new year amid fears of supply disruptions with the ongoing conflict in the Middle East, as well as expectations for strong holiday demand & an economic stimulus in China, a top importer of crude.  Brent Crude rose $1.28 (1.7%) to $78.32 a barrel while US West Texas Intermediate crude was at $72.69 a barrel, up $1.04 (1.5%).  Economists & analysts forecast that Brent Crude will average $82.56 a barrel in 2024, a slight increase over the 2023 average of $82.17.  Analysts expect weak global growth to limit demand for oil, although geopolitical tensions could provide support.  Oil supply is threatened as Iran-backed proxy forces in the Middle East continue to harass shipping vessels in the Red Sea, increasing risks that the Israel-Hamas war will spiral into a wider regional conflict & disrupt intl trade.  US helicopters repelled an attack yesterday by Iran-backed Houthi militants on a Maersk container vessel in the Red Sea, sinking 3 Houthi ships & killing 10 militants.  "The oil price may be affected by the escalation ... in the Red Sea over the weekend and the peak demand season during China's Spring Festival," said Leon Li, a Shanghai-based CMC Markets analyst said.  Li added that forecasts for increased demand during China's Lunar New Year holiday in Feb were also raising expectations for price increases this month.  China may also introduce new stimulus measures that could potentially boost oil demand after manufacturing activity shrank for a 3rd month in Dec.  Meanwhile, wider conflict in the Middle East could close key shipping lanes for oil transport in the Red Sea & the Strait of Hormuz in the Gulf.  After yesterday's attack, an Iranian warship sailed into the Red Sea.  Tracking data shows that at least 4 tankers transporting diesel & jet fuel from the Middle East & India to Europe are making costly detours around Africa to avoid the Red Sea.  Maersk said yesterday it will once again pause all transits thru the Red Sea & Gulf of Aden.  The announcement came just one week after Maersk officials said it would resume routes through the area which were stopped because of similar attacks.  The Denmark-based shipping giant said routes thru the Bab el-Mandeb Strait were paused in early Dec because of attacks against its ships & the Suez Canal, which is heavily traversed by ships from around the world, became unstable for most routes.

Oil prices up after US strikes back at Houthis in Red Sea

Shares of Moderna (MRNA) jumped after Oppenheimer upgraded the stock to “outperform,” saying the Covid vaccine maker could market 5 products by 2026.  The upgrade follows a dismal 2023 with only commercially available product is its Covid shot.  Oppenheimer analyst Hartaj Singh said the its Covid sales could hit a low point in 2024 due to factors such as vaccine fatigue.  But the firm expects Covid vaccine sales to rise in 2025 & beyond as education about Covid & spending on awareness about the disease increase.  Singh was even more upbeat about MRNA's pipeline potential, highlighting a handful of possible product launches over the next 12-18 months that could boost sales in 2025.  That includes a potential approval this year for an experimental vaccine that aims to protect older adults from respiratory syncytial virus, which typically causes mild, cold-like symptoms but more severe cases in seniors & children.  The company has said that the Food & Drug Administration will make a decision on its RSV vaccine in Apr.  Its experimental flu vaccine could also win approval in 2024 or 2025.  In Sep, the company said its shot produced a stronger immune response against 4 strains of the virus than a currently available flu vaccine in a late-stage trial.  Also, MRNA reiterated that it expects to see sales growth in 2025.  The company highlighted its RSV vaccine & the possible approval for its combination shot targeting Covid & the flu, which could come “as early as 2025.”  MRNA in its 3rd-qtr earnings release said it expects revenue to fall to $4B in 2024 before it grows again in 2025.  The company expects to “break even” in 2026.  The company also said in Nov that it would only hit the low end of its sales forecast of $6-8B for 2023, reflecting weaker demand for Covid vaccines.  MRNA has also said it plans to launch up to 15 products in the next 5 years, a goal it first outlined during its annual research & development day in Sep.  The stock jumped 13.08 (13%).

Moderna stock pops after Oppenheimer says company could launch more products over next two years

Oil futures fell to kick off the new year, giving up the sharp gains seen in early trading after an Iranian warship entered the Red Sea, heightening tensions & fears of potential crude-supply disruptions caused by attacks on shipping vessels by Iran-backed Houthi rebels in Yemen.  West Texas Intermediate crude for Feb was down $1.20 (1.7%) to $70.44 a barrel after trading as high as $73.64.  Mar Brent crude, the global benchmark, fell $1.10 (1.5%) to $75.92 a barrel after setting a session high at $79.06.

Oil prices turn lower despite escalating Red Sea tensions, Maersk’s shipping pause

Gold futures rose on market expectations that the Federal Reserve will soon start cutting interest rates.  The most active gold contract for Feb rose 1 to close at 2073 per ounce.  Market generally expects that the Fed will start cutting interest rates in Mar, therefore the broader prospects of gold remain upbeat.  Gold market should brace for volatility this week as a slew of economic indicators will be released, including the jobs report on Fri. The seasonally adjusted S&P Global US Manufacturing Purchasing Managers' Index (PMI) posted 47.9 in Dec, down from 49.4 in Nov & lower than the earlier released flash estimate of 48.2.

Gold Rises On Fed Rates Cutting Expectations

The bulls did not come out in force, so the bears took stock prices lower although a few returned in the last hour of trading.  The Red Sea is a major shipping route not only for oil, but also for cargo which is carried on huge container ships.  Fighting in that route will damage global trade, starting with oil.

Dow Jones Industrials 

Markets fall as investors weigh expectations over interest rate cuts

Dow inched up 16, decliners slightly over advancers & NAZ lost 250.  The MLP index was off pennies at 254 & the REIT index went up 2+ to the 397s.  Junk bond funds edged higher & Treasuries were sold, raising yields (more below).  Oil inched higher pennies in the 71s & gold slid back 4 to 2067.

AMJ (Alerian MLP Index tracking fund)

Tesla (TSLA) published its 4th-qtr vehicle production & deliveries report for 2023:

Total deliveries Q4 2023:            484,507
Total production Q4 2023:          494,989
Total annual deliveries 2023:   1,808,581
Total annual production 2023: 1,845,985

In 2022, the Elon Musk-led automaker reported annual deliveries of 1.31M & production of 1.37M electric vehicles.  The new numbers represent delivery growth of 38% year over year & production growth of 35% year over year.  In 2022, the company reported 40% growth year over year in deliveries from 2021.   In Oct, execs offered guidance that the company would notch at least 1.8M deliveries for the full year, a number they had revised down from a 2M goal earlier.  Analysts had expected  deliveries of 477K for the year-ending qtr as of Dec 28.  Deliveries are the closest approximation of sales reported but are not precisely defined in the company's shareholder communications.  In Oct, CEO Musk said the company's Model Y entry-level SUV was likely to “be the bestselling car on Earth, but not just in revenue, but in unit volume,” for the year.  TSLA does not break out delivery & production numbers by individual model but reported combined numbers of: TSLA produced 476,777 Model 3 & Model Y vehicles during the qtr & reported 461,538 deliveries for these models.  It didn't break down Model S or X production or delivery numbers, instead batching them into “Other Models.”  It produced 18K other models & delivered 23K during the qtr.  The stock rose 27¢.

Tesla reported 485,000 deliveries for the fourth quarter, bringing 2023 total to 1.8 million

Denmark-based shipping giant Maersk said it will once again pause all transits thru the Red Sea & Gulf of Aden after one of its vessels came under attack by Houthi rebels on Sat.  The announcement comes just one week after Maersk officials said it would resume routes thru the area which were stopped because of similar attacks.  Maersk said routes thru the Bab el-Mandeb Strait were paused in early Dec because of attacks against its ships & the Suez Canal, which is heavily traversed by ships from around the world, became unstable for most routes.  On Dec 19, National Security Council spokesman John Kirby said ships & aircraft of several nations would join the US in conducting surveillance & taking defensive action against Houthi rebels who target commercial ships in the Red Sea, in what is being called, "Operation Prosperity Guardian."  With the operation in place, Maersk said on Fri that it was resuming voyages thru the Red Sea & Gulf of Aden, as well as the Suez Canal, as a gateway between Asia & Europe.  Everything changed Sat, when the container ship Maersk Hangzhou reported they were struck by a missile while transiting the Southern Red Sea.  The container ship requested assistance, & the USS Gravely & USS Laboon responded.  While responding, the USS Gravely shot down 2 anti-ship ballistic missiles fired from Houthi-controlled areas in Yemen toward the ships.  Maersk said that after being struck by an unknown object & seeing no indication of fire on the ship, it continued its transit north in the Red Sea.  Then, 4 boats approached the vessel & opened fire in an attempt to board the ship.  Maersk Hangzhou's security team, along with a helicopter deployed from a nearby navy vessel, thwarted the attempt & the crew of the Hangzhou was reported to be safe.  "The safety of our crew is our utmost priority and all necessary security measures have been implemented to protect them," Maersk said. "Maersk is currently working to ascertain the full details of the incident involving Maersk Hangzhou."  Maersk said it is pausing voyages in the area until at least Jan 2, at which point the company expects to provide customers with an update on the situation.

Maersk pauses Red Sea voyages a day after Houthis attack ship

Treasury yields climbed as 2024 trading kicked off & questions about the outlook for interest rates & the state of the economy remained.  The yield on the 10-year Treasury was up by 8 basis points at 3.943% & the 2-year Treasury yield was also last up 8 basis points higher at 4.328%.  Yields & prices move in opposite directions & 1 basis point equals 0.01%.  2023 marked a tumultuous year for bond markets, with the 10-year Treasury yield rising above 5% in Oct before ending the year below 3.9%.  The interest rate hikes, persistent inflation, recession fears & market shocks like the regional banking crisis in the US were among factors that shaped bond markets in 2023 & several of them will likely also have a significant impact in the year ahead.  Markets are widely expecting the Federal Reserve to have reached the end of its rate-hiking cycle, with the central bank having left rates unchanged at its last 3 meetings.  Rate cuts are expected in 2024, with the Fed saying it was anticipating 3 cuts.  When they will take place remains unclear.  Even after these initial rate cuts, interest rates will remain higher, which has caused concerns about how this will affect the economy & whether the US will dip into a recession this year.

Treasury yields climb as 2024 trading begins

Stocks drifted lower as investors assess uncertainties.  While interest rate cuts are expected, timing  by definition is unpredictable, Q4 GDP is expected to be under the 4.9% rate in Q3 & with the goings on in the Red Sea, the future for oil prices, a key part of inflation, can not be predicted & the stock market is heavily overbought after the extraordinary run in the last 2 months.  This could be a wild year in the stock market.

Dow Jones Industrials