Markets hesitate as the earnings season begins

Dow sank 164, but advancers over decliners 4-3 & NAZ was up 16.  The MLP index crawled up in the 256s & the REIT index added 1+ to 390.  Junk bond funds inched higher & Treasuries had limited buying which lowered yields.  Oil rose 1+ to the 73s after US leads strikes against Yemen over Red Sea attacks & gold jumped 37 to 2056, nearing its record high.

AMJ (Alerian MLP Index tracking fund)

Inflation at the wholesale level moderated more than expected in Dec, providing evidence that price pressures within the US economy are continuing to gradually fade.  The Labor Dept said that its producer price index, which measures inflation at the wholesale level before it reaches consumers, fell 0.1% in Dec from the previous month.  On an annual basis, prices remain up 1%, up slightly from the 0.8% recorded in Nov.  Those figures are both lower than the 0.1% monthly gain & the 1.3% annual figure predicted.  In another sign that suggests high inflation is dissipating, core prices, which exclude the more volatile measurements of food & energy, were also unchanged for the month, lower than the 0.2% estimate.  The figure was up 1.8% on a 12-month basis, down from 2.2% the previous month.  The data comes a day after the Labor Dept reported that the consumer price index, which measures the prices paid directly by consumers, rose 0.3% in Dec, above expectations.  The back-to-back inflation reports will have major implications for the Federal Reserve, which has raised interest rates at the fastest pace in decades as it tries to cool the economy.   The central bank approved 11 rate hikes in the span of just 16 months, lifting the federal funds rate to the highest level since 2001.  Central bank officials have suggested in recent weeks that rate hikes are over & that they will soon pivot to cutting rates.  However, policymakers have offered little guidance on when they may begin to reduce rates.  Despite the hotter-than-expected CPI report, a majority of investors are pricing in a qtr-point reduction as early as Mar, according to the CME Group's FedWatch tool, which tracks trading.

Wholesale inflation cools more than expected in December

The US & the UK have “successfully conducted strikes” against Houthi targets in Yemen, Pres Biden said.  “Today, at my direction, U.S. military forces, together with the United Kingdom and with support from Australia, Bahrain, Canada, and the Netherlands, successfully conducted strikes against a number of targets in Yemen used by Houthi rebels to endanger freedom of navigation in one of the world’s most vital waterways,” Biden said.  The Iran-backed Houthi militia group began their drone & missile attacks on shipping vessels & cargo ships traversing the Red Sea late last year, drawing global condemnation.  The strikes on Houthi targets were “in response to continued illegal, dangerous, and destabilizing Houthi attacks against vessels, including commercial shipping, transiting the Red Sea,” according to a joint statement from the govs of Australia, Bahrain, Canada, Denmark, Germany, Netherlands, New Zealand, Republic of Korea, UK & the US.  Together with Greece, Singapore & Sri Lanka, the nations make up a coalition, Operation Prosperity Guardian, that was launched in Dec to combat Houthi attacks.  But they did not all participate in the strike: The US & Great Britain were the only 2 militaries that carried out the latest strikes.  According to a senior administration official, the Houthis launched about 20 drones & multiple missiles directly against US ships in the Red Sea on Jan 9.  It was the largest attack yet on merchant vessels in the Red Sea & Pentagon officials said that 4 coalition warships were deployed in response.  “This attack was defeated by the US and UK naval forces,” the senior administration official added.  “We have no doubt that ships would have been struck and perhaps even sunk, including, in one case, a commercial ship full of jet fuel.”  While the latest strikes on the Houthis were “significant” in size, the US did not expect them to degrade Houthi capabilities entirely.  “We would not be surprised to see some sort of response.”

U.S., UK strike Houthi targets in Yemen in response to Red Sea attacks

JPMorgan Chase (JPM), a Dow stock, reported its best-ever annual profit & forecast higher-than-expected interest income for 2024 even as quarterly profit fell due to a $3B charge the bank took to replenish a gov deposit insurance fund.  The largest US lender has benefited from its acquisition of failed First Republic Bank in May that brought in Bs of $s of loans & bolstered its net interest income (NII), the difference between what banks make on loans & pay out on deposits.  The bank said it expects full-year net interest income (NII) of $90B.  That was higher than estimates of $86B.  In the qtr, NII rose 19% to a record of $24.2B.  CEO Jamie Dimon said the US economy continued to be resilient & markets were expecting a soft landing, but sounded a note of caution on inflation & interest rates.  "There is also an ongoing need for increased spending due to the green economy, the restructuring of global supply chains, higher military spending and rising healthcare costs. This may lead inflation to be stickier and rates to be higher than markets expect," Dimon said.  Profit for the 4th qtr was $9.3B ($3.04 per share) for the 3 months ended Dec 31.  That compares with $11B ($3.57 per share) a year earlier.  Annual earnings hit a record $49.6B.  The bank reported a 12% jump in revenue to $38.6B.  JPM & several major banks are taking a hit to their quarterly profits as they are required to pay a bulk of the $16B to replenish the Federal Deposit Insurance Corp's deposit insurance fund (DIF), which was drained after Silicon Valley Bank & Signature Bank failed last year.  The stock went up 1.12.

JPMorgan profit shrinks as it sets aside $3B for deposit insurance fund

Early signals from bank earnings suggest earnings season could bring in choppy results.  Additionally, activity in the Red Sea may be challenging for shipping intl merchandise.  The latest from the Atlanta Fed: The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the 4th qtr of 2023 is 2.2% on Jan 10, unchanged from Jan 9 after rounding.

Dow Jones Industrials 

Markets slide as investors weigh disappointing inflation data

Dow was up 15 (about 300 above early lows), decliners over advancers about 3-2 & NAZ rose chump change.  The MLP index hardly budged in the 255s & the REIT index pulled back 4+ to the 388s.  Junk bond funds inched higher & Treasuries saw buying which lowered yields.  Oil was up fractionally to the 72s but below early highs & gold added 4 to 2032 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Mortgage rates rose a bit for the 2nd week in a row while home prices remain high & many buyers are still waiting for costs to come down before making a move.  Still, an increase in demand has some economists shining cautious optimism on the housing market.  Freddie Mac's latest Primary Mortgage Market Survey showed that the average rate for the benchmark 30-year fixed mortgage nudged up to 6.66% this week, an increase from 6.62% last week.  The popular note averaged 6.33% a year ago.  At the same time, the rate on the 15-year fixed mortgage edged lower for a 2nd straight reading, averaging 5.87% after coming in last week at 5.89%.  One year ago, the rate on the 15-year fixed note averaged 5.52%.  "Mortgage rates have not moved materially over the last three weeks and remain in the mid-six percent range, which has marginally increased homebuyer demand," said Sam Khater, Freddie Mac's chief economist.  "Even this slight uptick in demand, combined with inventory that remains tight, continues to cause prices to rise faster than incomes, meaning affordability remains a major headwind for buyers," Khater added.  "Potential homebuyers should look closely at existing state and local resources, such as down payment assistance programs, which can considerably help defray closing costs."  The Mortgage Bankers Association's (MBA's) index of mortgage applications rose 9.9% for last week, compared with one week earlier.  "2024 started strong, with gains in both refinance and home purchase applications leading to a 10 percent jump in overall activity for the week," said MBA Pres & CEO Bob Broeksmit.  He added, "With rates expected to remain below 7 percent for the foreseeable future, MBA anticipates renewed activity in the housing market heading into the spring, especially if housing supply continues to rise."

Mortgage rates climb for second straight week

The US gov ran up another ½ a T$ in red ink in the first qtr of its fiscal year, the Treasury Dept reported.  For the period from Oct 2023 - Dec 2023, the budget deficit totaled just shy of $510B, following a shortfall of $129.4B in just Dec alone, which was 52% higher than a year ago.  The jump in the deficit pushed total gov debt past $34T for the first time.  Compared to last year, which saw a final deficit of $1.7T, 2024 is running even hotter.  In the first qtr of fiscal 2023, for example, the difference between spending & receipts totaled $421B.  On an unadjusted basis, that's an increase of $89B between fiscal 2024 & last year.  Adjusted for calendar factors, the Treasury Dept said the change between the 2 years is actually $97B.  Dec's shortfall was higher by more than $34B compared to the previous year, driven by higher Social Security payments & interest costs.  If the current pace continues, 2024 would end with a deficit of just more than $2T.  The deficit has continued to pile up despite the Biden administration's assurances that the Inflation Reduction Act, in addition to reducing prices, would shave “hundreds of billions” off the deficit.  While the rate of inflation has come down, Labor Dept data today showed the consumer price index increased another 0.3% in Dec, pushing the 12-month rate up to 3.4%, higher than the forecast & above the Federal Reserve's 2% goal.  With interest rates elevated as the Fed fights inflation, financing costs for the gov in 2023 totaled nearly $660B.  Debt as a percentage of GDP rose to 120% in the 3d qtr of 2023.

U.S. deficit tops half a trillion dollars in the first quarter of fiscal year

Iran captured an oil tanker previously involved in a US-Tehran dispute over carrying US-sanctioned crude, Iranian state media said.  The Iranian navy seized the vessel St Nikolas in the Gulf of Oman, the state-run Islamic Republic News Agency said, after it surrendered Iranian crude to US authorities following allegations of sanctions violations.  Iran says this forfeiture was actually theft.  Earlier today, the UK Marine Trade Operations said an unnamed tanker was boarded by armed individuals near the Gulf of Oman & appeared to change course toward Iranian waters.  The UKMTO reported on social media that an unnamed ship was boarded by 4 or 5 unauthorized people early today at 50 nautical miles east of Sohar, Oman.  Communication with the vessel was lost & the ship altered course toward Iranian waters, the UK agency said.  TankerTrackers.com identified the vessel as the St Nikolas, previously known as the Suez Rajan.  A media spokesperson for Empire Navigation, which manages the St Nikolas, said that the vessel was en route to the Turkish port Aliaga after loading crude from the Iraqi Basrah Oil Terminal & was staffed by 18 Philippine & one Greek crew members.  The St Nikolas has previously been involved in a dispute between Iran & the US.  In Oct, Empire Navigation said it had resolved a violation of US sanctions with the Dept of Justice, which determined that the vessel, then known as Suez Rajan, loaded sanctioned Iranian oil between Jan & Feb 2022 thru a ship-to-ship transfer near Singapore.  As part of the fallout, Empire Navigation transported the sanctioned cargo to Houston, where it could be forfeited to the DOJ.  Today's incident is the latest in a series of Red Sea attacks, with Yemen’s Iran-backed Houthi movement targeting commercial vessels & compounding the maritime risk of a high-traffic trade route.  The Houthis say they are carrying out their activity in retaliation for Israel's war in the Gaza Strip.

Red Sea crisis could jeopardize inflation fight as shipping costs spike globally

Gold settled lower, giving up early gains as the $ rose after the US reported inflation ran hotter than expected in Dec.  Gold for Feb closed down $8 to settle at $2019 per ounce, after earlier touching $2056.  US core inflation, excluding volatile food & energy, rose 3.9% last month, down from 4% in Nov but above expectations for a 3.8% rise.  The headline consumer price index rose 0.3%, also above expectations for a 0.2% rise.  The $ rose following the report on concerns the Federal Reserve may delay expected interest-rate cuts as inflation remains above its 2% target.  The ICE dollar index was last seen up 0.14 points to 102.49.  Treasury yields also climbed after the CPI release, with the 2-year note last seen paying 4.308%, down 5.4 basis points & the yield on the 10-year note was down 1.7 basis points to 4.017%.

Gold Closes Lower on a Higher Dollar as US December Inflation Tops Expectations

West Texas Intermediate (WTI) crude oil closed higher as geopolitical worries over potential Middle East supply disruptions after Iran seized a tanker in the Gulf of Oman, though demand concerns continue.  WTI crude for Feb closed up 65¢ to settle at $72.02 per barrel, while Mar Brent crude, the global benchmark, was last seen up 64¢ to $77.44.  Reports say Iran boarded & seized the St Nikolas tanker in the waters between it & Oman on a court order.  The ship had been the focus of US attention when it was accused of illegally smuggling Iranian crude oil despite sanctions & its owner was subject to a $2.4M fine levied by the US Justice Dept.  The seizure follows on the largest to date attack on Red Sea shipping by Iran-backed Houthi militants yesterday that was repelled by UK & US naval forces.  The missile & drone attacks pushed prices higher until the Energy Information Administration reported US oil inventories unexpectedly rose last week and stocks of refined products swelled.

WTI Crude Oil Closes Higher After Iran Seizes a Tanker in the Gulf of Oman

The Red Sea continues to be very active & the goings on there can have a major impact on oil.  Its price is around multi year lows.  Attention by investors is watching the Fed for a rate cut in Mar.  However that is 3 months away, a long time when there will be a lot happening.  Dow is up all of 22 YTD.

Dow Jones Industrials 

Markets fall after December inflation is hotter than expected

Dow dropped 252, decliners over advancers about 3-1 & NAZ declined 136.  The MLP index added 2+ to the 256s & the REIT index fell 4 to the 388s.  Junk bond funds were mixed & Treasuries fluctuated (more below).  Oil rose 2+ to the 73s & gold added 6 to 2034.

AMJ (Alerian MLP Index tracking fund)

Inflation rose more than expected in Dec thanks to a jump in energy & housing costs, underscoring the challenge of taming price pressures within the economy.  The Labor Dept said that the consumer price index, a broad measure of the price of everyday goods including gasoline, groceries & rent, rose 0.3% in Dec from the previous month, more than expected.  Prices climbed 3.4% from the same time last year, coming in above both the expectation & the 3.1% gain recorded in Nov.  Other parts of the report indicated that inflation is continuing to retreat, albeit slowly.  Core prices, which exclude the more volatile measurements of food & energy, climbed 0.3% (3.9% annually).  Both of those figures are slightly higher than estimates; however, it marked the first time since May 2021 that core inflation fell below 4%.  Altogether, the report indicates that while inflation has fallen considerably from a peak of 9.1%, it remains above the Federal Reserve's 2% target.  High inflation has created severe financial pressures for most US households, which are forced to pay more for everyday necessities like food & rent.  The burden is disproportionately borne by low-income Americans, whose already-stretched paychecks are heavily affected by price fluctuations.  Housing costs were the biggest driver of inflation last month.  Rent costs rose 0.4% for the month & are up 6.2% from the same time last year.  Rising rents are concerning because higher housing costs most directly & acutely affect household budgets.  Other price gains also proved persistent in Dec.  Food prices, a visceral reminder of inflation for many Americans, rose 0.2% over the course of the month, & grocery costs rose 0.1% last month & are up 1.3% compared with the same time last year.  Energy costs, meanwhile, climbed 0.4% in Dec, including a 0.2% increase in gasoline prices & a 1.3% spike in electricity.

Inflation jumps higher than expected in December

US shipping costs are spiking as attacks in the Red Sea disrupt global trade, raising fears that inflation might pick up again if the disruption persists.  The diversion of container ships from the Suez Canal around the Cape of Good Hope in South Africa is having a “global contagion” effect on freight rates, according to a S&P Global report published this week.  Trade between Asia & Europe has faced the largest impact with the Suez Canal serving as a crucial gateway between the 2 regions.  The rate for a 40-foot container from North Asia to Europe has surged more than 600% to $6000 since the outbreak of the Israel-Hamas war in Oct, according to S&P Global Commodity Insights.  But the Red Sea crisis is now having a significant impact further afield with shipping costs between Asia & the US also spiking.  Shipping rates from North Asia to the US East Coast have jumped 137% to $5100 for a 40-foot container from early Oct, according to S&P Global. Rates from North Asia to the US. West Coast have jumped 131% to $3700 during the same period.  National Security Council spokesperson John Kirby told said last week the economic impact of Red Sea disruptions depends on how long the threat goes on.  “But make no mistake, it is a key international waterway, and it can have an effect on the global economy,” Kirby said.  The Biden administration is concerned, Kirby added, pointing to the multinational maritime force the US is leading to protect vessels.  Some ocean carriers had originally rerouted trade from Asia to the East Coast away from the Panama Canal & thru the Suez as an alternative.  The attacks on vessels in the Red Sea are now forcing shippers such as Hapag-Lloyd to reroute Asia-East Coast trade around the Cape of Good Hope in Africa, according to S&P Global.  Ocean carriers could rely on transpacific routes to the West Coast as an alternative to the canals, but this raises potential congestion problems at ports

Red Sea crisis could jeopardize inflation fight as shipping costs spike globally

The 10-year Treasury yield rose above 4.06% after the latest inflation reading came in hotter than expected, pushing expectations for an interest rate cut from the Federal Reserve further out.  The yield on the 10-year Treasury note rose more than 3 basis points at 4.062% & it has been hovering around the 4% mark for much of the week.  The 2-year Treasury  yield was last more than one basis point higher at 4.383%.  Yields & prices move in opposite directions & 1 basis point equals 0.01%.  The Federal Reserve in Dec said it was expecting to cut rates in small increments 3 times this year.  But minutes from the meeting showed that significant uncertainty remains about the direction of interest rates & that some policymakers have also not excluded the possibility of rates going higher still.  Many investors are hoping that rates will be cut more than the Fed itself is anticipating & that cuts will begin as soon as Mar.  Markets were last pricing in an around 61% chance of the first rate cut taking place then, according to the CME FedWatch Tool.  The CPI data will be followed tomorrow by Dec's producer price index, which tracks inflation on a wholesale level.

10-year Treasury yield rises above 4.06% after higher-than-expected December CPI

The inflation data is above what was anticipated & suggests it is less clear what the path for future rate cuts are.  Increased shipping costs from Asian countries should be expected to make it harder to control inflation from present levels.

Dow Jones Industrials 

Markets edge higher in cautious trading ahead of inflation report

Dow went up 73, advancers barely ahead of decliners & NAZ added 55.  The MLP index remained in the 256s & the REIT index was fractionally higher to the 392s.  Junk bond funds saw limited buying & Treasuries were flattish (more below).  Oil rose slightly in the 72s & gold inched up 1 to 2034.

AMJ (Alerian MLP Index tracking fund)

A key measure of home-purchase applications surged at the start of the new year despite a slight uptick in mortgage rates.  The Mortgage Bankers Association's (MBA's) index of mortgage applications rose 9.9% last week, compared with one week earlier.  The data also showed that the average rate on the popular 30-year loan started the year at 6.81%.  While that is down from a peak of 8% in Oct, it is slightly higher than it was the previous week.  "Despite an uptick in mortgage rates to start 2024, applications increased after adjusting for the holiday," said Joel Kan, MBA's deputy chief economist.  Housing demand stirred back to life after dropping at the end of Dec, even with the recent rise in rates.  Applications for a mortgage to purchase a home climbed 6% from one week earlier but application volume is down 16% compared with the same time last year.  Demand for refinancing also moved higher last week, jumping 19% from the previous 2 weeks.  Compared with the same time last year, refinance applications are up about 30%.  "The increase in purchase and refinance applications for both conventional and government loans is promising to start the year but was likely due to some catch-up in activity after the holiday season and year-end rate declines," Kan said.  "Mortgage rates and applications have been volatile in recent weeks and overall activity remains low."  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. Available home supply remains down a stunning 34.3% from the typical amount before the COVID-19 pandemic began in early 2020, according to a separate report published by Realtor.com.

Mortgage demand surges at start of new year even as interest rates rise

Treasury yields fell as investors considered what could be ahead for inflation & how this could affect interest rates and the overall economy.  The yield on the 10-year Treasury was down by more than 2 basis points to 3.992% after hovering around the 4% mark throughout the beginning of the week & the 2-year Treasury  yield was last nearly 4 basis points lower at 4.335%.  Yields & prices have an inverted relationship & 1 basis point equals 0.01%.  Dec's consumer price index is due tomorrow ahead of the producer price index, which tracks wholesale prices, on Fri.  Investors are hoping that the figures will reflect that inflationary pressures are easing as this could indicate that elevated interest rates are taking effect & rates could be cut soon, or at least not go any higher.  The Federal Reserve's meeting minutes published earlier this month suggested that policymakers believe rate cuts this year are likely, but significant uncertainty about monetary policy remains.  Some officials also did not exclude the possibility of further rate hikes depending on how the economy develops, the minutes showed.  The Fed has not provided a timeline on when rates may be cut, though many investors are hoping the first cut could come as soon as Mar, when the Fed's 2nd meeting of the year will take place.  Markets are widely expecting rates to remain unchanged for what would be the 4th time in a row at the Fed's Jan meeting, which is due to take place on Jan 30-31.

10-year Treasury yield dips below 4% as investors weigh inflation outlook

The US national debt surpassed $34T this month for the first time in history & with large deficits expected to continue, questions about the sustainability of the debt burden are likely to mount.  The federal gov just recorded its 3rd-largest deficit in history when the US ran a $1.7T deficit in fiscal year 2023, which concluded at the end of Sep.  That comes after the expiration of many of the COVID relief programs that drove the country's 2 largest deficits, $3.1T in FY2020 & $2.7T in FY2021, with rising costs of servicing the national debt a key factor.  As deficits persist at historically high levels & the national debt swells, concerns are growing about whether America's debt dilemma could turn into a debt crisis, in large part due to relatively high interest rates brought about by the Federal Reserve's fight against inflation.  "The time to start worrying is now," Marc Goldwein, senior VP & senior policy director for the nonpartisan Committee for a Responsible Federal Budget (CRFB), said.  "There’s no sort of crisis inflection point. But the higher your debt is and the higher interest rates are, the bigger the threat to your near- and long-term sustainability."  The exact point at which the federal debt and the cost of servicing it becomes unsustainable is an open question.  A recent report by the Congressional Research Service (CRS) noted, "Of particular concern is that the new interest rate environment could accelerate the timeline for reaching a ‘tipping point’ where GDP growth is persistently and adversely affected or a default on the debt… becomes imminent."  The CRS report explained that while there isn’t a consensus among economists about where the tipping point is, some estimates range from debt-to-GDP ratios of 80% to 200% & beyond, a range the US currently finds itself within.  For example, the Penn-Wharton Budget Model noted in a report from Oct that "the U.S. debt held by the public cannot exceed about 200 percent of GDP of GDP even under today’s generally favorable market conditions."

US national debt tops $34T: How much debt is too much debt?

There is not much for traders to do while waiting for the inflation data.  And that is widely expected to be mild.

Dow Jones Industrials

Markets ease lower as rate rally hesitates

Dow fell 157 (but off early lows), decliners over advancers better than 5-2 & NAZ finished off 13.  The MLP index stayed in the 255s & the REIT index dipped 3+ to the 291s.  Junk bond funds were mixed & Treasuries had limited selling, raising yields slightly.  Oil was up 1+ to go over 72 & gold added 2 to 2036 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Home prices are rising faster & faster each month, fueled by a decline in mortgage rates.  On a national level, home prices jumped 5.2% in Nov compared with the same month a year earlier, according to a new report from analytics firm CoreLogic.  That's up from a 4.7% annual gain in Oct.  States in the Northeast led the gains, with Rhode Island (11.6%), Connecticut (10.6%) & New Jersey (10.5%) seeing the strongest growth.  Areas seeing year-over-year price declines in Nov were Idaho (-1.3%), Utah (-0.4%) & DC (-0.2%).  “This continued strength remains remarkable amid the nation’s affordability crunch but speaks to the pent-up demand that is driving home prices higher,” Selma Hepp, chief economist for CoreLogic.  “Markets where the prolonged inventory shortage has been exacerbated by the lack of new homes for sale recorded notable price gains over the course of 2023,” she added.  The lower the mortgage rate, the greater the buying power for consumers.  While prices are expected to soften slightly later next year, much of that will depend on supply.  At current low supply levels, & demand increasing due to lower mortgage rates, for now at least, prices have nowhere to go but up.  After hitting more than a dozen record lows in the first 2 years of the Covid pandemic, mortgage rates began rising sharply in 2022 & hit a more than 20-year high in Oct last year.  The average rate on the 30-year fixed loan briefly crossed over 8%.  It has since fallen back & is now in the high 6% range.  Roughly 82% of the nation’s 397 metropolitan housing markets surveyed by CoreLogic were considered overvalued.

Home prices are surging – and Detroit gained the most in November

Boeing (BA), a Dow stock, met its jetliner delivery goals & recorded a 70% boost to annual net orders in 2023, reflecting a record-shattering year of sales for planemakers.  The US manufacturer released the year-end figures as it contends with the fallout from an accident involving an Alaska Airlines 737 MAX 9, which lost a fuselage panel in mid-air last week.  BA delivered 528 planes in 2023 & booked 1314 net new orders after allowing for cancellations, up from 480 deliveries & 774 net new orders in 2022.  It delivered 396 narrowbody 737 jets last year, meeting its revised goal of at least 375 single-aisle planes but falling short of the initial target of 400-450 jets.  The target was downgraded in Oct after a manufacturing flaw by fuselage supplier Spirit AeroSystems forced the it to inspect planes, slowing deliveries.  BA delivered 73 787 Dreamliners in 2023, meeting its goal of 70-80 aircraft.  BA's orders & deliveries are likely to eclipsed by its European rival Airbus, which broke industry records for gross & net orders & beat its delivery target of 720 airplanes in 2023 with deliveries in the mid-730s.  BA won 1456 gross orders for 2023, or 1576 net orders after accounting adjustments.  The stock fell 3.22.

Boeing hits 2023 jet delivery goal in blockbuster sales year

Some renters are having difficulty paying their rent.  About 24% of American renters are experiencing rent affordability issues amid high rent prices & other factors, according to a survey by Intuit Credit Karma.  The company said the total share of adult Americans who rented amounted to 36%.  Its survey involved over 1200 US adults & took place online from Nov 20-26.   30% of millennial renters indicated they had trouble covering their rent, according to Intuit Credit Karma.  For Generation Z, it was 27%.  Meanwhile, one in 10 Americans 69 & older reported they "can no longer afford to pay their rent," the survey said.  In a separate report from online real estate brokerage Redfin pegged the median US asking rent in Dec at $1964.  That marked a 0.2% month-over-month decrease.  However, the median price that landlords were asking renters to pay in Dec remained only 4.4% cheaper than the record $2054 seen in Aug 2022.  "High supply, more so than low demand, is driving rent declines. But if mortgage rates continue to drop at a fast clip in 2024, slowing rental demand could become a major driver of rent declines. That’s because more Americans would ditch the rental market to become homeowners, leaving landlords with even more vacancies," Chen Zhao, the economics research lead at Redfin, said.  30-year fixed mortgages averaged a rate of 6.62% last week, according to Freddie Mac.  About 38% of renters said the need to cover rent has prompted them to give up certain necessities, the Intuit Credit Karma survey further found.  The inability to afford rent was pushing 19% of renters to look to their family & friends for housing, with the share of Gen Zers and millennials reporting doing so coming in at 25%, per the survey.  Intuit Credit Karma also found 46% of Americans harbored gloomy outlooks about their prospects of ever buying a home.  "Our research shows more than half of Americans (57%) allocate the majority of their income toward housing costs, leaving little room elsewhere in their budgets," Intuit Credit Karma consumer financial advocate Courtney Alev said.  "In general, it’s recommended that consumers allocate half of their income for essentials, including housing and other necessities, like groceries and household bills."  The median asking rent in America has posted declines 3 months in a row, according to Redfin.  On an annual basis, Dec's price represented a 0.8% drop.

Paying rent still a problem for 24% of renters

Gold closed with a chump change loss as the $ strengthened.  Gold for Feb closed inched higher at $2033 per ounce.  The rise comes as treasury yields were mixed ahead of inflation data coming Thurs, with the US expected to report core inflation last month fell to 3.8% from from 4% in Nov, firming hopes the Federal Reserve will ease interest rates this year.  The 2-year note was last paying 4.392%, up 0.8 basis points while the 10-year note was down 1.0 basis points to 4.021%.  The $ is higher, rebounding from yesterday's losses, with the ICE dollar index last seen up 0.37 points to 102.58.

Gold Edges Down as the Dollar Rises Ahead of Inflation Data Coming this Week

Oil prices rose after sliding in the previous session as markets weighed Middle East tensions against demand worries and rising OPEC supply.  Brent crude futures rose $1.47 (1.9%) to settle at $77.59 a barrel, while US West Texas Intermediate crude futures gained $1.47 (2.1%), to settle at $72.24 a barrel.  Geopolitical tensions in the Middle East & an ongoing supply outage in Libya offered support to prices.  On the supply side, there are some bullish factors from the closure of Libya's largest oilfield, which has affected around 0.3M barrels per day of oil production.  Some major shipping firms are still avoiding the Red Sea.  Germany's Hapag-Lloyd will continue to divert vessels around the Cape of Good Hope in the wake of maritime attacks by Yemeni Houthi militants.

Oil Rises 2% as Middle East Crisis, Inflation Fight in Focus

Selling in the AM gave way to modest buying in the PM which trimmed losses.  Traders are waiting to see important inflation data & the first corp earnings reports later this week.  Meanwhile stocks meander.

Dow Jones Industrials 

Markets slip on earnings outlooks and Fed official's comments

Dow dropped 280, decliners over advancers about 4-1 & NAZ was off 63.  The MLP index slid back 1+ to the 254s & the REIT index fell 2+ to the 391s.  Junk bond funds were little changed & Treasuries hardly budged which brought little changes to yields.  Oil rebounded into the 71s & gold added 6 to 2040.

AMJ (Alerian MLP Index tracking fund)

Federal Reserve Governor Michelle Bowman, who had been one of the central bank's staunchest advocates for tight monetary policy, said she's adjusted her stance somewhat & indicated that interest rate hikes are likely over.  However, she said she's not ready to start cutting yet.  Bowman noted the progress made against inflation & said it should continue with short-term rates at their current levels.  “Based on this progress, my view has evolved to consider the possibility that the rate of inflation could decline further with the policy rate held at the current level for some time,” she said.  “Should inflation continue to fall closer to our 2 percent goal over time, it will eventually become appropriate to begin the process of lowering our policy rate to prevent policy from becoming overly restrictive.”  “In my view, we are not yet at that point. And important upside inflation risks remain,” she added.  As a governor, Bowman is a permanent voter of the rate-setting Federal Open Market Committee.  Prior to this speech, she had repeatedly said additional rate hikes likely would be needed to address inflation.  Her comments come a few weeks after the committee,at its Dec meeting, voted to hold the benchmark federal funds rate at its current target range of 5.25-5.50%.  In addition, committee members, thru their closely followed dot-plot matrix, indicated that the equivalent of 3 qtr-percentage point rate cuts could come in 2024.  However, minutes released last week from the Dec 12-13 meeting provided no potential timetable on the reductions, with members indicating a high degree of uncertainty over how conditions might evolve.  Inflation is trending down toward the Fed's target & by 1 measure is running below it over the past 6 months.  Bowman said policymakers will remain attuned to how things develop & are not locked into a policy course.  “I will remain cautious in my approach to considering future changes in the stance of policy,” she said, adding that if the inflation data reverse, “I remain willing to raise the federal funds rate at a future meeting.”

Fed Governor Bowman adjusts stance, says hikes likely over but not ready to cut

Small businesses continued to feel pessimistic about the state of the US economy in Dec, reflecting fears over the persistent worker shortage & chronic inflation.  The National Federation of Independent Businesses (NFIB), a Tennessee-based association of small business owners, said its Small Business Optimism Index rose slightly to 91.9 last month, a 1.3 percentage point decrease from Nov.  Despite the increase, that marks the 24th straight month of readings below the 48-year average of 98.  "Small business owners remain very pessimistic about economic prospects this year," said Bill Dunkelberg, NFIB chief economist.  "Inflation and labor quality have consistently been a tough complication for small business owners, and they are not convinced that it will get better in 2024."  Inflation surpassed worker quality as the biggest threat posed to small businesses in Dec.  About 23% of small business owners cited price increases as the single most important problem in operating their business, up one point from the previous month.  While inflation has fallen considerably from a peak of 9.1%, it remains well above the Federal Reserve's 2% target.  As a result, 36% of small business owners reported raising prices in order to offset the sting of high inflation.  Just 15% reported lower average selling prices.  Another 20% of owners said that labor quality was their biggest problem as low unemployment & rapid wage increases made it harder for the owners of these firms to compete with big companies & hire employees.  About 36% of small business workers reported raising compensation last month, while 29% plan to increase wages in the next 3 months.  About 9% of owners cited labor costs as the top business problem.

Small business owners down in the dumps over state of economy

The global economy is on course to record its worst ½ decade of growth in 30 years, according to the World Bank.  Global growth is forecast to slow for the 3rd year in a row in 2024, dipping to 2.4% from 2.6% in 2023, the organization said in its latest “Global Economic Prospects” report.  Growth is then expected to rise marginally to 2.7% in 2025, though acceleration over the 5-year period will remain almost 3-qtrs of a percentage point below the average rate of the 2010s.  And despite the global economy proving resilient in the face of recessionary risks in 2023, increased geopolitical tensions will present fresh near-term challenges, the organization said, leaving most economies set to grow more slowly in 2024 & 2025 than they did in the previous decade.  “You have a war in Eastern Europe, the Russian invasion of Ukraine. You have a serious conflict in the Middle East. Escalation of these conflicts could have significant implications for energy prices that could have impacts on inflation as well as on economic growth,” Ayhan Kose, the World Bank's deputy chief economist & director of the Prospects Group, said.  The bank warned that without a “major course correction,” the 2020s will go down as “a decade of wasted opportunity.”  On a regional basis, growth this year is set to weaken most in North America, Europe & Central Asia, & Asia Pacific — mainly on account of slower growth in China.  A slight improvement is forecast for Latin America & the Caribbean, coming off a low base, while more marked pickups are expected in the Middle East & Africa.  Still, developing economies are set to be the hardest hit on a medium-term basis as sluggish global trade & tight financial conditions weigh heavily on growth.  “Near-term growth will remain weak, leaving many developing countries — especially the poorest — stuck in a trap: with paralyzing levels of debt and tenuous access to food for nearly one out of every three people,” Gill said.  Developing economies are now expected to grow by just 3.9% in 2024, more than one percentage point below the average of the previous decade.  By the end of the year, people in about one out of every 4 developing countries & about 40% of low-income countries will still be poorer than they were on the eve of the Covid-19 pandemic in 2019, the organization said.  The bank said the data showed that the world was failing in its goal of making the 2020s a “transformative decade” in tackling extreme poverty, major communicable diseases & climate change.  However, it added that there was an opportunity to turn the tide if govs act quickly to increase investment & strengthen fiscal policy frameworks.

Global economy set for its worst half decade of growth in 30 years, World Bank says

Stocks retreated as the tech rally lost steam after a Samsung profit warning took the shine off the sector.  Also, Bowman's comments were not warmly greeted by investors.  So far, Dow is down in Jan.  Not a good start as earnings season begins.

Dow Jones Industrials 

Markets rise led by tech stocks in demand and yields fall

Dow climbed 216, advancers over decliners about 3-1 & NAZ advanced 319.  The MLP index was fractionally lower to the 256s & the REIT index was up 5+ to the 394s.  Junk bond funds fluctuated & Treasuries continued to see buying which lowered yields.  Oil sank 2+ to 71 after Saudi Arabia cut the price of oil & gold dropped 15 to 2034 (more below).

AMJ (Alerian MLP Index tracking fund)

Americans are feeling more optimistic about the outlook of high inflation, according to a key Federal Reserve Bank of New York survey.  The median expectation among consumers is that the inflation rate will be up 3% one year from now, according to the New York Federal Reserve's Survey of Consumer Expectations, down from a high of 7.1% recorded in Jun 2022.  It marks the lowest reading since Jan 2021.  Consumers also anticipate that price growth will slow in the longer term, according to the survey.  They projected that inflation will hover around 2.6% 3 years from now & at 2.5% 5 years from now.  Still, that remains above the Fed's 2% target, indicating that sticky inflation could be here to stay.  By comparison, central bank policymakers projected in their latest economic forecasts that inflation will fall to 2.2% by 2025 & eventually drop to 2% in 2026.  Americans expect the cost of things like food & rent to fall over the next year, but they think the cost of a college education will rise.  The survey, which is based on a rotating panel of 1300 households, plays a critical role in determining how Fed policymakers respond to the inflation crisis.  That is because actual inflation depends, at least in part, on what consumers think it will be.  It is sort of a self-fulfilling prophecy – if everyone expects prices to rise by 3% in the year, that signals to businesses that they can increase prices by at least 3%.  Workers, in turn, will want a 3% pay raise to offset the rising costs.  Chair Jerome Powell has repeatedly stressed that policymakers are committed to wrangling inflation back to the Fed's 2% target goal.

Americans' inflation expectations drop to lowest level in 3 years, NY Fed survey shows

Shares of Boeing (BA), a Dow stock, tanked after the Federal Aviation regulators grounded certain Boeing 737 MAX 9 jets for further inspection after a piece of fuselage tore off the left side of an Alaska Airlines-operated aircraft on Fri, causing the airliner to make an emergency landing after the cabin depressurized.  The aircraft was approaching 16K feet of altitude when it experienced rapid depressurization after a panel that serves as a plug for an emergency exit door used on some variations of the Boeing 737 MAX 9 was torn off.  The pilot immediately signaled the plane would have to land, & it safely returned to Portland, Oregon, with all 171 passengers & 6 crew members aboard.  No serious injuries were reported in the incident & nobody was sitting in the seats adjacent to where the door plug blew out, according to the airline.  Parts of the seat next to the fuselage, including the headrest, were missing.  CEO Dave Calhoun called an all-employee safety meeting following the incident.  The stock tumbled 20+.

Boeing shares tank after plane door blows off mid-flight

A sharp drop in mortgage interest rates in Dec may have kickstarted this year's spring housing market early.  Rates are about a full percentage point lower than they were in Oct & consumers expect they will fall even more.  Optimism about mortgage rates increased sharply in Dec, according to a monthly consumer survey by Fannie Mae.  For the first time since the survey was launched in 2010, more homeowners on net believe rates will go down rather than up, according to Mark Palim, deputy chief economist at Fannie Mae.  “This significant shift in consumer expectations comes on the heels of the recent bond market rally,” said Palim.  “Notably, homeowners and higher-income groups reported greater rate optimism than renters.”  The average rate on the 30-year fixed has been on a wild ride since the start of the Covid pandemic.  It hit more than a dozen record lows in 2020 & 2021, below 3%, causing a historic run on homebuying & a sharp rise in prices, only to then more than double in 2022.  Rates hit a more than 20-year high last Oct, hovering around 8% before falling back below 7% in Dec. Rates, however, are still twice what they were 3 years ago.  Buyers are coming back. DC-area real estate agent Paul Legere hosted 2 open houses over the weekend, homes in the $1.1-1.2M price range & said they were the busiest he's experienced in the last year.  “Similar report from my co-worker,” he added.  “Even on Saturday, during torrential rain, we both had over 10 groups of active shoppers. These were people that had been in the market and had slowed or put their search on hold and are coming back, earnestly looking for a new property.”  Legere said he expects to see “an infusion” of inventory in the next week or 2.  Tight inventory has helped keep prices higher, another hurdle for potential homebuyers. “Homeowners have told us repeatedly of late that high mortgage rates are the top reason why it’s both a bad time to buy and sell a home, and so a more positive mortgage rate outlook may [incentivize] some to list their homes for sale, helping increase the supply of existing homes in the new year,” said Palim.  A recent report from Redfin, a national real estate brokerage, found demand starting to pick up in Dec as rates fell.  Redfin's Homebuyer Demand Index, a seasonally adjusted measure of requests for tours & other homebuying services from Redfin agents, was up 10% from a month ago to its highest level since Aug.  Pending sales, which measure signed contracts on existing homes, were down 3% from Dec 2022, but that was the smallest decline in 2 years.  The average rate on the 30-year fixed mortgage hit a recent low of 6.61% at the end of Dec, but is up slightly this month to 6.76%, according to Mortgage News Daily.

Mortgage rate decline pulls buyers back into the housing market

Gold closed lower for a 2nd-straight session despite a weaker $ & lower treasury yields.  Gold for Feb closed down $16 to $2033 per ounce. The drop comes as investors take profits as the price of the precious metal remains robust, touching a record $2093 per ounce on Dec 27.  The drop also comes despite a weaker $ with the ICE dollar index last seen down 0.13 points to 102.28.  Treasury yields were also lower, normally a bullish sign for gold since it offers now interest.  The 2-year note was last seen paying 4.341%, down 6.3 basis points, while the yield on the 10-year note was down 5.2 basis points to 3.994%.

Gold Closes Lower Again Despite a Weaker Dollar and Lower Yields

Oil declined after Saudi Arabia cut official selling prices for all regions, the latest sign that fundamentals are worsening.  West Texas Intermediate tumbled 4.1%, the biggest drop in almost 2 months, to settle below $71 a barrel.  State producer Saudi Aramco lowered its flagship Arab Light price to Asia by $2 a barrel, more than expected, due to persistent weakness in the global market. Its pricing is the lowest since Nov 2021.  Prices were also pressured by a report that some shipping firms made a deal with Houthi militants to get their vessels safely thru the Red Sea. Such a pact would affect a broad swathe of commodity markets as the attacks have caused shippers to re-route everything from container vessels to gas carriers.  However, the existence of a deal was immediately denied by 2 large firms.  Energy markets are seeing heavy selling to start the week, pushing prices back near the low end of their recent trading range & threatening a much bigger slide.

Oil Slumps as Saudi Price Cuts Underscore Softer Market Ouotlook

Stocks began trading in the red, but bulls rallied investors & finished with one solid gain for the Dow (400 above early lows) while tech stocks on NAZ had an outstanding day.  Background data (like consumer expectations for low inflation above) are encouraging, but the oil story is important since that market indicates all is not well in the global economy.

Dow Jones Industrials 

Markets hesitate on Saudi Arabia's oil price cuts

Dow dropped 116, advancers over decliners 2-1 & NAZ gained 165.  The MLP index was off 2+ to the 254s & the REIT index rose 3+ to the 392s.  Junk bond funds were mixed & Treasuries had modest buying which reduced yields.  Oil was off 3 to 71 on Saudi price cuts (more below) & gold fell 10 to 2039.

AMJ (Alerian MLP Index tracking fund)

Oil declined more than 4% after Saudi Arabia slashed its prices, raising renewed worries that the market is oversupplied at the same time as demand is weakening.  The West Texas Intermediate futures contract for Feb lost $3.67 (4.9%) to trade at $70.17 a barrel & the Brent futures contract for Mar shed $3.44 (4.4%) to $75.32 a barrel.  The selloff comes after Saudi Aramco yesterday sharply cut the price of Arab Light Crude to Asian customers by $2 per barrel.  The Saudi price cut comes amid persistent market weakness due in large part to record US crude production & softening demand in China.  OPEC & its allies are cutting their production by 2.2M barrels per day this qtr in an effort to balance the market.  “While it is possible that the price reduction was to maintain market share in the face of production cuts, the market is taking it as a clear sign that the economy is slowing. Maybe the landing might not be so soft,” Phil Flynn of the Price Futures Group wrote.  US crude & Brent, the global benchmark, both ended the first week of 2024 more than 2% higher on mounting tensions in the Middle East, but supply & demand concerns have persistently overshadowed geopolitical risks in the market.  “The market seems to feel that geopolitical risk will not impact supply and if it does, demand is weak so it will not matter,” Flynn added.  Repeated attacks by Houthi militants, who are allied with Iran, on commercial vessels in the Red Sea have forced shipping giant Maersk to avoid the crucial waterway for the foreseeable future.  The situation is also deteriorating in Lebanon, where a Hezbollah commander was killed today in an apparent Israeli airstrike.  Analysts say a regional war that draws in Iran could lead to a disruption in the Strait of Hormuz which would have a material impact on the market.  So far, however, rising tensions in the region have not led to a disruption in crude supplies.  Meanwhile, the US pumped an estimated 13.2M barrels per day of crude oil in the last week of 2023, & its inventories of gasoline & distillate both soared by more than 10M barrels.

Oil falls more than 4% as Saudi price cut heightens global demand worries

Congressional leaders announced a $1.59T deal on top-line spending as the gov races to avoid a potential shutdown.  The deal establishes an overall spending budget of $1.59B for the 2024 fiscal year, allocating $886B to military spending & $704B for non-defense spending, said Rep House Speaker Mike Johnson said in.  “After many weeks of dialogue and debate, we have secured hard-fought concessions to unlock the FY 24 topline numbers and allow the Appropriations Committee to finally begin negotiating and completing the twelve annual appropriations bills,” he wrote.  The deal comes as the House & Senate inch closer to a key Jan 19 deadline, when funding runs out for many federal agencies.  Funding for the rest of the gov expires on Feb 2.  While the deal paves the way for a potential funding decision, & signals that both Johnson & Schumer are working in unison, a shutdown isn't out of the question as parties continue to clash over key policy issues.  “The framework agreement to proceed will enable the appropriators to address many of the major challenges America faces at home and abroad,” wrote Senate Majority Leader Chuck Schumer & House Minority Leader Hakeem Jeffries (D-N.Y.) in a letter.  “It will also allow us to keep the investments for hardworking American families secured by the legislative achievements of President Biden and Congressional Democrats.”  Johnson acknowledged that the spending levels would “not satisfy” all parties, or cut as much as many had hoped for, but offers a way to “move the process forward; 2) reprioritize funding within the topline towards conservative objectives, instead of last year’s Schumer-Pelosi omnibus; and 3) fight for the important policy riders included in our House FY24 bills.”  Some of the concessions made include a $10B cut to IRS mandatory funding under the inflation Reduction Act & a $6.1B of the “COVID-era slush funds.”  In a separate statement, Schumer & Jeffries said the deal allocates $772.7B toward non-defense discretionary funding, aimed at safeguarding “key domestic priorities like veterans benefits, health care and nutrition assistance from the draconian cuts sought by right-wing extremists.”  In a statement, Pres Biden seemed to approve of the deal & the progress it makes toward averting a shutdown, while taking into account funding levels negotiated last year.  “Now, congressional Republicans must do their job, stop threatening to shut down the government, and fulfill their basic responsibility to fund critical domestic and national security priorities, including my supplemental request,” he said.  “It’s time for them to act. ”

U.S. congressional leaders reach deal on a top-line spending agreement to try to avoid a government shutdown

Treasury yields held steady as investors looked to key economic data slated for this week, including fresh inflation insights that could affect the direction of interest rates.  The yield on the 10-year Treasury was higher by less than 1 basis point at 4.038% & the 2-year Treasury yield was last less than 1 basis point lower to 4.389%.  Yields & prices move in opposite directions & one basis point equals 0.01%.  Dec's consumer price index reading is due Thurs, followed by the producer price index for the month on Fri.  The data is set to provide clues about whether higher interest rates are taking effect & slowing inflation as well as the economy.  That could inform the Fed's interest rate policy & offer hints about when interest rates may be cut & at what pace.  Following its latest meeting in Dec, the central bank indicated that 3 rate cuts were likely to be announced in 2024, but did not specify when this might happen.  Some traders have been hoping that rate cuts could start as early as Mar & be more extensive than the Fed has suggested.  Economic data published last week has, however, cast doubt over that prospect, with Fri's nonfarm payrolls report coming in above expectations, indicating continued resilience & strength in the economy.  The report showed that 216K jobs were added in Dec, higher than the 170K increase expected.  That reflected a significant rise from Nov's 173K figure.

Treasury yields are little changed as investors await key economic data

Dow was dragged lower by Dow stock Boeing (BA), plunging $17 on on its latest problem with its 737 MAX 9 disaster.  Markets are assessing Saudi Arabia's price cuts for oil.  Inflation data for Dec is coming by the end of the week & should be mild as it has been in recent months.

Dow Jones Industrials