Markets slip after Fed minutes signaled delays in rate cuts

Dow dropped 48, decliners slightly ahead of advancers & NAZ slipped back 49.  The MLP index added 1+ to the 272s & the REIT index went up 1+ to the 378s.  Junk bond funds continued to be in demand & Treasuries were sold, raising yields.  Oil rose almost 1 to the high 77s & gold slid back 3 to 2036 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Federal Reserve officials indicated at their last meeting that they were in no hurry to cut interest rates & expressed both optimism & caution on inflation, according to minutes from the session.  The discussion came as policymakers not only decided to leave their key overnight borrowing rate unchanged but also altered the post-meeting statement to indicate that no cuts would be coming until the rate-setting Federal Open Market Committee held “greater confidence” that inflation was receding.  The meeting summary indicated a general sense of optimism that the Fed's policy moves had succeeded in lowering the rate of inflation, which in mid-2022 hit its highest level in more than 40 years.  However, officials noted that they wanted to see more before starting to ease policy, while saying that rate hikes are likely over.  “In discussing the policy outlook, participants judged that the policy rate was likely at its peak for this tightening cycle,” the minutes stated.  But, “Participants generally noted that they did not expect it would be appropriate to reduce the target range for the federal funds rate until they had gained greater confidence that inflation was moving sustainably toward 2 percent.”  Prior to the meeting, a string of reports showed that inflation, while still elevated, was moving back towards the Fed's 2% target.  While the minutes assessed the “solid progress” being made, the committee viewed some of that progress as “idiosyncratic” & possibly due to factors that won't last.  Consequently, members said they will “carefully assess” incoming data to judge where inflation is heading over the longer term.  Officials noted both upside & downside risks & worried about lowering rates too quickly.  “Participants highlighted the uncertainty associated with how long a restrictive monetary policy stance would need to be maintained,” the summary said.  “Most participants noted the risks of moving too quickly to ease the stance of policy and emphasized the importance of carefully assessing incoming data in judging whether inflation is moving down sustainably to 2 percent.”  Officials “remained concerned that elevated inflation continued to harm households, especially those with limited means to absorb higher prices,” the minute added.  “While the inflation data had indicated significant disinflation in the second half of last year, participants observed that they would be carefully assessing incoming data in judging whether inflation was moving down sustainably toward 2 percent.”  The minutes reflected an internal debate over how quickly the Fed will want to move considering the uncertainty about the outlook.

Fed officials expressed caution about lowering rates too quickly at last meeting, minutes show

Boeing (BA), a Dow stock, is replacing the head of its 737 Max program less than 2 months after a panel blew out on one of the jet models during an Alaska Airlines (ALK) flight, prompting a brief federal grounding of the aircraft type & heightened scrutiny of the plane maker's operations.  The company’s 737 program head, Ed Clark, is leaving the company, Stan Deal, CEO of the commercial airplane unit, said in memo to employees.  Katie Ringgold will become pres & general manager of the program & the company's Renton, Washington, site, Deal said.  “I am announcing several leadership changes as we continue driving BCA’s enhanced focus on ensuring that every airplane we deliver meets or exceeds all quality and safety requirements. Our customers demand, and deserve, nothing less,” Deal added.  BA named Elizabeth Lund to a newly created position of senior VP of quality for the commercial airplane unit & Lund will continue to report to him, it added.  The leadership changes are effective immediately.  “Ed departs with my, and our, deepest gratitude for his many significant contributions over nearly 18 years of dedicated service to Boeing,” Deal said.  The Jan 5 accident aboard the ALK flight is the latest crisis for BA that has been trying to find its footing after fatal crashes of its Boeing 737 Max 8 in 2018 & 2019 that killed all 346 people on board the flights.  It is also the latest & most serious of a string of quality flaws on BA planes that have delayed deliveries to customers.  A month after the ALK flight, BA said misdrilled holes on some Max planes would delay handovers of the aircraft to airlines.  The stock fell 1.65.

Boeing replaces head of troubled 737 Max program

Electric vehicle maker Tesla (TSLA) failed to secure a vote among locals in favor of authorizing a major factory expansion for the company's battery & car assembly plant in Brandenburg, Germany.  German state-owned broadcaster DW first reported on the vote & that TSLA needed to cut down approximately “250 acres of forest in the rural community of fewer than 8,000 residents near a nature conservation area” for the expansion.  Plans for the expansion in Grünheide, which is in the Brandenburg district about an hour drive from Berlin, had included designs for a rail freight depot & storage facilities that could help TSLA avoid reliance on other logistics providers including existing freight rail & help them avoid production pauses due to parts shortages.  The vote is nonbinding & local officials would try to find another solution.  The German factory temporarily halted production for approximately 2 weeks earlier this year with execs citing a local component shortage, caused or exacerbated by Houthi militant attacks on ships in the Red Sea.  In the 4th qtr of 2023, TSLA reported that this facility, which it refers to as its Berlin-Brandenburg site, has an annual capacity to produce 375K of the company's Model Y vehicles.  The company also said in its most recent quarterly filing that its intl manufacturing facilities, including in Germany, allow TSLA “to increase the affordability” of its vehicles for customers in local markets by “reducing transportation and manufacturing costs and eliminating the impact of unfavorable tariffs.”  While TSLA has remained a top-selling brand in Europe, it faces competition from more battery electric models than ever in & beyond the region.  TSLA stock was up 53¢.

Tesla faces hurdle in Germany as locals vote to oppose factory expansion

Gold climbed for a 5th session before the of Federal Reserve released minutes that provided fresh clues on when the central bank will pivot to monetary easing.  Swaps traders currently see little chance of the Fed lowering borrowing costs before Jun, after recent data showed inflation in the world's biggest economy remains stubbornly sticky.  Higher rates are typically negative for bullion, which doesn't yield interest.  Along with the release of the minutes from its Jan meeting, a number of policymaking officials are scheduled to speak later this week.  Spot gold rose 0.3% to $2029 an ounce after climbing 1.6% over the previous 4 sessions.  The Bloomberg Dollar Spot Index was flat.

Gold Extends Advance for Fifth Day Ahead of Fed Minutes Release

Oil prices extended losses from the previous session, as growing expectations that cuts to US interest rates will take longer than thought outweighed ongoing concerns over attacks on shipping in the Red Sea.  Brent crude futures fell by 47¢ (0.6%) to $81.87 a barrel while US West Texas Intermediate crude futures (WTI) were lower by 48¢ (0.6%) at $76.56.  The Brent & WTI contracts fell from near 3-week highs yesterday, dropping by 1.5% & 1.4%, respectively.  The premium of front-month Apr Brent futures over Sep contracts - known as backwardation, & a sign of a tightly-supplied market - hit its highest since Oct 31 on Mon at $3.64 a barrel, though has since cooled off to around $3.37.  Concerns that rate cuts by the Federal Reserve could take longer than thought have weighed on the outlook for oil demand. US inflation data last week pushed back expectations for an imminent start to the Fed's easing cycle, with economists now forecasting a cut in Jun.

Oil Dips as Investors Weigh up US Rate Cut Outlook

Dow dropped more than 100 following the release of minutes from the last meeting.  While not a great surprise, it said the first rate cut might have to wait until Jun.  That did not warm the hearts of traders although a late day modest rally trimmed the decline.  Meanwhile economic data indicates that housing & auto manufacturing (2 important industries) are not booming.  High interest rates, among other things, are a significant drag.

Dow Jones Industrials 

Markets hesitate while waiting for the Fed minutes

Dow was off 75, advancers were slightly ahead of decliners & NAZ declined 92.  The MLP index crawled up to the 271s & the REIT index inched up to the 377s.  Junk bond funds were.in demand & Treasuries hardly budged ahead of the minutes for the last Fed meeting (more below).  Oil was higher in the 77s & gold hardly budged at 2028.

AMJ (Alerian MLP Index tracking fund)

The Mortgage Bankers Association's (MBA) index of mortgage applications tumbled 10.6% last week, compared with a 2.3% drop the previous week, according to new data.  The data also showed that the average rate on the popular 30-year loan rose to 7.06% last week.  While that is down from a peak of 8% in Oct, it marks the highest level for interest rates since Dec 2023.  "Mortgage rates moved back above 7 percent last week following news that inflation picked up in January, dimming hopes of a near-term rate cut," said Mike Fratantoni, MBA's chief economist.  Housing demand has ground to a halt as rates move higher.  Applications for a mortgage to purchase a home dropped 10% from the previous week.  Application volume is down 13% compared with the same time last year.  Demand for refinancing also fell last week, declining 11% from the previous week.  Compared with the same time last year, refinance applications are up just 0.1%.  "Potential homebuyers are quite sensitive to these rate changes, as affordability is strained with both higher rates and higher home values in this supply-constrained market," Frantantoni added.  The interest rate-sensitive housing market has cooled rapidly as a result of the Federal Reserve's aggressive tightening campaign.  Policymakers lifted the benchmark federal funds rate 11 times over the course of 16 meetings in an attempt to crush stubborn inflation & slow the economy.  Officials signaled during their most recent policy-setting meeting in Jan that they are done raising interest rates, but are not quite ready to pivot to cutting them yet.  Investors had previously penciled in a series of aggressive rate reductions beginning as early as Mar.  Now, most economists expect the cuts to begin in May or Jun amid signs that inflation remains abnormally high.  Higher mortgage rates are not only dampening consumer demand, they are limiting 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 nosedives as interest rates cross back over 7%

Treasury yields declined as investors looked ahead to the release of the minutes from the Federal Reserve's last meeting.  The yield on the 10-year Treasury was more than 1 basis points lower at 4.262% & the 2-year Treasury  yield was last down by about 2 basis points to 4.593%.  Yields & prices move inversely & 1 basis point equals 0.01%.  Investors awaited the release of minutes from the Fed's Jan meeting, which could provide fresh hints about the path ahead for interest rates.  Prior to the Jan meeting, traders had been pricing in a high chance of rate cuts beginning as early as Mar.  In a post-meeting press conference, however, Fed Chair Jerome Powell said this was unlikely, dampening hopes from investors.  Expectations have since moved to a Jun rate cut.  Economic data released last week also dashed hopes that rate cuts will begin sooner rather than later, especially as Fed officials have indicated that their decision-making will be data-led.  Both the consumer price index & producer price index came in hotter than expected for Jan, which suggested to many investors that inflation is more persistent than they had hoped.  Alongside uncertainty about the timeline for rate cuts, questions have also emerged about how many rate cuts will take place this year.  At the tail-end of 2023, the Fed indicated that it was expecting 3 cuts to take place this year.  Investors were hopeful that more cuts than this would happen, but Fed policymakers have since suggested it could be even fewer.

2-year Treasury yield dips as investors await Fed meeting minutes

Germany's GDP is now expected to grow by just 0.2% this year, as the country wades in “tricky waters,” German Economy Minister Robert Habeck said.  The revised GDP growth forecast is down from a previous estimate of 1.3%.  Habeck said the gov now anticipates German GDP to grow by 1% in 2025.  The minister attributed the revised forecast to an unstable global economic environment & to the low growth of world trade, alongside higher interest rates.  Those issues have negatively impacted investments, especially in the construction industry.  German housebuilding is amongst the sectors that have been most affected by this, with developers canceling projects & order numbers declining, according to recent data.  Analysts fear the sector may face further difficulties this year.  “The economy is in tricky waters,” Habeck said.  “We are coming out of the crisis more slowly than we had hoped.”  This is despite energy costs & inflation falling & consumer spending power increasing again, he added.  Habeck nevertheless maintained that Germany has proven resilient in the face of losing access to Russian seaborne crude & oil product supplies, as a result of the war in Ukraine.

Germany slashes 2024 growth forecast to just 0.2% as economy in ‘tricky waters,’ minister says

The stock market is quiet as investors are waiting for clues from the Fed's minutes in the PM.  Economies across the globe are feeling the adverse effects of high interest rates.

Dow Jones Industrials 

Markets slump ahead of Fed minutes tomorrow

Dow fell 64, decliners over advancers 3-2 & NAZ retreated 144.  The MLP index went up 1+ to the 269s (& has been strong for the last year, shown below) & the REIT index slid back 1+ to the 375s.  Junk bond funds were slightly higher & Treasuries had limited buying which reduced yields.  Oil was off about 1 to the high 78s & gold gained 12 to 2036 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Home Depot (HD), a Dow stock, quarterly sales declined nearly 3% year over year, but it surpassed earnings & revenue expectations despite the cooler demand.  CFO Richard McPhail said demand dipped throughout the year as consumers returned to more typical spending patterns.  He added that falling lumber prices & rising interest rates hurt the business.  But HD sees a chance to return to growth, McPhail said.  “Our market is on its way back to normal demand conditions,” he said.  “We’re not quite there yet, but the pressures we saw in 2023 are receding.”  The home improvement retailer expects total sales to grow about 1% in fiscal 2024, which includes an additional week.  That compares with a 1.6% increase expected.  However, it expects comparable sales, which take out the effect of store openings & closures, to decline about 1% during a period without the additional week.  HD anticipates it will open about a dozen new stores over the year.  EPS was $2.82, down from $3.30 a year earlier.  Net sales decreased from $35.8B in the year-ago period.  HD has faced a tougher sales backdrop over the past year.  The home improvement retailer is following a more than 2-year period when Americans had more time & money to spend on painting & fixing up their homes during the Covid-19 pandemic.  About ½ of its business comes from home professionals & about ½ comes from do-it-yourself shoppers.  Over the past year, McPhail & CEO Ted Decker described 2023 as “a year of moderation” after the outsize gains during the pandemic.  Decker compared the pandemic to a “giant hurricane” that created an unusual period of demand.  HD has also felt a pullback in consumer spending, particularly on big-ticket items, as some families postpone discretionary purchases because of inflation, put off buying a new home because of higher interest rates or choose to spend on experiences rather than goods.  The stock rose 27¢.

Home Depot beats earnings estimates even as sales fall

Corp America has a message for investors: It's serious about cutting costs this year.  From toy & cosmetics makers to office software sellers, execs across sectors have announced layoffs & other plans to slash expenses, even at some companies that are turning a profit.  As consumers watch their wallets, companies have felt pressure from investors to do the same.  Execs have sought to show shareholders that they’re adjusting to consumer demand as it returns to typical patterns or even softens, as well as aggressively countering higher expenses.  Airlines, automakers, media companies & package giant UPS (UPS) are all digesting new labor contracts that gave raises to tens of thousands of workers & drove costs higher.  Companies in years past could get away with passing on higher costs to customers who were willing to splurge on everything from new appliances to beach vacations.  But businesses' pricing power has waned, so execs are looking for other ways to manage the budget, or squeeze out more profits.  But cost reductions unveiled in even just the first few weeks of the year amount to tens of thousands of jobs & Bs of $s.  In Jan, US companies announced 82K job cuts, more than double the number in Dec, while still down 20% from a year ago, according to Challenger, Gray & Christmas.  The tightening of months prior is already showing up in financial reports.  So far this earnings season, results have indicated that companies have focused on driving profits higher without the tailwind of big price increases & sales growth.  As of mid-Feb, more than ¾ of the S&P 500 had reported 4th-qtr results, with far more earnings beats than revenue beats.  The qtr's earnings, measured by a composite of S&P 500 companies, are on pace to rise nearly 10%.  Revenues, however, are up a more modest 3.4%.  Overall, divs paid by companies in the S&P 500 rose 5.05% last year & they could increase 5.3% this year.

Companies — profitable or not — make 2024 the year of cost cuts

Intuitive Machines' (LUNR) surged today to an intraday high of $12.05, north of the $10.03 a share price that shares traded at after the company completed its SPAC merger in Feb 2023.  Since its inaugural moon mission launched last week, the company's share price has more than doubled.  The mission, known as IM-1, launched on a SpaceX rocket & has since completed several of the 16 milestones that LUNR identified as key to the mission's success.  One of the key milestones came when the lander, named “Odysseus,” successfully fired its engine for the first time.  The lander has used the engine to adjust its trajectory and remain on target.  In a series of daily updates since Fri, the company said its cargo lander “continues to be in excellent health” & is preparing to enter the moon's orbit tomorrow.  The company noted that entering lunar orbit, also known as “lunar orbit insertion,” will be the mission's “largest challenge to date.”  The company is on track to make its moon landing attempt at 5:49 PM ET.  Today the stock soared 3.67 (50%).

Intuitive Machines’ stock surges again as lander approaches the moon

Gold prices closed higher for a 3rd-straight session as the $ & yields slipped ahead of the release of the minutes of the last meeting of the Federal Reserve's policy committee coming tomorrow.  Gold for Apr closed up $15 to settle at $2039 per ounce.  The drop comes ahead of the release of the minutes of the last meeting of the Federal Open Market Committee tomorrow, which ended with interest rates unchanged but offered little indication of when rates will be lowered, despite market hopes for near-term cuts.  The $ moved lower, making gold more affordable for intl buyers.  The ICE dollar index was last seen down 0.25 points to 104.04.  Treasury yields also narrowed, lowering the carrying cost of owning gold.  The 2-year note was last seen paying 4.597%, down 4.2 basis points, while the yield on the 10-year note was down 2.3 basis points to 4.261%.

Gold Closes Higher Again as the Dollar and Yields Ease

West Texas Intermediate (WTI) closed lower as geopolitical worries amid violence in the Middle East were more than offset by demand concerns.  WTI crude oil for Mar closed down $1.01 to settle at $78.18 per barrel, while Apr Brent crude, the global benchmark, was last seen down $1.37 to $82.19.  Traders are weighing concerns over the health of China's economy, as a debt crisis for the real-estate sector continues to weigh on the #1 importer.  Rising US inventories & record production is also checking prices, as is a bearish demand forecast issued last week by the Intl Energy Agency.  Still, Middle East tension continue to run hot, with Israel threatening to push in the crowded Gaza city of Rafah in its war against Hamas despite intl concern over the safety of civilians, while Yemen's Houthi militants continue attacks on Red Sea shipping, with a crew abandoning a cargo ship after a missile strike.

WTI Crude Oil Closes Lower as Demand Worries Trump Middle East Tensions

Traders are uneasy about the Fed minutes which will be released tomorrow.  As usual, they probably will not reveal a lot about what to expect at the Mar meeting.

Dow Jones Industrials 

Markets edge lower ahead of earning reports this week

Dow slid back 12. decliners modestly ahead of advancers & NAZ slid back 152.  The MLP index stayed in the 267s & the REIT index was even in the 377s.  Junk bond funds crawled higher & Treasuries had buying which reduced yields (more below).  Oil was down fractionally to the 78s & gold went up 14 to 2038.

AMJ (Alerian MLP Index tracking fund)

Walmart (WMT), a Dow stock & Dividend Aristocrat, quarterly revenue rose 6%, as shoppers turned to the big-box retailer throughout the holiday season & the company's global e-commerce sales grew by double digits.  The retail giant also said that it would acquire smart TV maker Vizio (VZIO) for $2.3B to accelerate growth of its advertising business.  CFO John David Rainey said customers have still shown discretion with purchases.  They are putting fewer items in their baskets but shopping more frequently, he said.  Electronics, TVs, computers & some other expensive items have been a tougher sell, Rainey added.  Yet, he said added after the holiday rush, WMT saw continued sales strength.  In the 3-month period that ended Jan 31, EPS fell to $2.03 compared with $2.32 & revenue increased from $164B in the year-ago period.  WMT expects consolidated net sales to rise 4-5% in its fiscal first qtr.  It also anticipates adjusted EPS of $1.48 - $1.56 on a pre-stock split basis.  For its fiscal 2025, the retailer expects consolidated net sales will climb 3-4% & anticipates adjusted EPS of $6.70 - $7.12 on a pre-stock split basis.  Comparable sales, an industry metric also known as same-store sales, rose 4% for WMT US & Sam’s Club, comparable sales increased 1.9%, including fuel.  Global e-commerce sales jumped 23% year over year, topping $100B in total.  In the US, e-commerce rose 17% as shoppers used curbside pickup & got orders delivered to their homes.  The stock rose $5.92 (3%).

Walmart beats Wall Street’s holiday expectations as e-commerce sales soar

Treasury yields turned mostly lower as uncertainty about the outlook for the economy & interest rates lingered.  The yield on the 2-year Treasury was 5 basis points lower at 4.606 % the 10-year Treasury  yield was last off nearly 2 basis points to 4.279%.  Yields & prices move in opposite directions & 1 basis point equals 0.01%.  Treasury yields had climbed Fri as a hotter-than-expected producer price index report added to concerns about sticky inflation.  Markets were closed yesterday.  The PPI increased by 0.3% in Jan, higher than the 0.1% rise expected.  The core CPI, which excludes food & energy prices, rose by 0.5%, also above the forecast 0.1%.  That came after the consumer price index for Jan also came in above expectations last week, reflecting increases of 0.3% on a monthly basis & 3.1% on an annual basis.  The data suggested to many investors that inflation could be more persistent than they had been hoping for & that interest rate cuts may be further away than previously expected.  Federal Reserve officials have said numerous times in recent months that their decision-making around when rate cuts will begin will be data-led.  They've suggested they’re looking for more evidence that inflation is easing before cutting rates.

2-year Treasury yield falls as investors weigh economic outlook

The Middle East looks set for a path of escalation on multiple fronts as Israeli forces close in on what is left of southern Gaza & as Yemen’s Houthi rebels launch their most damaging strike yet on a ship in the Red Sea.  The crew of the British-owned, Belize-flagged bulk carrier MV Rubymar were forced to abandon ship in the Gulf of Aden yesterday, receiving help from a nearby merchant vessel & coalition warship to reach a nearby port after “two anti-ship ballistic missiles were launched from Iranian-backed Houthi terrorist-controlled areas of Yemen,” according to US Central Command.  A Houthi military spokesman claimed the group's responsibility for the attack, calling it their most severe yet.  The group claim to support Palestinian civilians amid Israel's retaliatory military campaign in the Gaza Strip.  “The ship was severely damaged, leading to its complete halt … It is now at risk of sinking in the Gulf Aden,” he said yesterday.  Simultaneously, fighting is raging between Israel & Hamas in the Gaza Strip with no sign of abating despite diplomatic efforts by a number of countries.  Israel's gov has warned of a potential ground invasion of Rafah, Gaza's southern corner along the Egyptian border where more than 1.5M Palestinians, the majority of whom were displaced from other parts of Gaza, are sheltering, mostly in makeshift tents with very little access to food, water & medicine.

Middle East escalation fears spike as Houthis launch most damaging attack yet

Dow started in the red & then was up to around even.  Recent data has challenged the idea the economy is headed for a future where inflation falls to the Fed's 2% target without a severe downturn, prompting a pullback in bets for a spring interest rate cut.  This week minutes from the last Fed meeting are due tomorrow along with earnings reports largely from retailers.

Dow Jones Industrials 

Markets drift lower after midday rally fails to hold

Dow dropped 145 (near early session lows), decliners over advancers 3-2 & NAZ declined 130.  The MLP index gained 3+ to the 268s & the REIT index fell 3+ to the 377s.  Junk bond funds continued lower & Treasuries had selling which raised yields.  Oil closed up 1+ to the 79s & gold added 9 to 2024 (more on both below).

AMJ (Alerian MLP Index tracking fund)

New US home construction dropped in Jan to the lowest level in 5 months, underscoring the ongoing challenges facing the housing market.  Housing starts tumbled 14.8% last month to an annual rate of 1.33M units, according to Dept of Commerce data.  That is well below the forecast for a pace of 1.46M units.  It marked the lowest level for housing starts since Aug 2023 & the biggest one-month drop in construction since the early days of the COVID-19 pandemic.  Applications to build, which measure future construction, also slid in Jan, falling 1.5% over the course of the month to an annualized rate of 1.47M units.  Compared with the same time last year, building permits are up about 8.6%.  "A home building revival is coming, but it didn’t arrive in January," said Robert Frick, corp economist at Navy Federal Credit Union.  "High mortgage rates, with maybe a dash of cold weather, caused starts and permits to fall from December. We know that builders are ready to ramp up when rates fall, which could be as soon as spring."  The housing market is grappling with an astronomic rise in mortgage rates over the past 2 years, but bad weather in many parts of the country may have weighed on growth last month.  The data comes one day after the National Association of Home Builders/Wells Fargo Housing Market Index, which measures the pulse of the single-family housing market, rose for the 3rd straight month to 48.  Any reading below 50 is considered negative.  Sentiment among builders began steadily falling at the end of the summer after mortgage rates shot above 7%, throttling demand among would-be homebuyers.  But borrowing costs have retreated over the past 2 months as the Federal Reserve has signaled that it is finished raising interest rates & will pivot to cutting them sometime this year.

Winter weather, high mortgage rates send housing starts plummeting

Nike (NKE), a Dow stock, is cutting 2% of its current workforce (more than 1500 jobs) as part of a broader restructuring, the company said.  The sneaker giant said it wants to better use its capital to invest in its growth areas, such as running, women's & the Jordan brand.  “This is how we will reignite our growth,” CEO John Donahoe said.  “This is a painful reality and not one that I take lightly,” he added.  “We are not currently performing at our best, and I ultimately hold myself and my leadership team accountable.”  The layoffs will take place in 2 phases.  The company will start the first round this week & finish the 2nd by the end of its fiscal 4th qtr, which typically concludes at the end of May.  It’s not clear which departments will experience layoffs, but they will not affect retail employees at its stores or warehouse workers.  The cuts come as consumers become more cautious in their spending & the retail industry braces for a demand slowdown for discretionary items such as clothes & shoes, which is its bread & butter.  In Dec, NKE unveiled a broad restructuring plan to cut costs by about $2B over the next 3 years.  It lowered its sales outlook as it prepared for lower demand & wholesale orders, soft sales online & a marketplace that relies more on promotions.  As part of its plan to cut costs, it will be looking to simplify its product assortment, increase automation and its use of technology, streamline the organization by reducing management layers & leverage its scale “to drive greater efficiency.”  The stock fell 2.54.

Nike to lay off 2% of employees, cutting more than 1,500 jobs during broad restructuring

The United Auto Workers (UAW) is threatening a labor strike at Ford's (F) largest US plant if local union demands aren't resolved by next week.  The Detroit union said nearly 9000 UAW autoworkers at Ford's Kentucky Truck Plant could strike at on Feb. 23 if local contract issues remain.  The plant, its largest in terms of employment & revenue, produces Ford Super Duty pickups as well as Ford Expeditions & Lincoln Navigator SUVs.  Local contracts differ from the national agreements that the union ratified in late 2023 with Ford.  They deal with plant-specific issues & can many times go unresolved for months, if not years, after the national deals are ratified.  The union said “core issues in Kentucky Truck Plant's local negotiations are health & safety in the plant, including minimum in-plant nurse staffing levels & ergonomic issues, as well as Ford’s continued attempts to erode the skilled trades at Kentucky Truck Plant.”  It was not immediately clear why the union set the strike deadline at the Ford plant & not others.  There are 19 other open local agreements across Ford.  The stock was off 21¢.

UAW threatens to strike Ford truck plant in Kentucky if local issues aren’t resolved

Gold closed higher, rising off early weakness as the $ gave up the gains it posted after another report showed US inflation running hotter than expected, lowering hopes for a quick cut to US interest rates from the Federal Reserve.  Gold for Apr closed up $9 to settle at $2024 per ounce.  The Bureau of Labor Statistics reported the Jan producer price index (PPI) rose by 0.3% from Dec, above expectations for 0.1% rise & up from a 0.1% drop in the previous month.  Core PPI rose 2% annualized, ahead of expectations for a 1.6% rise & up from 1.8% in Dec.  The higher than expected rise follows on prior reports showing the US economy continues to run hot & clouds the outlook for US interest rates.  Gold is likely to remain stuck until there is a better understanding about the delivery of future US rate cuts.  The ICE dollar index was last seen down 0.08 points to 104.21, after earlier touching 104.67.  Treasury yields pushed higher, raising the carrying cost of owning gold.  The 2-year note was last seen paying 4.665%, up 8.7 basis points, while the yield on the 10-year note was up 7.0 basis points to 4.297%.

Gold Closes Higher as the Dollar Surrenders Gains That Came After a Report SHows US Inflation Ran Hotter Last month

West Texas Intermediate (WTI) crude oil rose to the highest in 3 months as geopolitical worries amid Mideast violence & the death in prison of Russian opposition Alexei Navalny offset a well-supplied market & flagging demand.  WTI crude for Mar closed up $1.16 to settle at $79.19 per barrel, the highest since Nov 6. while Apr Brent crude was last seen up 58¢ to $83.44.  Geopolitical risks continue as a trading focus with Israel continuing to push into the crowded city of Rafah in Gaza, while attacks on Red Sea shipping by Yemen's Houthis force traffic around the Cape of Good Hope instead of thru the Suez Canal, boosting shipping costs & Navalny's death is sparking intl condemnation of Russian pres Vladimir Putin.  The rise comes a day after the Intl Energy Agency said the oil market was well supplied amid rising production outside of the OPEC+ cartel & moderate demand.  "Global oil demand growth is losing momentum, with annual gains easing from 2.8 mb/d in 3Q23 to 1.8 mb/d in 4Q23. A sharp drop in China underpinned an 830 kb/d decline in global oil demand to 102.1 mb/d in the last quarter of 2023. The pace of expansion is set to decelerate further to 1.2 mb/d in 2024, compared with 2.3 mb/d last year. China, India and Brazil will continue to dominate gains," the agency said.

WTI Crude Oil Closes Higher as Focus Stays on Geopolitical Turmoil

After a midday rally, the sellers returned to drag the averages back into the red.  Investors are adjusting to the concept of slower rate cuts.  Stocks had a tough with mixed to negative economic data.  The Dow ended a choppy week down 170.

Dow Jones Industrials 

Markets fall as inflation report stokes concerns about Fed rate cuts

Dow pulled back 82, decliners over advancers more than 3-2 & NAZ declined 75.  The MLP index edged higher 1+ to the 266s & the REIT index was off 2+ to the 378s.  Junk bond funds slid lower & Treasuries saw selling which raised yields (more below).  Oil inched higher in the 78s after selling in early trading (more below) & gold added 5 to 2020.

AMJ (Alerian MLP Index tracking fund)

Inflation at the wholesale level rose much more than expected in Jan, underscoring the challenge of taming price pressures within the economy.  The Labor Dept said that its producer price index, which measures inflation at the wholesale level before it reaches consumers, jumped 0.3% in Jan from the previous month.  On an annual basis, prices remain up 0.9%.  Those figures are both higher than the 0.1% monthly gain & the 0.6% annual figure predicted.  In another sign that points to the stickiness of high inflation, core prices, which exclude the more volatile measurements of food & energy, surged 0.5% for the month.  That is higher than both the 0.1% estimate & the flat reading recorded last month.  The figure was up 2% on a 12-month basis.  The data comes 3 days after the Labor Dept said the more closely watched consumer price index, which measures the prices paid directly by consumers, rose 0.3% in Jan from the previous month & 3.1% from the same time last year, far faster than anticipated.  Both releases are considered to be important measurements of inflation, with the PPI believed to be a leading indicator of inflationary pressures as costs work their way down to consumers.  The different gauges point to inflation that is still running above the Federal Reserve's preferred 2% target.  The Federal Reserve has signaled it is closely watching for evidence inflation is continuing to subside as policymakers try to determine what comes next for interest rates in 2024.  Central bank officials have opened the door to cutting interest rates this year, but they have pushed back against the market's aggressive expectations.  Chair Jerome Powell said during the Fed's most recent meeting that a Mar rate cut is likely off the table as policymakers do not have enough confidence that inflation is on the path back to 2%.

Wholesale inflation accelerates more than expected in January

Treasury yields climbed after Jan wholesaler prices came in higher than expected.  The yield on the 10-year Treasury  was nearly 8 basis points higher to 4.32%, above the closely watched 4.3% level & the 2-year Treasury  yield was last trading at 4.68% after rising by 11 basis points.  At one point, the yield reached 4.718%, its highest level since Dec 13.  Yields & prices have an inverted relationship & 1 basis point equals 0.01%.  The producer price index rose 0.3% in Jan, above the 0.1% forecast.  Excluding volatile food & energy prices, the core PPI added 0.5%, also exceeding expectations for a 0.1% increase.  It's the latest in a string of closely watched economic data releases this week that have come as investors attempt to predict the future of inflation & monetary policy.  Earlier in the week, the consumer price index for Jan  showed a 0.3% increase on a monthly & a 3.1% rise on an annual basis, just above expectations.  Markets took a sharp slide after the data indicated persistent inflation.  Data yesterday showed that retail sales figures fell by 0.8%, which was far more than expected in Jan.  The forecast had expected a 0.3% decrease.  Meanwhile, the latest initial weekly jobless claims, also yesterday, suggested continued strength in the labor market, coming in at 212K down from an upwardly revised 220K in the previous period.  Investors have been closely watching economic data for hints about whether the economy is easing, which could foreshadow interest rate cuts.

10-year Treasury yield spikes above 4.3% after hot producer prices report

Oil prices pulled back as the market sorted thru conflicting demand forecasts from OPEC & the International Energy Agency (IEA).  The West Texas Intermediate contract for Mar lost 63¢ (0.8%) to $77.40 a barrel & Apr Brent futures dropped 75¢ a barrel to $82.09 a barrel, down 0.9%. The pullback comes after US crude & the global benchmark rallied yesterday, brushing off a weak global demand forecast for 2024 from the IEA.  Crude prices found support yesterday after US consumer retail sales fell more than than expected in Jan, putting pressure on the $ by suggesting a slower economy & raising hopes that the Federal Reserve might soon start cutting interest rates.  The IEA forecast yesterday that worldwide crude oil demand growth would slow by ½ this year's pace, to 1.2M barrels per day this year, compared to 2.3M bpd in 2023.  Supply is expected to exceed demand, with production outside OPEC rising by 1.7M bpd, according to IEA.  But OPEC predicted a much tighter market this year, with demand growing by 2.2M bpd, outpacing production growth outside the cartel of what it said would total 1.2M bpd.

Oil prices pull back as market grapples with conflicting estimates of demand

Stocks were sold after another inflation reading above forecasts undermined the case for interest rate cuts.  Bigger picture is that inflation is mild & far below the rates a couple of years ago.  Today's data is more important that the CPI because it signals price increases while CPI represents prices in stores today.  Investors who became addicted to unusually low prices & yields now have to adjust to a slower path for rate cuts.

Dow Jones Industrials 

Markets climb as Treasury yields settle back marginally

Dow went up 348 (session high), advancers over decliners more than 4-1 & NAZ rose 47.  The MLP index jumped 5+ to the 266s & the REIT index advanced 7+ to 380.  Junk bond funds were in demand & Treasuries continued to see limited buying, reducing yields.  Oil was up 1+ to the 78s (a more than 3 month high) & gold added 12 to 2016 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Mortgage rates rose again this week, spelling further bad news for weary would-be buyers & sellers as housing inflation continues to surge.  Freddie Mac's latest PrimarMeanwhile, many homeowners interested in moving are opting to stay put, because of the financial disincentive of taking on a significantly higher mortgage rate than they currently have.  The rate on the 15-year fixed mortgage also increased, averaging 6.12% after coming in last week at 5.9%.  One year ago, the rate on the 15-year fixed note averaged 5.51%.   At the same time, home prices continued to climb, edging out further prospective buyers as they are increasingly priced out of the market.  Freddie Mac's latest Primary Mortgage Market Survey showed that the average rate for the benchmark 30-year fixed mortgage climbed to 6.77% this week, up from 6.64% last week.  The 30-year average rate was 6.32% a year ago.  The rate on the 15-year fixed mortgage also increased, averaging 6.12% after coming in last week at 5.9%.  One year ago, the rate on the 15-year fixed note averaged 5.51%.  At the same time, home prices continued to climb, edging out further prospective buyers as they are increasingly priced out of the market.  The Mortgage Bankers Association's (MBA) index of mortgage applications fell 2.3% for the week ended Feb 9, compared with the previous week, according to new data.  Meanwhile, many homeowners interested in moving are opting to stay put, because of the financial disincentive of taking on a significantly higher mortgage rate than they currently have.  Realtor.com senior economic research analyst Hannah Jones said now that a Federal Reserve interest rate cut looks unlikely in Mar, mortgage rates are expected to continue to hover in the mid-6% range as they have for several weeks.  Buyer activity tends to pick up in the spring, & if that happens without a material drop in mortgage rates, the increase in demand could make the affordability crisis even worse.  "Many homeowners still feel locked-in by elevated mortgage rates," Jones added, "which could lead to upward pressure on prices if buyer demand picks up faster than seller activity."  But there are signs that home purchase demand could remain weak.  "The economy has been performing well so far this year and rates may stay higher for longer, potentially slowing the spring homebuying season," Freddie Mac chief economist Sam Khater said.  "According to our data, mortgage applications to buy a home so far in 2024 are down in more than half of all states compared to a year earlier."

Mortgage rates climb again as high housing costs persist

Shares of Shake Shack (SHAK) surged after the burger chain delivered strong 4th-qtr earnings results.  For the last 3 months of 2023, SHAK reported a net income of $6.8M, up from a loss of $8.1M the year prior.  EPS increased to a 15¢ profit from a 20¢ loss during the year-ago period.  Adjusting for one-time items, EPS was 2¢.  The burger chain also saw a 20% increase in revenue year over year & opened 15 new restaurants during the qtr.  For 2024, SHAK expects to grow total revenue by 11% to 15% & open 80 new restaurants, which would bring the total, including company-owned & licensed, to nearly 600 locations, more than double the footprint 5 years ago.  “We ended the year on a high note, with positive traffic in the fourth quarter through the success of our sales-driving strategies and continued margin expansion,” CEO Randy Garutti said in a letter to shareholders.  “Our leadership teams are energized and excited as we embark on our 2024 Strategic Priorities and target another year of strong growth and margin expansion.”  The stock skyrocketed 20.33 (26%).

Shake Shack stock surges 20% on fourth-quarter profit, strong 2024 outlook

Fewer Americans filed for jobless claims last week as the labor market continues to show resilience in the face of elevated interest rates intended to cool economic growth in the US.  Applications for unemployment benefits fell by 8K to 212K for the week ending Feb 10, the Labor Dept.  The 4-week average of claims, which quiets some of the week-to-week noise, rose to 218K, up from 212K the previous week.  Weekly unemployment claims are seen as a proxy for the number of US layoffs in a given week.  They have remained at extraordinarily low levels despite efforts by the Federal Reserve to cool the economy.  The Federal Reserve raised its benchmark rate 11 times beginning in Mar of 2022 in an effort to bring down the 4-decade high inflation that took hold after the economy roared back from the COVID-19 recession of 2020.  Though inflation has eased considerably in the past year, the Labor Dept reported earlier this week that consumer prices remain well above the Fed's 2% target.  The Fed has left rates unchanged at its last 4 meetings.

US Applications for Jobless Benefits Fall as Labor Market Continues to Show Resilience

Gold futures rose as the $ continued to ease after jumping on Tues after a report showed US inflation rose more than expected in Jan.  Gold for Apr closed up $10 to settle at $2014 per ounce.  The rise came as the $ weakened even as the US reported initial jobless claims last week fell to 212K, down from 218K last week & below expectations for 220K new claims.  The report is the latest to show the US economy continues to run hot despite high interest rates, dashing hopes for a quick cut to rates from the Federal Reserve.  The ICE dollar index was last seen down 0.38 points to 104.34, after rising to 104.96 on Tues.  Treasury yields also waned, with the 2-year note last seen paying 4.553%, down 3.3 basis points, while the yield on the 10-year note was down 2.9 basis points to 4.223%.

Gold Closes Higher as the Dollar and Treasury Yields Drop Despite Fewer than Expected New Jobless Claims

West Texas Intermediate (WTI) crude oil closed higher, rising off early weakness after the Intl Energy Agency (IEA) said new supply is likely to rise above demand this year, pushing inventories higher, as investors chose to add risk amid a falling $ & bearish economic data.  WTI crude oil for Mar closed $1.39 to settle at $78.03 per barrel, while Apr Brent crude the global benchmark, was last seen up $1.25 to $82.85.  The rise came as investors looked to add risk as the $ & treasury yields weakened, bidding up equities, oil & metals even as a number of economic reports, including initial jobless claims, industrial production & retail sales, came in under expectations.  In its influential monthly Oil Market report, the IEA said "global oil demand growth is losing momentum" even as production rises.  The agency left its 2024 demand forecast mostly steady at 1.2M barrels per day over 2023 demand, which rose 2.3M bpd over 2022 levels.

WTI Oil Closes Higher Even as the IEA Sees Oil Supply Rising Above Demand in 2024

Comments from Federal Reserve officials have played down the latest data which helped soothe nerves.  But nervous investors are still wondering about the latest rout.  The 10 year Treasury yield at 4.24% is near a 2 month high.  Tomorrow brings the Jan reading for the Producer Price Index.

Dow Jones Industrials 

Markets rise after interest rates fall after January retail sales data

Dow rose 165, advancers over decliners better than 3-1 & NAZ fell 30.  The MLP index added 2+ to the 262s & the REIT index rebounded 6+ to the 378s.  Junk bond funds were higher along with the rise in stocks & Treasuries were purchased, lowering yields marginally.  Oil gained 1+ to the 77s & gold was up 9 to 2013.

AMJ (Alerian MLP Index tracking fund)

Americans pumped the brakes on spending in Jan after the pivotal holiday season as they continued to confront high interest rates & steeper prices for everyday goods.  Retail sales, a measure of how much consumers spent on a number of everyday goods including cars, food & gasoline, tumbled 0.8% in Jan, the Commerce Dept said.  That is lower than both the 0.1% decline projected & the revised 0.4% increase recorded in Dec.  It marks the worst month for retail sales since Mar 2023.  Excluding the more volatile measurements of gasoline & autos, sales fell 0.5% last month.  The Jan advance is not adjusted for inflation, meaning that consumers may be spending the same but getting less bang for their buck.  Spending declined mostly across the board, with notable drops in sales at building materials & garden stores, miscellaneous stores, motor vehicle parts & retailers, as well as gas stations, as prices at the pump fell during the month.  Americans also pulled back their spending on online shopping, with spending at non-store retailers sliding 0.8% from the previous month.  Sales fell in 9 of 13 retail categories last month.  However, Americans continued to spend at bars & restaurants, despite the winter chill across large swaths of the country that kept many individuals at home.  A solid job market & big wage increases have helped to buoy consumer spending in recent months, despite high inflation.  However, many economists have been predicting that consumers will grow more cautious as student loan payments resume & high interest rates continue to work their way thru the economy.  Also, Americans are relying on their credit cards to cover necessities.  Credit card debt surged to a new record at the end of 2023, while delinquencies are also on the rise.

Retail sales tumble much more than expected in January

Denmark-based shipping behemoth Maersk is warning customers that the crisis in the Red Sea could continue into the 2nd ½ of the year, a top exec from the firm said.  "Unfortunately, we don’t see any change in the Red Sea happening anytime soon," Charles van der Steene, regional president for Maersk North America, said.  "We’re advising them the longer transit routes could last through Q2 and potentially Q3. Customers will need to make sure they have the longer overall transit time built into their supply chain."  Houthi terrorists based in Yemen have been attacking commercial vessels in the Red Sea since Nov in retaliation for Israel's assault on the Hamas-ruled Gaza Strip.  The attacks have caused major trade disruptions, with many companies pausing or rerouting shipments around the Cape of Good Hope, adding costs & delays.  Maersk first paused its shipping in the Red Sea & the Gulf of Aden in Dec, but briefly resumed operations in the area after the Pentagon announced the formation of an intl mission, Operation Prosperity Guardian, to counter the attacks by the Houthis.  Following an attack on another of its ships, Maersk announced in Jan it would suspend operations in the region for the "foreseeable future."  The US has launched a series of airstrikes against the Houthis in recent weeks in an effort to deter the group's actions, but the terrorist group continues to target ships in the Red Sea.

Shipping giant Maersk says Red Sea diversions could stretch into second half of 2024

Treasury yields fell after weaker-than-expected retail sales data, coming on the heels of a hotter inflation print this week, raised some concern about the strength of the consumer.  The yield on the 10-year Treasury was 6 basis points lower at 4.209% & the 2-year Treasury  yield was last down by more than 3 basis points at 4.542%.  Yields & prices move in opposite directions & 1 basis point is equivalent to 0.01%.  Investors assessed the Jan retail sales data, which dropped more than expected.  Retail sales tumbled 0.8% last month, more than the 0.3% decline expected.  That comes after the latest consumer price index on Tues showed prices rose by more than expected in Jan, pushing out expectations for interest rate cuts.  Federal Reserve officials have in recent weeks indicated that they are looking for more evidence of inflation easing.  However, Chicago Fed Pres Austan Goolsbee yesterday suggested that market participants should not to be too concerned about the CPI reading, saying it was still “totally clear” that inflation was easing.  He also said he would not support waiting until the 2% target range for inflation has been met to begin rate cuts.

10-year Treasury yield retreats after much weaker-than-expected retail sales

Bulls will say the sluggish sales may support some on the Fed to think about interest rate cuts while others want to see more data.  The future on changes for rates remains unclear.

Dow Jones Industrials