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)
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
