Powell suggested he would support a return to 50 basis-point rate hikes at the Fed's March 21-22 meeting and warned that the central bank's terminal rate - or where interest rate hikes will end - will likely need to be moved higher. Following Powell's comments, the odds of a 50 basis point hike at the upcoming FOMC meeting jumped dramatically from about 30% at the beginning of the week to now over 70% odds, which would take Fed Funds to 5.00 – 5.25%. The odds of just a 25 basis point hike dropped from 69% to 29%.
Powell didn't specify how high he believes the Fed's benchmark rate needs to ultimately climb but more traders are now talking about a benchmark rate up between 5.5% and 5.75% by June.
The critical questions investors have been asking are where the Fed funds rate end up and ultimately how long the rates stay elevated. For now, they both remain moving targets. Powell insisted that the Fed will remain "data dependent" so bulls are hoping upcoming employment and inflation reads reveal a cooler economy than January reports implied.
Friday's Employment Report for February is expected to show job gains of between +200,000 and 215,000, which is less than half the number added in January.
Investors today get a preview of what the official report may show from ADP's monthly private payrolls report. Economists expect a number around +200,000. The Job Openings and Labor Turnover Survey (JOLTS) will also be closely scrutinized today with bulls hoping to see signs that employers are once again scaling back on hiring plans.
The report is a backward look to January, when hiring appears to have rebounded strongly. Still, job openings are expected to dip back below 11 million, which would be taken as a "disinflationary" signal by the bulls.
It's worth noting that used vehicle prices seem to have continued their upward trend in February, according to Cox Automotive's latest Manheim Used Vehicle Value Index. The +4.3% increase in wholesale prices was the largest January to February gain since 2009.
That could be a bad sign as used car prices have been a key contributor to persistent inflation. However, Cox estimates that used car retail prices declined by -5% in February, which is what is ultimately captured by official inflation reads like the CPI and PCE Prices.
Retail prices typically trail wholesale prices, though, meaning used car prices could be heading up in the months ahead.
Fed Chair Powell will be back on Capitol Hill today, this time before House members where he is expected to mostly repeat his talking points from yesterday.
On the earnings front, Campbell Soup and Prudential are today's highlights.
Money Invested In Gold ETFs Continue to Drop: Despite what many might think, gold ETFs have experienced an outflow of investing dollars for the past ten consecutive months. Global physically backed gold ETFs witnessed another month of outflows, losing -$1.7 billion in February. Overall, collective gold ETF assets under management (AUM) declined by -1% to $200 billion. Meanwhile, global gold ETF holdings saw the tenth consecutive month of tonnage decline, falling by -34t (-1.0%) in February to 3,412t, the longest losing streak since January 2014. Source World Gold Council
Millions of Debt Collections Dropped Off Americans' Credit Reports: Tens of millions of debt collections disappeared from Americans’ credit reports during the pandemic, a new government watchdog report found, but overdue medical bills remain a big strain on many households nationwide. The total number of debt collections on credit reports dropped by -33% from 261 million in 2018 to 175 million in 2022, according to the Consumer Financial Protection Bureau, while the share of consumers with a debt collection on their credit report shrunk by -20%. Medical debt collections also dropped by -17.9% during that time, but still made up 57% of all collection accounts on credit reports, far more than other types of debt combined, including credit cards, utilities, and rent accounts. While pandemic-era stimulus benefits may have helped families reduce some of their overall debt, the CFPB noted that the decline in collections was mainly due to some debt collectors underreporting data. According to the report, debt collectors, particularly those who primarily collect on medical bills, reported -38% fewer collection tradelines from 2018 to 2022. Rohit Chopra, CFPB director said in a statement that this could be troubling. Source Yahoo Finance
EIA Expects Lowest First-Quarter Natural Gas Consumption in 5-Years: The government agency estimates that about 99 billion cubic feet per day of natural gas will be consumed in the U.S. during the first quarter of this year. That would be the smallest amount for any first quarter since 2018, down 5% from the first quarter of 2022, it said. It attributes the decline in consumption to very mild temperatures that have reduced demand for space heating, with the largest decline seen in residential and commercial consumption, which it expects will be 11% less than in the first quarter of 2022, according to the EIA’s Short-term Energy Outlook report released Tuesday. Interestingly, the natural-gas consumption in California has not been following the same trend as the rest of the country, as colder-than-normal weather in the state led to more natural-gas consumption. The EIA said U.S. natural-gas prices will likely average $3.02 per million British thermal units this year, down 11.2% from the February forecast. For 2024, it reduced its forecast by 3.8% to $3.89. Source Market Watch
Russia Wild Card to Keep Oil Markets on Edge: Executives and officials from some of the world's top oil and gas companies said on Tuesday energy markets are balanced now, but could easily be disrupted due to tight spare production capacity and supply uncertainties related to Russia's war in Ukraine. The comments at the CERAWeek energy conference in Houston show the industry remains on edge after weathering the initial aftermath of one of the biggest shocks to global energy flows in recent memory. "There is very small spare capacity available so small changes in supply have impact," said Anders Opedal, Chief executive of Norwegian energy giant Equinor. Opedal predicted natural gas supply uncertainty faced by Europe since Russia invaded Ukraine and cut off regional supplies will continue in 2024 and likely 2025. Tighter global crude supplies are also possible after the Kremlin's threat last month to cut 500,000 barrels per day (bpd) of supply from March. On Monday, U.S. energy executives and top OPEC officials discussed concerns about a lack of spare oil production capacity at a private dinner on the sidelines of the conference, an executive who attended said. Officials have reassured attendees at CERAWeek that the oil market has stabilized and reached balance but say the outlook later this year becomes murkier. Source Reuters
Million-Dollar Homes Struggling as High Mortgage Rates Cool Demand: Just over 7% of U.S. homes are worth $1 million or more. That’s down from June 2022’s all-time high of 8.6% and essentially unchanged from a year ago–but it’s up from 4.2% just before the pandemic began. Keep in mind, these numbers are not based on homes that are listed for sale, but rather what they are worth. “In other words, this is what we think the home would sell for if the owner did decide to list it,” Angela Cherry, the director of communications at Redfin explains. The portion of U.S. homes worth seven figures has nearly doubled since before the pandemic, and the typical home is worth significantly more. While home prices are down from their peak, "that doesn’t mean buyers are getting a break,” said Redfin Economics Research Lead Chen Zhao. The typical homebuyer’s monthly mortgage payment is even higher than it was when home values peaked in the spring because rates are so much higher and although home prices have come down, they certainly haven’t crashed. With today’s 6.6% mortgage rates, a buyer who made a 20% down payment would pay $5,241 for an $800,000 home. With the 3.5% rates common in early 2022, that same buyer would pay $5,034 per month for a $1 million home. Source Redfin
Hershey Debuts Plant-Based Peanut Butter Cups and Chocolate Bars: Hershey Company launched plant-based Reese's Peanut Butter Cups and Hershey's chocolate bars on Tuesday with nationwide availability arriving this spring, citing a rise in popularity of plant-based alternatives. The candy manufacturer introduced a Hershey's Plant Based Extra Creamy with Almonds and Sea Salt chocolate bar, alongside Reese's Plant Based Peanut Butter Cups. The chocolate bar will be available nationwide in April and the plant-based Reese's in March. Plant-based food product sales at grocery stores have grown three times as fast as overall food sales, according to a 2021 report from nonprofit think tank the Good Food Institute. The retail market for plant-based foods rose to $7.4 billion in 2021, up from $6.9 billion in 2020, the Good Food Institute reported. The plant-based market is expected to reach over $93 billion by 2028, according to a report by Brand Essence Market Research. Source CNET
US Labor Market Hasn't Been This Strong Since 1969: Ahead of the February Employment Situation due later this week, it's worth taking a deeper look at last month's details. Broadly, service-led industries witnessed the highest share of job growth in January. Still, a key part of the services sector—leisure and hospitality employment—remains under pre-pandemic levels. A similar trend is seen in retail services. Adding 1.5 million jobs since 2020 is professional and business services, the highest overall. This sector covers legal, accounting, veterinary, engineering and other specialized services. We are also seeing strong gains in transportation and warehousing. Last year, the sector added an average of 23,000 jobs, totaling almost 955,000 over the course of the pandemic. Today, trucking jobs exceed 2019 levels and warehouse employment is roughly 50% higher. Although manufacturing hasn’t seen the highest gains, the sector has one of the lowest unemployment rates across job sectors, at 2.4%. Yet the industry faces an acute labor shortage—if every skilled unemployed worker were to fill open job vacancies, a third of jobs in durable manufacturing would still remain open. Source Visual Capitalist
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