This week Fed presidents have set the table for Federal Reserve chair Jerome Powell’s Friday morning speech at the Jackson Hole central bankers’ conference. But it’s not clear that the financial markets are eating off the same menu.
Yesterday’s minutes from interest rate meetings at two of the Federal Reserve’s 12 regional banks show these banks favored a 100 basis-point increase in the Fed’s discount rate in July 14 votes at the two banks. (The discount rate is the rate that the Fed charges banks to borrow at the Fed’s discount window.) The votes came from the boards of the St. Louis and Minneapolis banks. At the July 27 meeting the Fed’s Open Market Committee voted unanimously for a 75-basis-point increase in the Fed’s benchmark interest rate. The committee also raised the discount rate by the same 75 basis points to 2.5%. For those of us trying to figure out what Fed chair Jerome Powell will say at his Friday speech at the Fed’s Jackson Hole central bankers conference, this is something of an indicator that there’s considerable sentiment at the Fed to keep aggressively raising interest rates.
Acres that U.S. farmers were unable to plant have more than tripled from the same period last year as extreme weather wreaks havoc on fields, according to the August report from the Farm Service of the U.S. Department of Agriculture. Prevented planting acres–or the acres of insured crops that can’t be planted because of disasters including flooding and drought–stood at 6.4 million. That’s up from 2.1 million in 2021. Prevented planting acres of corn jumped to more than 3 million acres, from 639,000 acres in 2021, according to the USDA. Wheat shot up to more than 1 million acres from nearly 300,000 acres last year. Not surprisingly grain prices have climbed–and so have the prices of commodity funds. The Teucrium Corn Fund ETF (CORN) is up 4.01% today, August 23, as of noon New York time. The ETF is a member of my Volatility Portfolio where it’s down 8.45% since I added it on June 17, 2022. The Teucrium Wheat Fund ETF (WEAT) is up 2.58% as of noon today. That ETF is a member of my Jubak Picks Portfolio. It’s down 27.26% since I added the position on May 25, 2022.
Hedge funds are pouring millions into bets that Jerome Powells’ Federal Reserve will use its Jackson Hole central bankers’ confab this week to emphasize its strategy of higher interest rates until inflation is under control. Stocks haven’t liked the increase in yields today. As of 1 p.m. New York time, the Standard & Poor’s 500 was down 1.76% and the Dow Jones Industrial Average was off 1.53%. The NASDAQ Composite had dropped by 2.14%.
The Standard & Poor’s 500 fell 1.29% at the close today, August 19. The NASDAQ Composite dropped 2.01%. The small-cap Russell 2000 lost 2.17. The drop in the S&P was the biggest daily decline since June and it took that index to its first weekly loss in five years. The CBOE S&P 500 Volatility Index (VIX) rose 5.32% to move back above 20. It’s tempting to say, Hey, it’s a Friday in August and everyone is at the beach. But I think there’s more going on here than just typical selling before a weekend.
If you’re looking for a catalyst to move slumping technology shares higher, circle September 7. That’s the date for Apple’s (AAPL) launch event to unveil the new iPhone 14 line. It’s just one–but the biggest–of Apple’s product launches this fall. The company is expected to announce new Macs, low-end and high-end iPads, and three models for the Apple Watch.
The chip boom is over–or at least coming to an end. Gartner has cut its outlook for revenue growth in 2022 to just 7.4%. That’s down from a forecast of 14% growth for chip revenue three months ago. Garner sees chip revenue falling 2.5% in 2023. And you don’t have to take the word of market watchers at Gartner.
Walmart shares were up 5.11% today, August 16, at the close. I think it’s fair to call that a relief rally as the company beat lowered earnings and sales forecasts for fiscal second-quarter earnings today. And then confirmed its guidance for the second half of 2022. Remember that the company had slashed guidance twice in the last three months on May 17 and then again on July 26.
China’s factory output and consumer spending both slowed in July, new numbers released today by the National Bureau of Statistics showed. Industrial production rose 3.8% from a year ago. That’s lower than June’s 3.9% year-over-year rate and below economists’ forecast of a 4.3% increase. Retail sales growth slowed to 2.7% in July, lower than economists’ projection of 4.9%.
Yesterday, August 11, U.S. liquefied natural gas (LNG) exported Freeport LNG said it was still pulling in small amounts of natural gas from pipelines at its shuttered LNG export plant in Texas to fuel a power plant. And, this is the important part, it still expects the liquefaction plant, which shut due to a fire on June 8, to return to at least partial service in early October. Thursday, U.S. gas futures jumped about 8% on talk of increased gas flows to the Freeport LNG plant, a drop in gas output, and forecasts for more demand for the fuel over the next two weeks than previously expected. The U.S. Natural Gas Fund (UNG) gained 6.06%.
It didn’t take long. The pixels were barely dry on yesterday’s CPI inflation report–headline inflation fell to a year-over-year rate of 8.5% in July from 9.1% in June–before members of the Federal Reserve warned that the stock market rally on the news was based on a misreading of the Fed’s likely reaction to the lower CPI inflation rate.
The annual rate of inflation as measured by the headline Consumer Price Index (CPI) dipped in July to 8.5%. That was down from June’s annual rate of 9.1%. Economists had expected the inflation rate to drop to 8.7% However, the news wasn’t as positive on the core inflation front. This measure, which strips out more volatile energy and food prices rose at a 5.9% annual rate in July. That’s unchanged from the June rate. The divergence in the headline and core inflation numbers is all about gasoline.
