Stocks Mixed as Inflation Clouds Bullish Backdrop…..
U.S. stocks finished mixed after recently posting record highs amid some uncertainty regarding the implications of the recent jump in Treasury yields and rising inflation expectations, bolstered by strong reads on January wholesale prices and retail sales. A busy day on the economic front unfolded, with stronger-than-expected reads on industrial production and homebuilder sentiment, while the minutes from the Federal Reserve’s late-January monetary policy meeting showed the Central Bank remains highly committed to fostering a recovery in the employment market. The implications of rising rates and inflation seemed to hamstring optimism regarding progress on the COVID-19 fight and the extremely accommodative fiscal and monetary policies. In equity news, Verizon Communications and Chevron Corporation traded higher after billionaire investor Warren Buffett’s Berkshire Hathaway initiated stakes in the two Dow members. Earnings season continued to roll on, with Shopify seeing pressure despite mostly upbeat earnings results. Treasuries were higher following brief choppiness on the heels of the inflation and retail sales data, and the U.S. dollar gained ground. Gold was lower and crude oil prices were higher. Europe and Asia both slipped as the markets eyed the interest rate landscape in the U.S.
The Dow Jones Industrial Average rose 90 points (0.29%) to 31,613, while the S&P 500 Index was down 1 point (0.03%) at 3,931 and the Nasdaq Composite declined 82 points (0.58%) to 13,965. In moderately heavy volume, 967 million shares were traded on the NYSE and 7.1 billion shares changed hands on the Nasdaq. WTI crude oil rose $1.09 to $61.14 per barrel. Elsewhere, the Bloomberg gold spot price dropped $19.21 to $1,775.26 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—advanced 0.4% to 90.92.
Retail sales and wholesale price inflation jump to headline a busy economic day…..,
Advance retail sales for January rose 5.3% month-over-month (m/m), versus the Bloomberg consensus forecast of a 1.1% increase and following December’s downwardly adjusted 1.0% decline from a previously reported 0.7% drop. Last month’s sales ex-autos grew 5.9% m/m, compared to expectations of a 1.0% increase and December’s figure was negatively revised to a 1.8% decline from a 1.4% fall. Sales ex-autos and gas were up 6.1% m/m, compared to estimates of a 0.8% gain, and December’s reading was adjusted lower to a 2.5% decrease from a 2.1% drop. The control group, a figure used to calculate GDP, surged 6.0% m/m, versus projections of a 1.0% increase and December’s unfavorably adjusted 2.4% decrease from a 1.9% fall.
The Producer Price Index (PPI) showed prices at the wholesale level in January jumped 1.3% m/m, well above forecasts of a 0.4% gain and compared to December’s unrevised 0.3% increase. The core rate, which excludes food and energy, rose 1.2% m/m, noticeably north of estimates of a 0.2% rise and compared to December’s unadjusted 0.1% increase. Y/Y, the headline rate was 1.7% higher, topping projections of a 0.9% gain, and versus the prior month’s unadjusted 0.8% rise. The core PPI increased 2.0% y/y last month, besting estimates of a 1.1% increase, and compared to December’s unrevised 1.2% rise.
The Federal Reserve’s industrial production report showed a rise of 0.9% m/m in January, comfortably above estimates of a 0.4% gain, and versus December’s downwardly revised 1.3% increase. Manufacturing and mining output both rose solidly, but utilities production fell. Capacity utilization increased to 75.6% versus forecasts calling for a dip to 74.8% from the prior month’s upwardly revised 74.9% rate. Capacity utilization is 4.0 percent below its long-run average.
The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment in February unexpectedly improved to 84 versus estimates calling for it to remain at January’s 83 reading. A level north of 50 depicts positive conditions. The index rebounded from two straight monthly declines.
The NAHB said, “Demand conditions remain solid due to demographics, low mortgage rates and the suburban shift to lower cost markets, but we expect to see some cooling in growth rates for residential construction in 2021 due to cost factors, supply chain issues and regulatory risks.” The report also noted that lumber prices have been steadily rising this year and hit a record high in mid-February, adding thousands of dollars to the cost of a new home and causing some builders to abruptly halt projects at a time when inventories are already at all-time lows. The report added that some builders are at capacity and may not be able to expand production due to these headwinds.
In other housing news, the MBA Mortgage Application Index fell by 5.1% last week, following the prior week’s 4.1% decline. The decrease came as the Refinance Index fell 4.7% and the Purchase Index dropped 6.1%. The average 30-year mortgage rate rose 2 basis points (bps) to 2.98%.
Business inventories rose 0.6% m/m in December, above forecasts to match November’s unrevised 0.5% gain.
Treasuries rose after some choppiness in the wake of the economic data and yesterday’s drop. The rate on the 2-year note dipped 1 bp to 0.11%, the yield on the 10-year note declined 3 bps to 1.28%, and the 30-year bond rate decreased 5 bps to 2.05%.
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