The U.S. stock market keeps fluctuating again
- International oil prices plunge by 5% due to surging inventories…$72 per barrel of WTI
International oil prices continued to plunge for a second day amid rising inventories and concerns over a sluggish economy, breaking down major technical support lines. The price of West Texas Intermediate (WTI) fell through the flat line on the 200th, around $78, and plunged nearly 5.9% during the day, hitting a new low of $72.16 per barrel in July. Oil inventories rose to August’s highest level and Oklahoma Cushing inventories also rose, according to a U.S. Energy Information Administration (EIA) report the day before. There was also an announcement last month that China’s tablet input decreased. The fact that the number of consecutive U.S. applicants for unemployment benefits reached the highest level in nearly two years also suggests a slowdown in economic growth, adding to the burden on oil prices.
Dennis Kissler of BOK Financial Securities said, “In the short term, concerns about supply shortages are easing, especially as crude oil storage increases in the Cushing region,” adding, “Technical weakness in crude futures is also fueling selling.” Daniel Ghali of TD Securities said algorithm-based commodity trading advisors “seem to be contributing to the pain” and estimated that average CTA traders would have liquidated most of their long positions by the end of this session. The International Energy Agency (IEA) on Tuesday predicted oil markets would not be as tight as expected in the quarter given the recent increase in oil production. On the other hand, although OPEC pointed to solid demand trends on Monday, traders expected Saudi Arabia, the largest oil producer, to continue cutting production. Meanwhile, the WTI spread turns to a contango where the price of the month is higher than that of the near month, signaling that there is room for supply.
- U.S. Labor Market Cooling…a contraction in manufacturing production
The number of consecutive U.S. jobless claims rose to 1.87 million in the week ended Nov. 4, the highest in nearly two years, making it harder for the unemployed to find new jobs. New jobless claims also hit a new August high of 231,000 for the week ending Nov. 11. In the Bloomberg survey, economists expected 1.843 million and 220,000, respectively, based on the median. Although it is hard to judge by volatile weekly indicators alone, various economic indicators released this week indicate that the U.S. labor market, price pressure, and consumer spending are generally cooling down somewhat.
Manufacturing production growth in the U.S. also hit -0.7% last month due to a strike by the auto union, worsening from market expectations of -0.4%. Bloomberg Economics predicts that the Fed will no longer raise interest rates this year as the unemployment rate could rise further in November from 3.9% in October, saying that the surge in new unemployment applications and a steady increase in continuous claims mean that the labor market will continue to weaken. Stephen Stanley, chief economist at Santander US Capital Markets, points out that it remains to be seen whether the increase in the number of jobless applicants will continue in the trend.
- Fed governor Mester says ‘disinflation takes time’
Cleveland Federal Reserve Governor Loretta Mester said inflation has cooled, but it is expected to take some time to fully return to the central bank’s 2% target. “Inflation has been well above the Fed’s target for more than two years,” he said in an opening statement at a conference Thursday local time. It is still higher than our target of 2%, but inflation has made noticeable progress while the economy as a whole remains relatively strong.” However, he added, “It will take some time to lower inflation to 2 percent.” The Fed froze its key interest rate at its highest level in 22 years for the second time in a row earlier this month. Now, with the last FOMC meeting of the year left in December, Fed members are evaluating the economic situation to determine if further rate hikes are necessary. Mester, who does not have the right to vote on FOMC policy decisions this year, points out that there is a lot of uncertainty in the economic outlook. If the economy takes a different path than expected, he stressed that “monetary policy must be agile and respond appropriately to changing prospects and risks to achieve our dual responsibilities.” It is also argued that the current base rate level is a good position to make this possible. CNBC interviews say they have yet to decide if further rate hikes are necessary.
Meanwhile, Fed Director Lisa Cook noted that she is paying attention to the risk of a sudden recession, pointing out that the tighter financial conditions could lead to further stress in some sectors of the economy, such as small and medium-sized enterprises and low-income people. In addition, other risk factors, such as global economic shocks such as energy price fluctuations and the ripple effect of U.S. monetary policy on other economies, are also the focus of Fed members. According to Reuters, Fed Vice Chairman Philip Jefferson and two Fed directors said in a response to a senator’s question that the balance sheet reduction process was unlikely to end anytime soon.
- U.S. Deposit Insurance Fund Expansion
The U.S. financial authorities are set to approve plans Thursday local time to mobilize large Wall Street banks to expand their deposit insurance funds despite opposition from some industries, sources said. The Deposit Insurance Fund (DIF) of the Federal Deposit Insurance Corporation (FDIC) usually guarantees up to $250,000 per account, but the DIF decreased significantly in March as it fully guaranteed deposits from Silicon Valley Bank and Signature Bank and covered some of First Republic Bank’s losses amid the regional bank crisis. Usually, all banks that sign up pay so-called valuation fees each quarter, and the FDIC decided to charge 95% of the special fees for financial institutions with assets of more than $50 billion in a fund recruitment proposal proposed in May and instead exempt them from cases of less than $5 billion. Since then, the industry has insisted on changing some of the valuation methods, so it was considered, but it was not reflected in the final draft, a source said. JPMorgan Chase estimates in a recent disclosure that if the rule is implemented, it will pay about $3 billion before tax.
- U.S. Treasury Undersecretary ‘U.S. Bond Market Resilient Despite Volatility’
U.S. Treasury Undersecretary for Domestic Finance Nelly Liang said the $26 trillion U.S. bond market has been working well over the past year despite extreme interest rate volatility, regional bank crisis, and hacking attacks by the Industrial Bank of China (ICBC). He attended the ninth annual U.S. bond market meeting in the New York Fed on Thursday local time, explaining possible additional measures to enhance volume transparency and curb excessive leverage, saying authorities’ efforts to increase the resilience of the U.S. bond market should continue. It points to the risk of a basis trade seeking profits from the US bond-futures gap based on hedge funds’ massive leverage, but also points out that it may help increase US bond liquidity and increase demand. Financial Supervisory Vice Chairman Michael Barr emphasized the need to gather more detailed information on the Basis trade, warning that the trading strategy has advantages but at the same time risks amplifying risks to market participants and U.S. bond market functions. Meanwhile, former New York Federal Reserve Governor William Dudley argued in a Bloomberg column on the 16th that all U.S. bond transactions should be made through central clearing houses to prevent the collapse of the U.S. bond market. Vice Minister Liang did not make any new comments on the plans of the central clean water authorities.
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The U.S. economy is 70% made up of consumption. That’s why consumption, and the source of support for consumption, is important. However, as inflation has increased recently, the importance of price indicators has grown.
The CPI is based on the direct expenditure of the U.S. Department of Labor by consumers living in cities. The PCE also determines what the Department of Commerce has to pay for all consumers (including non-profit organizations) and what a third party has to pay for them instead.
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As a result, CPI has an overwhelming proportion of housing costs of more than 30%. On the other hand, PCE prices account for the largest proportion of medical expenses at 17%, and housing costs account for about 15%.
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The PCE price updates the weight for the item every quarter, but the CPI changes every two years.
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If the Fed tightens and the base rate goes up, the bank tightens its loans. … As installment interest goes up, the consumption of durable goods like expensive cars goes down. Manufacturing comes next. New orders decline among PMI sub-indexes. New orders are also considered a leading index in PMI. We need to look at the inventory as well. … Next, the service industry PMI falls, Wall Street estimates of corporate profits fall, corporate margins shrink. … Then companies increase layoffs to keep their profits. Consumers who lose their jobs spend less, which is seen as a drop in CSI and CCI.
Consumption can really stop overnight. Then you have a recession coming up. “It is usually after the start of the recession that employment data is dampened, with fewer monthly new jobs.”