Coffee With Greta: The Post-Fed Rally Collapses

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DJIA Futures: -461 (-1.5%)

SPX Futures: -68  (-1.8%)

NASDAQ Futures: -231 (-2%)

Good morning friends!

Futures are tumbling as the market gives up Wednesday’s post-Fed rally.

Let’s get right to it!

Treasury Yields Jump

Treasury yields are rising today as central banks around the world join the U.S. Fed in getting more aggressive on inflation. 

The 10-year yield is up 13 basis points at 3.42% while the 2-year yield is up just 4 basis points at 3.26%.

Those yields rise as traders sell-off Treasury notes and bonds. 

The recent spike in yields is a signal the market does not have faith in the short-term strength of the economy and a recession is likely looming.

Fed Gets Aggressive

Stocks rallied on Wednesday after the Fed approved a 0.75% rate hike, its largest since 1994.

The Dow closed up 1% while the Nasdaq settled 2.5% higher and the S&P 500 rose 1.5%.

Fed Chair Jerome Powell signaled the Central Bank will stay aggressive on inflation moving forward. 

In his post-meeting press conference, Powell said the Fed determined the larger rate hike was needed after the “upward surprise” in the May CPI.

He said the bank will consider either a 50 or 75 basis point hike at the July meeting and they believe “front-loading” rate hikes is appropriate.

The Fed also modified its projections for rates and the economy. 

The bank now sees the federal funds rate rising to 3.4% by the end of this year, up 1.5% from the March forecast. 

The Fed is projecting PCE inflation to remain at 5.4% at the end of 2022 vs 4.3% in March. 

The bank also slashed its 2022 GDP forecast to 1.7% from 2.8% in March.

Check out the updated projections here.

Weekly Jobless Claims Fall Less Than Expected

Weekly jobless claims fell less than expected last week, remaining near a 5-month high. 

The Labor Department reported 229,000 Americans filed initial unemployment claims. 

That was down 3,000 from the previous week’s revised level but higher than expectations for 220,000.

Continuing jobless claims were unchanged at 1.31 million in the week ending June 4.

Housing Starts, Building Permits Tumble In May

Homebuilder stocks are falling ahead of the open after U.S. home construction slowed sharply in May. 

The Census Bureau reported housing starts plunged 14.4% last month to a seasonally adjusted annual rate of 1.55 million units. 

That missed economists’ expectations for a SAAR of 1.68 million units. 

Toll Brothers (TOLL) shares are down 2.3% while Lennar (LEN) is slipping 2.5%.

That slowdown in building is expected to continue as building permits fell 7% to a SAAR of 1.7 million units vs 1.78 million expected. 

Starts on single-family homes fell 9.2% with permits falling 5.5%. 

Apartment starts plunged 26.8% and permits dropped 10%.

Higher mortgage rates are slowing demand across the housing market, including for new construction. 

Mortgage News Daily shows the average 30-year rate slipped to 6.03% today after hitting 6.28% earlier this week.

Gas Prices Fall

U.S. gas prices fell further overnight.

AAA shows the national average for regular gas dipped to $5.009/gal today, down from $5.014/gal on Wednesday. 

That price is still 52 cents higher than a month ago and $1.934 higher than a year ago.

But diesel prices are still pushing to new records.

The national average for diesel jumped to $5.786/gal today from $5.780 on Wednesday 

Oil Prices Fall After Fed Rate Hike

Oil prices are falling today on economic growth concerns after the Fed rate hike on Wednesday. 

West Texas Intermediate crude futures are down 1.3% at under $114 bbl while Brent crude futures are down 1.2% at $117 bbl.

The Energy Information Administration reported Wednesday that U.S. crude production increased by 100,000 barrels per day last week to 12 million bpd. 

That’s the highest level since April 2020. 

The EIA also reported that U.S. crude inventories rose by 2 million barrels vs expectations for 1.1 million barrel decrease. 

But gas stockpiles fell by 700,000 barrels vs expectations for a 100,000 barrel increase.

In a letter to Exxon Mobil (XOM) and Chevron (CVX), President Biden said, “At a time of war – historically high refinery profit margins being passed directly onto American families are not acceptable.”

He demanded U.S. refineries “take immediate actions to increase the supply of gasoline, diesel, and other refined product.”

Revlon Files for Bankruptcy

Revlon (REV) shares have been halted in the premarket session after the cosmetics giant filed for Chapter 11 bankruptcy protection. 

The company filed Wednesday evening, citing a large debt load and supply chain struggles. 

Revlon said it expects to receive $575 million in debtor-in-possession financing from its existing lenders. 

The filing said the company is unable to timely fill nearly 1/3 of consumer demand due to issues in the supply chain.

The President and CEO said, “Today’s filing will allow Revlon to offer our consumers the iconic products we have delivered for decades, while providing a clearer path for our future growth.”

She added, “Our challenging capital structure has limited our ability to navigate macro-economic issues in order to meet this demand.”

In Case You Missed It

  • Homebuilder sentiment tumbled to a 2-year low this month. The National Association of Homebuilders sentiment index fell 2 points to 67, in line with economists’ expectations. That was the lowest reading since June 2020. Buyer traffic tumbled 5 points to 48, falling into negative territory for the first time since June 2020.

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