Federal Reserve Chair Powell Said Central Bank Stands Ready to Raise Rates by 0.50% if Necessary… In remarks about fighting inflation, Powell noted that the bankers will do whatever is necessary, including raising rates by more than 0.25% at any given Federal Open Market Committee (FOMC) meeting.
What it means— Powell’s remarks drove interest rates higher, with the 10-year Treasury bond yield close to 2.5%. Parts of the yield curve have inverted, with shorter-dated bonds yielding more than longer-dated bonds. The 2-year Treasury bond still pays just a touch less than the 10-year, so the all-important 2s10s spread remains positive, if just barely. The San Francisco Fed President favors a 0.50% rate hike in May. She isn’t alone.
The weird stair-stepping of the yield curve and near-inversion shows that fixed income investors don’t believe the Fed can fight inflation without driving the economy into a recession either later this year or in 2023. When that happens, the Fed will be forced to stop raising rates and likely reverse course.
Securities Exchange Commission (SEC) Proposed Rule Requiring Companies to Report Scopes 1, 2, and 3 Carbon Emissions… The rule will require companies to report their climate goals and emissions, as well as emissions upstream and downstream if they are material to the corporate goals.
What it means— Auditors, lawyers, and environmental activists around the nation are rejoicing. In what is sure to be a golden moment for auditors and consultants, the SEC is codifying rules that will require companies to spend hundreds of millions, if not billions, of dollars to estimate their greenhouse gas emissions (GHG), which are scope 1, the emissions of their suppliers and vendors, scope 2, and those of their clients, scope 3. The only problem is that the definition of scope 2 emissions is sort of fuzzy, while the definition of scope 3 emissions is almost nonexistent. Without very specific guidelines, the proposed regulation sets companies up for lawsuits by anyone who believes the firms weren’t thorough enough in their analysis. This is the same legal reasoning that allows almost anyone to hold up oil and gas exploration and production or even construction by filing an environmental impact deficiency.
It’s a bit ironic that the SEC proposed this rule, which will have a huge impact on oil and gas companies, just as the administration is calling for energy firms to produce more oil and gas. Classify this as “Stupid is as stupid does.”
Oil Prices Back Over $110 per Barrel… Oil prices jumped again, as traders reacted to every bit of news out of Russia.
What it means— The war is a big “if/then” statement. If the war continues, or if it ends without Russia withdrawing, then sanctions will remain in place. These sanctions are not in effect yet. While some private companies have refused Russian oil shipments, most contracts are proceeding as planned.
The full effect won’t be felt until mid to late April. Expect oil prices to jump dramatically and take gasoline prices with them. If the war ends and Russia withdraws from Ukraine, oil prices will fall dramatically for about a minute, and then likely come to rest between $80 and $90 per barrel, just like they were before the war.
We still have global inflation, and now we’ve added Russian uncertainty to the mix. Companies and countries will do what they can to reduce oil consumption and move away from Russian suppliers no matter what happens. Don’t expect cheaper oil anytime soon.
New Home Sales Dip 2% in February, Down 6.2% Over Last Year… New-home sales fell for the second consecutive month as mortgage rates marched higher.
What it means— The median sale price also dipped 6.2% last month to $400,600, but it was still 10.7% higher than in February 2021. Inventory also picked up to 6.3 months of supply at the current sales pace. The margin of error on the sales rate is +/- 11.9%, which shows how statistically noisy these numbers can be. While the median price has fallen from the nosebleed level of $430,300 last November, it’s still more than six times median family income. Continued high prices reflect a seller’s market. As we start the spring selling season, we’ll see if the market finally is slowing down a bit.
Durable Goods Orders Down 2.2%, Mostly due to Airplane and Auto Orders… Stripping out transportation and defense, core orders fell 0.3%.
What it means— Airplane orders fell 30%, while auto orders dipped 0.5%. Those numbers are all over the place month-to-month. Core orders fell for the first time in a year, albeit not by much. With core orders up 10% over this time last year, it’s not a big deal to see them off by less than half of one percent, but with the war in Ukraine, rising inflation, energy prices likely walking higher, and the Fed tightening monetary policy, this could be a good time for businesses to slow their growth a bit.
Hacker Collective Known as Anonymous Tries to Reach Russian Citizens Through Printers… Attempting to reach Russian citizens directly, the hacker collective decided to co-opt unsecured printers. After taking control of the printers remotely, the hackers printed instructions on how the printers could be reconfigured to receive news from foreign sources outside of the Kremlin’s control. They report printing more than 100,000 copies. Anonymous claims to have a tremendous amount of classified data about the war that it soon will share with the world and the Russians who have reconfigured their printers.
Data supplied by HS Dent Research
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