U.S. stocks moved lower Tuesday, a day after the S&P 500 slid into a bear market on fears that red-hot inflation will prompt more aggressive rate increases from the Federal Reserve.
The S&P 500, Nasdaq Composite and Dow industrials all retreated in morning trading, handing back early gains.
Cryptocurrencies continued to drop, with bitcoin falling further below $23,000 as investors dumped their most speculative holdings.
All eyes this week will be on the Fed’s interest-rate decision on Wednesday, with officials considering a larger-than-expected 0.75-percentage-point increase.
-Bull Market’s Winners Dragged the S&P 500 Into a Bear Market
-Fed Likely to Consider 0.75-Percentage-Point Rate Rise
-Bond Slide Deepens, With No End in Sight
-As Cryptos Fall, Digital-Asset Firms Pump Brakes on Deals
U.S. Harvest of Winter Wheat Starts
U.S. farmers have begun harvesting their winter wheat crops – which may help mitigate the inflated prices stemming from blocked exports from the Black Sea.
The harvesting of U.S. wheat that was planted in the fall and grown over the winter is 10% complete, up from 4% at this time last year but down from the five-year average of 12%, according to the U.S. Department of Agriculture’s Crop Progress report released this week.
The flow of new wheat into the supply pipeline is expected to help relieve some of the pressures that have pushed prices for wheat to historically high levels, said Doug Bergman of RCM Alternatives in a note. “Harvest is quickly approaching, which will be a bearish input for prices even if production is disappointing,” he said.
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The USDA forecasts that U.S. winter wheat production will total 1.18 billion bushels in 2022. That’s down 10 million bushels from last year, but the influx of new wheat comes as grain exports from Ukraine remain stuck in the country while war there rages on.
In trading on the Chicago Board of Trade today, most active wheat futures are down 1.3% to $10.57 per bushel. Wheat prices remain up 37% since the start of the year, but have relaxed 18% since reaching an all-time high of $12.94 per bushel in late March.
Back-To-School Retail Sales Seen Rising 7.5% From 2021
Mastercard SpendingPulse, which measures in-store and online retail sales across all forms of payment, sees U.S. retail sales, not counting autos, up 7.5% for the mid-July through Labor Day back-to-school period.
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Sales are seen up 18.3% compared to pre-pandemic 2019. “Back-to-school is the second biggest season for retailers and is often looked at as an early indicator of retail momentum ahead of the traditional holiday season,” says Steve Sadove, senior advisor for Mastercard and former CEO and Chairman of Saks Incorporated.
Still, Sadove also warns that retailers “will need to find innovative ways to entice shoppers as discretionary spending potentially stretches thin as a result of increasing prices.”
Regulation Lies in Bitcoin’s Future, Clouding Its Current Value
The long-term case for bitcoin is being hit on all sides right now.
With bitcoin trading more than 65% below its peak, the debate sparked by previous down cycles about whether it can be a reliable long-term store of value will continue. Of course, one bitcoin is still worth over $20,000—and traditional reserves such as gold have had their own peaks and plunges. But the value proposition for now still lies in a series of speculative bets: that bitcoin will prove out as a store of value through future cycles; that it is a risk asset that can offer competitive returns compared with assets like stocks; or that it will turn out to be actually useful in important and sustainable ways.
What is concerning about this cycle, though, is that the world of bitcoin and crypto has evolved quite a bit since the last one, yet a crash is still happening. And this drop comes in the midst of perhaps the broadest U.S. regulatory push since crypto’s inception. One part of becoming a store of value is being very widely held, across a diversity of owners, and thus becoming less vulnerable to shocks. But bitcoin’s path there still goes through Washington.
Natural Gas Prices Plunge 18% on Extended Outage at Texas LNG Facility
U.S. natural gas prices plummeted Tuesday morning after an LNG shipping facility in Louisiana said a fire last week would knock out the facility until late this year, greatly reducing export capacity.
Natural gas futures for July delivery fell about 18% to $7.05 per million British thermal units, the latest whipsaw move in the market for the power-generation and heating fuel.
Natural gas has been a big driver of inflation this year, with the highest prices in years adding to the cost of heating, cooling and powering homes and businesses as well as manufacturing steel, cement, glass and plastics. Prices had hit $9.60 just before the fire at the LNG plant on Thursday, which was about triple what gas cost a year ago.
Analysts have expected prices this summer to challenge records set before the shale-drilling boom flooded the U.S. market more than a decade ago. Exports of liquefied natural gas, or LNG, have surged, especially to Europe, where buyers are racing to replace Russian fuel.
The overseas demand has helped lift U.S. prices to their highest level in more than 10 years.
A fire last week at a big LNG export facility on a Texas barrier island has reduced export capacity by about 2 billion cubic feet per day, which is roughly enough gas to power 50,000 U.S. homes for a year.
Traders had been waiting on news about the extent of the damage since then. On Tuesday, the facility’s owner, closely held Freeport LNG, said that the fire, which broke out in the pipes that move LNG from storage tanks to its docks on the Intracoastal Waterway, caused more damage than it initially thought.
“At this time, completion of all necessary repairs and a return to full plant operations is not expected until late 2022,” Freeport said Tuesday. The firm said that it aimed for a partial restart in 90 days.
That means that a lot of shale gas that had been slated to be shipped abroad will now be available to traders to sock away in domestic storage facilities for winter when furnaces are fired up and demand is highest. U.S. natural gas inventories are nearly 15% below the five-year average for this time of year, a result of record LNG exports as well as demand that has outpaced production.
Yield Curve Sends Mixed Signals
As market participants fret about the recessionary consequences of the increasingly aggressive Federal Reserve rate rise campaign, the yield curve is spitting out conflicting readings on the outlook for a downturn.
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The U.S. Treasury yield curve briefly inverted overnight when the yield on a benchmark 2-year government bond rose above the yield of the 10-year equivalent. The spread between the yield of the two notes is closely watched because it has a strong record of front running recessions. In trading Tuesday morning, it is hovering right around 0.5 percentage point .
But Fed researchers say the three-month to 10-year spread is a better predictor of downturns. It has generally moved away from inversion for some time, and now stands at a positive 1.7 percentage points, suggesting no recessionary signal.
