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Market Extra: Most deeply inverted Treasury curve in more than 4 decades has one upbeat takeaway for investorsExternal Link

Spencer Platt/Getty ImagesOne of the bond market’s most reliable indicators of impending U.S. recessions is pointed in a pretty pessimistic direction right now, but contains at least one optimistic message: The Federal Reserve will remain committed to its battle on inflation and, some analysts say, should ultimately win it.The spread between 2- BX:TMUBMUSD02Y and 10-year Treasury yields BX:TMUBMUSD10Y is stuck at one of its most negative levels since 1981-1982 at minus 67.3 basis points on Wednesday, according to Dow Jones Market Data. The more deeply negative the spread becomes, the more worrisome of a signal it’s emitting about the severity of the next economic downturn. Read:Bond-market recession gauge hits 41-year milestone as global growth fears mountBut there’s more than one way to read this measure: The spread also reflects the degree to which the bond market still has confidence that policy makers will do what’s needed to bring down inflation running near its highest levels of the past four decades. The policy-sensitive 2-year Treasury yield ended the New York trading session on Wednesday at 4.37%, up by 360.8 basis points since January, with traders pricing in further rate hikes as well as a slowing pace of them as soon as December. Meanwhile, the 10-year yield was at 3.7% — or 67.3 basis points below the 2-year yield, resulting in a deeply negative spread — and at a level that indicates traders aren’t factoring in a whole lot of additional premium based on the possibility of higher, long-term inflation. Higher and stickier yields at the front end of the curve are “a sign of Fed credibility,” with the central bank seen committed to keeping monetary policy restrictive for longer to rein in inflation, said Subadra Rajappa, head of U.S. rates strategy for Société Générale. “Unfortunately, tighter policy will lead to demand destruction and lower growth, which is keeping long-end yields depressed.”In theory, lower economic growth equates to lower inflation, which helps the Fed do its job of controlling prices. The million-dollar question in financial markets, though, is just how quickly inflation will come down to more normal levels closer to 2%. History shows that Fed rate hikes have no apparent maximum impact on inflation for about 1.5 to 2 years, according to famed economist Milton Friedman, who was cited in an August blog by Atlanta Fed researchers.“The yield curve will likely remain inverted until there is a clear sign of a policy pivot from the Fed,” Rajappa wrote in an email to MarketWatch on Tuesday. Asked whether the deeply inverted curve indicates central bankers will ultimately be successful in curbing inflation, she said, “It is not a question of if, but when. While inflation should steadily decline over the upcoming year, strong employment and sticky services inflation might delay the outcome.”Ordinarily, the Treasury yield curve slopes upward, not downward, when the bond market sees brighter growth prospects ahead. In addition, investors demand more compensation to hold a note or bond for a longer period of time, which also leads to an upward sloping Treasury curve. That’s part of the reason why inversions grab so much attention. And at the moment, multiple parts of the bond market, not just the 2s/10s spread, are inverted. For Ben Jeffery, a rates strategist at BMO Capital Markets, a deeply inverted curve “shows that the Fed has moved aggressively and will keep rates on hold in restrictive territory despite a quickly dimming economic outlook.”The 2s/10s spread hasn’t been so far below zero as it recently has since the early years of Ronald Reagan’s presidency. In October 1981, when the 2s10s spread shrank to as little as minus 96.8 basis points, the annual headline inflation rate from the consumer-price index was above 10%, the fed-funds rate was around 19% under then-Federal Reserve Chairman Paul Volcker, and the U.S. economy was in the midst of one of its worst downturns since the Great Depression. Volcker’s bold moves paid off, though, with the annual headline CPI rate dropping below 10% the following month and continuing to fall more steeply in the months and years that followed. Inflation hadn’t reared its head again until last year and again this year, when the annual headline CPI rate went above 8% for seven straight months before dipping to 7.7% in October. On Wednesday, most Treasury yields slipped after Federal Reserve Chairman Jerome Chairman said the pace of interest-rate hikes could slow as soon as policy makers’ next meeting in two weeks. The 10- and 30-year rates finished November’s final trading session with their biggest monthly drops in two to three years.Right now, “a deeply inverted yield curve signals the Fed is somewhat overtightening, but the impact on inflation may take some time to come through,” said Ben Emons, a senior portfolio manager and the head of fixed income/macro strategy at NewEdge Wealth in New York.

Market Pulse Stories are Rapid-fire, short news bursts on stocks and markets as they move. Visit MarketWatch.com for more information on this news.

Sat, 03 Dec 2022 16:36:00 GMT
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Exxon board expands to 13 directors; airline, aerospace executives join External Link

Exxon Mobil Corp. said late Friday that Larry W. Kellner and John D. Harris II have joined its board, which expanded to 13 directors. Kellner is the former chief executive of Continental Airlines, which merged with United Airlines in 2010, and current chairman of the board for Boeing Co. Harris is the former chief executive of Raytheon International Inc., a subsidiary of Raytheon Technologies Co. . Of the 13 directors, 12 are independent, Exxon said. "We welcome both Larry and John to the ExxonMobil board, as the company executes its strategy to grow shareholder value by leading a thoughtful transition to a lower-emissions future, while providing the reliable energy and products the world needs," lead independent director Joseph Hooley said in a statement. Shares of Exxon edged lower in the extended session Friday after ending the regular trading day down 0.9%.

Market Pulse Stories are Rapid-fire, short news bursts on stocks and markets as they move. Visit MarketWatch.com for more information on this news.

Fri, 02 Dec 2022 21:17:37 GMT
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Dow ekes out gain Friday, stocks book second week in a row of gainsExternal Link

Major U.S. stock indexes ended a choppy session mixed Friday, while still posting weekly gains, after monthly jobs data showed the Federal Reserve's rapid pace of interest rate hikes has yet to tame the roaring labor market. The Dow Jones Industrial Average rose about 33 points Friday, or 0.1%, ending near 34,428, after flipping between gains and losses. The S&P 500 index shed 0.1% and the Nasdaq Composite Index lost 0.2%, according to FactSet. The main benchmarks still booked a second weekly advance in a row. The Dow rose 0.2% for the week, the S&P 500 gained 1.1% and the Nasdaq closed the week up 2.1%, according to FactSet. A hope that Federal Reserve officials might be able to raise rates at a slower pace in December has been feeding a more bullish tone in markets over the past two months, helping to significantly trimming year-to-date losses. But with the U.S. unemployment rate still low at 3.7% and wages rising in November, concerns resurfaced about the potential need for aggressive Fed actions to bring inflation down. Economists said Friday that could put another jumbo rate increase back on the table ahead of the holidays.

Market Pulse Stories are Rapid-fire, short news bursts on stocks and markets as they move. Visit MarketWatch.com for more information on this news.

Fri, 02 Dec 2022 21:04:01 GMT
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Smartsheet stock heads for best day ever after narrower-than-expected quarterly lossExternal Link

Shares of Smartsheet Inc. headed toward their best one-day gain on record Friday after the software-as-a-service company reported better-than-expected quarterly results and guidance Thursday afternoon. The stock rose as much as $38.51, 18.5% higher than Thursday's close, through 3 p.m. Eastern time Friday, when they were more than 15% higher. Smartsheet shares have never gained more than 14.7% in a single session, according to FactSet data. Smartsheet lost $40.1 million, or 31 cents a share, in the fiscal third quarter, compared with a loss of $36.7 million, or 29 cents a share, in the year-ago period. Adjusted for one-time items, Smartsheet lost 1 cent a share. Revenue rose 38% to $199.6 million, the company said. Analysts polled by FactSet expected an adjusted loss of 15 cents a share on sales of $194 million. Smartsheet guided for fiscal fourth-quarter revenue between $205 million and $207 million, which would represent 30% to 32% growth, and an adjusted net loss per share between 2 cents and breakeven. FacSet consensus called for a loss of 9 cents a share on revenue of $204 million for the quarter. For the full fiscal year 2023, the company guided for revenue between $760 million and $762 million, which would be growth of 38% on-year, and an adjusted loss per share between 31 cents and 30 cents. The analysts polled by FactSet expect fiscal 2023 adjusted loss per share of 53 cents on revenue around $753 million. "In the current challenging macro environment, customers are turning to Smartsheet to help execute more strategically and efficiently," Chief Executive Mark Mader said in a statement. "Looking ahead, I am confident in our ability to continue to unlock significant value for our customers, and generate durable, long-term growth with improving profitability." This article has been updated with additional trading data.

Market Pulse Stories are Rapid-fire, short news bursts on stocks and markets as they move. Visit MarketWatch.com for more information on this news.

Fri, 02 Dec 2022 20:10:45 GMT
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: Oil futures settle lower ahead of the OPEC+ meeting and EU ban on Russian oilExternal Link

Oil futures finished with a loss on Friday, but ended higher for the week. The rebound in crude-oil prices recently is due to “some optimism that even though China is battling rising COVID rates, authorities will be much more flexible in how they implement restrictions and lockdowns,” said Michael Hewson, chief market analyst at CMC Markets UK. There is also concern that OPEC+ might announce further cuts to production at their monthly meeting Sunday, he said. However, oil prices fell Friday following news that the European Union agreed on a price cap of $60 for Russian seaborne oil, which some analysts said would have little impact. U.S. benchmark WTI crude for January delivery CLF23 fell $1.24, or 1.5%, to settle at $79.98 a barrel on the New York Mercantile Exchange. For the week, prices based on the front-month contract still gained nearly 4.9%, according to Dow Jones Market Data.

Market Pulse Stories are Rapid-fire, short news bursts on stocks and markets as they move. Visit MarketWatch.com for more information on this news.

Fri, 02 Dec 2022 19:56:00 GMT
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