The Wall Street Journal - 14.11.2019

THE WALL STREET JOURNAL. **** Thursday, November 14, 2019 |B11

Fedchief

testimonybegins

WSJreportssnag

intradetalks

Indexperformance

Source: FactSet

0.4

–0.4

–0.2

0

0.2

%

Dowindustrials

S&P500

NasdaqComposite

9:30a.m. noon 4p.m.

portant “not only for the

critical implications for con-

sumption and its role in the

broader growth picture, but

also as a confirmation or re-

fute of last month’s troubling

headline decline,” said Ian

Lyngen, head of U.S. rates

strategy at BMO Capital

Markets, in a research note.

Economists expect some

improvement in Friday’s re-

port.

Those surveyed by The

Wall Street Journal are fore-

casting a 0.2% increase in re-

tail sales for October.

Excluding auto sales,

which were a major drag on

September’s results, that es-

timate rises to 0.4%.

Bond investors are betting

inflation is making a come-

back.

Market-based measures of

inflation expectations have

climbed in recent weeks, lifted

by investors’ falling concerns

about a near-term recession

and growing comfort with

riskier assets.

The average inflation rate

investors expect during the

next 10 years—measured by

the gap between the yields of

10-year U.S. government debt

and Treasury in-

flation-protected

securities of simi-

lar maturity—has

risen to about 1.7 percentage

points from roughly 1.55 per-

centage points at the end of

last month. The so-called 10-

year break-even rate earlier

this week recorded its largest

six-day gain since November

2016, climbing 17 basis points

from the end of last month.

The 10-year break-even rate

was a recent 1.68 percentage

points, according to Tradeweb.

The yield on the benchmark

10-year Treasury declined for

a second consecutive trading

session, settling at 1.870%

compared with 1.909% Tues-

day. Bond yields fall when

their prices rise.

Inflation expectations had

fallen below 1.5%—a level ana-

lysts said was consistent with

expectations for a recession—

as recently as last month.

Investors said the Federal

Reserve’s three interest-rate

cuts this year have boosted

the prospects for inflation,

and few believe it will climb

fast enough for policy makers

to need to raise rates soon. Of-

ficials have been rethinking

their approach to inflation, ex-

pressing a willingness to let

prices rise faster than the

Fed’s 2% target to compensate

for the long period below that

level.

“If we let this run, some in-

flation will come back,” said

Rob Waldner, chief strategist

and head of multisector

portfolio management at In-

vesco. His firm has made bets

that the break-even rate will

rise as the economy continues

to grow.

Break-even rates are still

relatively low on a historical

basis, held down by decelerat-

ing growth and oil prices that

are well below their highs for

the year. But investors now ex-

pect inflation to pick up next

year. Nearly one-in-three fund

managers in a Bank of Amer-

ica Merrill Lynch survey ex-

pects that inflation will accel-

erate in the next 12 months,

up from near zero in recent

months.

The consumer-price index

rose 0.4% last month, the La-

bor Department said Wednes-

day. That was more than the

0.3% increase predicted by

economists in a survey by The

Wall Street Journal. From a

year earlier, consumer prices

in October were 1.8%, higher

than the 1.7% year-over-year

increase seen in the previous

two months. A weaker dollar

could also lift inflation, said

Rick Rieder, chief investment

officer of global fixed-income

at BlackRock Inc.

BYDANIELKRUGER

Bond

Investors

Bet on

Rise in

Inflation

CREDIT

MARKETS

naces switch on—show how

the glutted energy markets

that threaten oil-and-gas pro-

ducers are benefiting U.S.

households.

Natural-gas futures for De-

cember delivery settled down

0.8% on Wednesday at $2.60

per million British thermal

units on the New York Mercan-

tile Exchange.

Prices for the heating and

power-generation fuel are

down 9% since hitting $2.86 on

Nov. 5.

That was the culmination of

a two-week climb fueled by

forecasts for the current cold

blast and promises of restraint

from Appalachian gas produc-

ers, such as CNX Resources

Corp. and Cabot Oil & Gas

Corp., which have suffered

from low prices.

Record lows have settled

over the eastern U.S. this week,

with blizzards sweeping over

the Midwest and Great Lakes

and freezing temperatures

reaching as far south as the

Gulf Coast.

Andrea Paltrinieri, a finance

professor at Italy’s University

of Udine and analyst for Nat-

GasWeather.com, said it is par-

ticularly telling that the main

U.S. spot price for natural gas,

set at the Henry Hub pipeline

junction in Erath, La., has

fallen more than 8% over the

past week, leaving it down 34%

from a year ago.

That decline is despite surg-

ing demand to heat homes, re-

cord deliveries to liquefied nat-

ural gas export facilities and

supply disruptions in some

drilling regions due to the

freezing temperatures.

“People think there will not

be any problem in terms of de-

liverability of gas,” Mr. Paltrin-

ieri said. “We need much

colder than normal tempera-

tures to avoid further collapse

in prices.”

Unseasonable moves in the

price of natural gas, which is

burned to heat and cool most

U.S. homes, are becoming typi-

cal.

This summer, for instance,

steamy weather that had air

conditioners humming couldn’t

prevent natural-gas prices

from falling to their lowest

level in 30 years.

Natural gas hasn’t been so

inexpensive at this time of year

since 2015, when mounting

supplies prompted a historic

crash. Before that, it was 2001

when November prices were so

low.

In its winter forecast pub-

lished last month, the EIA said

it expects U.S. temperatures to

remain warmer than last win-

ter in much of the country.

Given that, The agency ex-

pects winter fuel bills to be 1%

lower than last winter for

homes heated by natural gas or

electricity, 4% lower for those

warmed by heating oil and 16%

lower for propane users.

If temperatures are 10%

warmer than expected, those

heating costs will plummet fur-

ther, to 25% below last winter

for propane-heated homes and

9% for those fueled by gas, the

EIA said.

Winter weather has arrived,

blanketing much of the country

in snow and freezing tempera-

tures. But heating fuels are

priced like Americans still have

their windows open.

No matter how Americans

heat their homes, they are

probably

paying less

this year

than last to stay warm.

Natural-gas prices are 30%

below where they traded a

year ago. Meanwhile, the na-

tional average price for resi-

dential propane is 22% less

than last year and heating oil

is down 11%, according to the

U.S. Energy Information Ad-

ministration.

Lower prices now, on the

cusp of heating season—when

prices should be rising as fur-

BYRYANDEZEMBER

U.S. Temperatures Decline, but So Does the Cost of Heating

COMMODITIES

pectations.

Spending at stores, restau-

rants and online outlets de-

creased a seasonally adjusted

0.3% in September from the

prior month, marking the first

decline since February and dis-

appointing economists who

had expected a slight pickup in

spending.

While discount retailers

and e-commerce stocks like

eBay Inc. and Amazon.com

Inc. have logged double-digit

percentage gains for the

year, thanks to robust spend-

ing online, many specialty

retailers and department

stores have fared far worse.

GameStop Corp., for in-

stance, is down 53% for the

year. Signet Jewelers Ltd. is

down 47% and Macy’s Inc. is

off 46%.

Friday’s report will be im-

Friday is shaping up to be

an important day for retail

stocks.

The group has lagged be-

hind the broader stock market

this year, hurt by investors’

concerns about store closures,

tariffs and declining sales

among bricks-and-mortar out-

lets.

The SPDR S&P Retail ex-

change-traded fund has risen

7.7% in 2019, trailing the S&P

500, which is up 23%.

Investors will get their next

look at whether the industry’s

shares might be able to re-

bound on Friday, when the

Commerce Department re-

leases retail-sales figures for

October.

The previous month’s re-

port fell short of analysts’ ex-

BYAKANEOTANI

Lagging Retail

Shares Face

Important Test

In his testimony, Mr. Powell

said stable inflation—along

with moderate economic

growth and a strong jobs mar-

ket—were factors supporting

the Fed’s stance that new rate

cuts were unnecessary.

Mr. Powell struck a “slightly

more dovish tone” than at his

most recent news conference in

October, when he signaled that

the Fed was done cutting rates

for now, said Quincy Krosby,

chief market strategist at Pru-

dential Financial.

“In other words, the pause

is not set in stone,” she said.

Overseas markets were rat-

tled as unrest gripped Hong

Kong, including parts of the fi-

nancial district. The Hang Seng

Index fell 1.8%, while Japan’s

Nikkei 225 dropped 0.9%. Early

Thursday, the Hang Seng was

down a further 1%, while the

Nikkei was down 0.2%.

“The escalation of violence

has caused some market jit-

ters,” said Daryl Liew, head of

portfolio management at REYL

Singapore.

In Europe, the benchmark

Stoxx Europe 600 declined

0.3%.

Haven assets gained. The

yield on the 10-year Treasury

fell to 1.870% from 1.909%

Tuesday. Yields move in the

opposite direction from prices.

Gold futures climbed 0.7% to

$1,461.70 a troy ounce.

New data showed U.S. con-

sumer prices rose slightly more

than expected last month,

driven by higher energy costs.

The consumer-price index rose

a seasonally adjusted 0.4% in

October from the previous

month, the Labor Department

said. Economists surveyed by

the Journal had forecast a 0.3%

rise.

Walt Disney shares gained

$10.14, or 7.3%, to $148.72 after

the company said it had signed

up 10 million users for its new

streaming service.

Energizer Holdings jumped

$6.38, or 15%, to $48.38 after

the battery manufacturer’s rev-

enue growth came in better

than expected.

Datadog rallied $5.79, or

17%, to $40.19 after its earn-

ings beat analysts’ expecta-

tions. The cloud-based data-

analytics company was

reporting results for its first

quarter as a public company.

SmileDirectClub , a teeth-

straightening startup that was

also reporting for the first

time since its initial public of-

fering, tumbled $2.25, or 20%,

to $8.83 after it said losses had

widened in the latest quarter.

In commodities, U.S. crude-

oil futures gained 0.6% to

$57.12 a barrel.

The WSJ Dollar Index fell

0.1% to 91.09 late in New York.

—Anna Isaac

and Joanne Chiu

contributed to this article.

MARKETS

The Dow Jones Industrial

Average advanced as investors

parsed the latest headlines on

U.S.-Chinese trade talks and

Federal Reserve interest-rate

policy.

The blue-chip index gained

92.10 points, or 0.3%, to

27783.59. The S&P 500 inched

up 2.20 points, or less than

0.1%, to 3094.04. The Nasdaq

Composite slipped 3.99, or less

than 0.1%, to 8482.10.

The Dow and S&P 500

closed at records, while the

Nasdaq is within 0.1% of its re-

cord reached this week.

A Wall Street Journal report

that trade talks hit a snag over

Chinese purchases of U.S. agri-

cultural goods sent the S&P

500 into negative territory in

afternoon trading, but the in-

dex bounced back.

Optimism over a phase-one

trade deal

between the

U.S. and

China has

lifted stocks to record levels in

recent days, but markets have

been sensitive to concerns that

the negotiations could be de-

railed.

Another question hanging

over the talks is whether

Washington will agree to re-

move existing tariffs on Chi-

nese imports to secure an ini-

tial deal with Beijing, rather

than just lifting the threat of

further levies due Dec. 15.

Investors are likely to be

cautious without concrete

signs of progress on trade, an-

alysts said.

“The euphoria of an immi-

nent trade deal has dissi-

pated,” said Mike Loewengart,

vice president of investment

strategy at E*Trade. “Expecta-

tions should be tempered

given the back-and-forth we’ve

seen over the past year.”

Earlier in the session, U.S.

stocks got a boost after Fed-

eral Reserve Chairman Jerome

Powell indicated that the U.S.

central bank is still willing to

step in and support economic

growth.

Speaking on Capitol Hill, the

Fed chief said he didn’t see a

need to adjust monetary policy

after three interest-rate cuts

this year. He added that the

Fed was open to reassessing

its stance if conditions worsen.

BYALEXANDEROSIPOVICH

Blue Chips, S&P Hit Record Levels

WEDNESDAY’S

MARKETS

Shares of SmileDirectClub declined 20% after the teeth-straightening startup said its losses widened in the latest quarter.

JAE C. HONG/ASSOCIATED PRESS

Many specialty stores such as GameStop, have fared worse. The chain’s stock is down 53% year to date.

SARAH A. MILLER/TYLER MORNING TELEGRAPH/ASSOCIATED PRESS

Unseasonable

moves in the price of

natural gas are

becoming typical.

DAVID ZALUBOWSKI/ASSOCIATED PRESS