Monday, February 26, 2018

Higher markets while Treasuries are being sold

Dow shot up 138, but decliners slightly ahead of advancers & NAZ went up 38.  The MLP index lost 1+ to the 263s.  Junk bond funds were bid higher & Treasuries dropped, taking the yield on the 10 year Treasury down to 2.84% (about 10 basis points below last week's high).  Oil slid lower in the 63s & gold added 4 to 1334.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil63.21


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Stocks followed European & Asian shares higher as benchmark Treasury yields retreated further below 2.9%.  Investor attention is shifting to US monetary policy, with 2 appearances set for this week from new Federal Reserve Chairman Jerome Powell.  The major equity gauges were higher, as the S&P 500 & Europe Stoxx 600 reaching their highest levels in 3 weeks.  The $ reversed an earlier decline & rose slightly, the £ & € fluctuated, & Russia's ruble appreciated the most among emerging market currencies after S&P Global Ratings boosted its credit score to investment grade.  Gold climbed & oil dipped.  Powell may help set a new direction for investors at a time when some of the biggest names in markets are at odds over the implications of this month's surge in US bond yields.  Bank of Japan Governor Haruhiko Kuroda said the central bank has no plan to overhaul its current form of easing, adding that he saw no need to do another comprehensive assessment of the effectiveness of the bank's policies.  Oil futures edged lower after Saudi Oil Minister Khalid Al-Falih said OPEC & its allies may ease output curbs in 2019 in a way that won't disturb the market.

Stocks Rise as Investor Focus Turns to Fed Remarks: Markets Wrap

US sales of new homes unexpectedly fell in Jan to the lowest level since Aug as borrowing costs rose & winter weather depressed demand, according to gov data  Single-family home sales dropped 7.8% M/M to 593K annualized pace (est 647K) after 643K rate (revised from 625K).  Median sales price increased 2.5% Y/Y to $323K.  Supply of homes at current sales rate climbed to 6.1 months from 5.5 months; 301K new houses were on market at end of January, the most since 2009  The results, which are volatile on a month-to-month basis, showed a 14.2% slump in the South, the largest decrease in 3 years & a sharp decline in the Northeast.  The 2 areas experienced inclement weather.  Mortgage costs are picking up & property price appreciation continues to outpace wage growth.  That's crimping affordability, especially for younger Americans and first-time buyers.  The average rate on a 30-year mortgage has jumped this month to the highest level since 2014.  Nonetheless, steady hiring and elevated consumer confidence are expected to help underpin housing.  New-home sales, tabulated when contracts get signed, account for about 10% of the market. They’re considered a timelier barometer than purchases of previously owned homes, which are calculated when contracts close and are reported by the National Association of Realtors.

Sales of New Homes in U.S. Decline to Lowest Level Since August

An era of low productivity growth & high world demand for safe assets may be anchoring central bank policy rates at a low level, St. Louis Federal Reserve Pres James Bullard said.  If the Fed continues to hike short-term rates, he said, the result could be policy that is too tight for the current economy.  The current federal funds target of 1.25-1.5 percentage points is "within the range" of policy rule recommendations that account for a neutral rate of interest held down by several slow-to-change factors, he added.  "If the Committee raises the policy rate substantially from here without other changes in the data, the policy setting could become restrictive," Bullard said.  The FOMC is expected to raise interest rates at its Mar meeting & at least 2 other times this year, according to the most recent policymaker forecasts.  "I have been a little bit concerned that the committee goes too far too fast," Bullard said.  "If we are going to do a lot of rate hikes we have to have data that supports that.  Bullard has become perhaps the most cautious of Fed officials when it comes to rate increases, arguing that the US is currently in a low-growth, low-inflation "regime," & that rates should not rise much further, if at all, until there is evidence things have changed.  His remarks to the National Association of Business Economists conference were framed as a discussion of what that means for the 'neutral' rate of interest, a concept economists use to judge whether monetary policy is encouraging or discouraging economic activity.  Though tricky to estimate, the neutral rate is important for the Fed as a gauge of policy.  Officials currently feel policy should remain accommodative to encourage growth while inflation remains under control.

Fed's Bullard says 'substantially' higher rates risk overly tight policy

While the bulls are back taking the market higher, they are not back in force.  Yield sensitive REIT's are generally lower as investors are demanding higher yields after fairly good reports for Q4.  Lacking broad support for stocks, the bulls may go home early today.  The Dow is still more than 1K below its record made a month ago.

Dow Jones Industrials

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