Markets slip lower after the Fed holds interest rates unchanged

Dow inched up 10 (but 80 below the highs) after buying into the close, decliners over advancers 5-4 & NAZ dropped 39.  The MLP index was little changed in the 257s & the REIT index gained 4+ to the 351s.  Junk bond funds crawled higher & Treasuries slipped lower in price.  Oil declined below 61 (bear market territory) on oversupply concerns & gold fell 6 to 1222.

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The Federal Reserve, as expected, left rates unchanged at the conclusion of the 2-day Nov meeting.  Policymakers noted the committee "expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term," according to the statement.  Stocks were mixed after the decision was announced.  The American jobs market is hot.  The unemployment rate sits at 3.7%, the lowest level since 1969.  Last month, employers created a robust 250K positions & wages rose at fastest pace in nearly a decade.  The next rate hike is expected in Dec & would mark the 4th & final one of 2018.  Federal Reserve Chairman Jerome Powell will not be giving a live press conference this time around.  The decision may ease Pres Trump, who has lashed out at the central bank for raising rates “too fast,” calling the Fed the biggest threat to the US economy.  He has also criticized Powell's performance, when he said that he is “not thrilled” with Powell's decisions.  Business leaders joined Trump in questioning the Fed's decision making.  Policymakers at the central bank have already voted to hike the benchmark federal funds rate 3 times this year as the economy continues to improve.  Higher rates can impact consumers by increasing borrowing costs, which have already skyrocketed.  Auto loan rates are at a 9-year high & 30-year fixed mortgage rates recently climbed to their highest level in 7 years.  Mortgage rates are also spiking.

Fed holds rates steady, December hike on tap

Rising interest rates are now clearly taking their toll on potential homebuyers.  Total mortgage application volume fell 4% last week from a week earlier & plunged 16% from a year ago, according to the Mortgage Bankers Association's (MBA) seasonally adjusted index.  Mortgage applications to purchase a home led the volume lower, falling 5% for the week to the lowest level in 2 years.  Purchase applications were 0.2% lower than a year ago.  Rising interest rates are now weakening affordability further.  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453K or less) increased to 5.15% from 5.11%, with points increasing to 0.51 from 0.50 (including the origination fee) for loans with 20% down payments.  That is the highest rate since 2010.  “Rates increased slightly last week, as various job market indicators showed a bounce back in job gains and an acceleration in wage growth in October,” the MBA said.  Mortgage applications to refinance a home loan have been falling for more than a year & fell 3% more last week & volume was 33% lower than a year ago.  Rising interest rates have cut the number of eligible borrowers who could benefit from a refinance in half this year alone.  The refinance share of mortgage activity decreased to 39.1% of total applications from 39.4% the previous week.  The adjustable-rate mortgage share of activity increased to 7.8% of total applications.  Mortgage rates continued to move higher.

Mortgage applications drop to 4-year low as interest rates hit 8-year high 

The Italian gov insisted it is sticking with its plan to rapidly increase public spending as a dispute with the EU over the budget intensified following a gloomy set of forecasts.  In response to the EU's executive Commission's prediction that Italy will be the slowest-growing economy in the 19-country eurozone through 2020, Italian Premier Giuseppe Conte said his gov had no intention of revising its plans by next week, as Brussels had requested.  "The Commission growth forecast for next year underestimates the positive impact of our economic maneuver and our structural reforms," he added.  "We are going ahead with our estimates on the public finances, with growth that will increase and debt and deficit that will decrease."  The worry in Brussels & in financial markets, where interest rates on Italian bonds have spiked sharply, is that the budget plans would prevent the country's huge debt burden from falling, as promised.  And that could raise renewed questions about the future of the €.  Italy's public debt burden stands at around 130% of the annual GDP, 2nd in the eurozone behind Greece, which only emerged from its 8-year bailout era in the summer.  The Commission said it expects the Italian economy, the eurozone's 3rd-largest, to grow by only 1.2% in 2019, below the 1.5% projected by the gov.  And in 2020, the Commission forecasts Italian growth of only 1.3%, again 0.3 percentage point-lower than the projection from Rome.  As a result, the Commission expects higher budget deficits for Italy, notably for next year.  Rather than the 2.4% of GDP predicted by Italy, the Commission expects 2.9%, a level that would not bring down Italy's overall debt stock.  "There are no grounds for questioning the foundation and sustainability of our forecasts," said Conte, adding that Italy expects the debt load to decrease to 126.7% of GDP by 2021.  The Commission doesn't appear to be in a mood to haggle.  "There cannot be a sort of negotiation on this," said Pierre Moscovici, the commissioner responsible for economic matters.  Countries that use the € have to seek approval from the Commission for their budgets as part of a coordination exercise designed to prevent a repeat of the debt crisis that afflicted the region over the past decade.  The Commission could sanctions Italy if it does not revise its plans by Tues.  The Italian gov argues that the economy needs a stimulus so it can turn around after stagnating for years.  Boosting growth, it argues, will help control debt levels & eventually solidify the country's place within the single currency bloc.  As part of those ambitions, the Italian gov is raising spending to fund, among other things, a minimum income scheme for jobseekers & restore early retirement for eligible workers, doing away with an unpopular reform.  Bond market investors are already fretting, having marked up interest rates on Italian debt significantly over the past few months.  Italy's economy comes amid a broader slowdown in the eurozone as a whole, which the Commission expects to slow amid global uncertainties, trade tensions & higher oil prices.  Overall eurozone growth is forecast to moderate to 2.1% this year from a decade-high rate of 2.4% in 2017.  It expects a further easing to 1.9% in 2019 & 1.7% in 2020.  And Brexit could yet hurt growth even further, especially if Britain crashes out of the EU in Mar with no deal on future relations.  Uncertainty over Brexit is the main reason why the Commission expects Britain to match Italy's paltry growth of 1.2% next & to remain at that level in 2020.

Italy's budget row with EU escalates ahead of deadline

Walmart (WMT), a Dow stock & Dividend Aristocrat, will start offering holiday deals for customers as early as this week, as it prepares to compete other rivals for shoppers on one of the busiest shopping days of the year.  The retailer had deals available on Walmart.com beginning at 12:01 AM ET today.  The company will offer Black Friday deals at 10 PM EST online on Thanksgiving eve - 2 hours earlier than in previous years.  The move gives shoppers on the East Coast more shopping time earlier, execs said & at 6 PM local time in its stores on Thanksgiving Day.  WMT will continue the practice of color-coding certain depts to help shoppers find deals.  The codes will be available on the retailer's Black Friday circular & store maps.  On Mon, Amazon (AMZN) will offer free shipping with no purchase minimum for the first time this holiday season.  WMT has maintained its $35 order threshold this holiday & Target (TGT), a Dividend Aristocrat, has scrapped its minimum until Dec 22.

Walmart will offer Black Friday deals earlier this year

The outcome of the Fed meeting was well advertised, but stocks were still sold.  Some of that represents profit taking from yesterday plus more attention being paid to future rate hikes.  Overall, stocks behaved fairly well.  When all is said & done, the Dow is about 600 under the Oct record & up 1.5K YTD.  Not too bad!!  However, tech stocks, which have been markets leaders, remain under selling pressure.

Dow Jones Industrials