Dow crawled up 14, decliners over advancers 2-1 & NAZ dropped 151. The MLP index lost 1+ to 170 & the REIT index declined 4+ to the 398s after recent strength. Junk bond funds did little in trading & Treasuries were in demand, taking the yield on the 10 year Treasury up almost 5 basis points to 1.67%. Oil fell below 64 & gold was off 1 to 1729.
AMJ (Alerian MLP index tracking fund)
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21 Rep attorneys general have threatened to take action against the Biden administration over a key element of the recently enacted $1.9T coronavirus relief law, warning that a provision preventing states from lowering taxes marks the "the greatest attempted invasion of state sovereignty by Congress in the history of our Republic." In a 7-page letter addressed to Treasury Secretary Janet Yellen, the Rep officials argued that a restriction included as part of the $350B for state, local & tribal govs that prevents them from using the federal aid to "to either directly or indirectly offset a reduction in the net tax revenue" is unconstitutional. "Absent a more sensible interpretation from your department, this provision would amount to an unprecedented and unconstitutional intrusion on the separate sovereignty of the States through federal usurpation of essentially one half of the State's fiscal ledgers," they wrote in the letter. The restriction, which was added at the last-minute by Senate Dems, is designed to ensure that states use the money to keep their local economies afloat, including avoiding massive budget cuts & job losses, rather than subsidize tax cuts. If states violate these conditions, they will be required to repay the federal gov. The Rep officials, including the attorneys general from Texas, Florida & West Virginia, questioned Yellen over how the administration intended to interpret the law. For instance, they wondered whether states will be prohibited from cutting taxes for any reason, even if those measures were put into place before the bill's passage, or whether the law explicitly prevents states from using the coronavirus relief funds to offset new tax cuts. "This language could be read to deny states the ability to cut taxes in any manner whatsoever — even if they would have provided such tax relief with or without the prospect of Covid-19 relief funds," the officials wrote. The $350B aid included in the American Rescue Plan, which Pres Biden signed into law last Thurs, includes $195B directed toward state govs & DC, & $130B allocated for local govs. An additional $20B will be given to federally recognized tribal govs, while $4.5B will go to US territories.
Republican attorneys general threaten Biden over key element of stimulus plan
Rising costs for lumber & other materials are causing new home contracts to be canceled, according to the National Association of Homebuilders. Lumber costs have surged more than 170% over the past year, adding around $24K to the cost of a new home. Concrete, metal products, appliances& other expenses are also increasing due to supply chain disruptions caused by COVID-19 shutdowns. The additional cost is preventing some first-time homebuyers from entering the market as resale inventories remain low. “First-time homebuyers are the ones that really drive the housing market,” Jerry Howard, CEO of the National Association of Home Builders, said. “It's a big problem.” The problem of higher materials costs is being compounded by a rise in mortgage rates. The rate on a 30-year fixed mortgage has risen by 30 basis points over the past month to a 7-month high of 3.24%. Rates hit a record low of 2.85% in Nov. The recent jump in materials costs & higher mortgage rates have begun to weigh on homebuilder confidence. The National Association of Home Builders/Wells Fargo Housing Market Index declined 2 points to 82. Any number over 50 indicates more builders view conditions as good rather than poor. The index is down from its Nov high of 90, but up from 72 a year ago. Current sales conditions declined 3 points to 87 while sales expectations for the next 6 months rose 3 points to 83 &uyer traffic held steady at 72. There is a “boom that we gotta watch very, very carefully here,” Howard said. “There are some dark clouds on the horizon.”
Homebuyers canceling contracts; rising mortgage rates are creating headwinds
The cost of imported goods jump 1.3% in Feb & rose sharply for the 3rd month in a row, reflecting a rebound in inflation that’s been driven in large part by higher gasoline prices. The import price index jumped 1.3% in Feb, the gov said. Import prices also increased 1.4% in Jan & 1% in Dec. After falling early in the pandemic, import prices have surged well above precrisis levels. The yearly rate of import inflation climbed to 3% in Feb. If fuel is excluded, import prices moved up 0.4% last month. Over the past year import prices minus fuel have risen 2.8%. Rising demand as the global economy recovers & disruptions in supply lines caused by the pandemic have led to shortages of some key materials such as computer chips & lumber. That's leading to delays in production & pushing up prices as companies compete for resources. US export prices increased 1.6% Feb. They have also been rising rapidly for the same reasons.
U.S. import prices jump 1.3% in February as inflation pressures buil
Investors are jittery, waiting for Powell's comments in the PM. Meanwhile the report on the housing industry was disturbing because this has been the strongest part of the US economy in 2020.
Dow Jones Industrials
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