Dow fell 153 (near session lows), decliners over advancers 5-2 & NAZ sank 409. The MLP index tumbled 6+ to the 165s & the REIT index fell 5+ to the 397s. Junk bond funds remained lower & Treasuries sank as yields surged. Oil plunged a huge 6+ to the 58s & gold recovered 5 to 1733 (more on both below).
AMJ (Alerian MLP Index tracking fund)
![Live 24 hours gold chart [Kitco Inc.]](https://www.kitco.com/images/live/gold.gif?0.2180338269244485)
Most American CFOs think the US economy is poised for a strong recovery from the coronavirus pandemic nearly one year after the crisis triggered the worst downturn since the depression. More than 70% of CFOs surveyed by the Deloitte Global CFO Program Leader said they expect the economy to improve over the course of the next 12 months as more Americans receive the COVID-19 vaccine, allowing state & local govs to ease pandemic-induced business restrictions. About 29% of CFOs rated the current economic conditions as "good," an increase of 16 percentage points from the previous qtr. In fact, more than 1/3 -- about 37% -- of CFOs said their company is already at, or above, its pre-crisis operating level. Just 10% of respondents said their company won't return to those levels until 2022. The optimistic outlook is in line with new economic projections by the Federal Reserve: Policymakers expect real GDP, the broadest measure of goods & services produced in the nation, to surge 6.5% this year. Officials forecast gains of 3.3% & 2.2% in 2022 & 2023, respectively. On the unemployment side, the central bank said it expects unemployment to fall to 4.5% by the end of 2021 & return to the pre-crisis level of 3.5% by 2023. The CFO study comes as more Americans are vaccinated, spurring hope that some of the hardest-hit service industry businesses will be able to more fully reopen at some point this year. On top of that, Pres Biden last week signed into law a sweeping relief plan that will pump another $1.9T into the nation's economy.
Most CFOs forecast strong US economic recovery from the coronavirus pandemic
Mortgage rates bounced higher again this week, making homebuying even more expensive at the start of the all-important spring market. With home prices skyrocketing, any rise in rates knocks even more potential buyers out of the running, & yet somehow the housing market is more competitive than ever. The average rate on the 30-year fixed mortgage hit its last low of 2.75% at the end of Jan, & has since climbed pretty steadily, according to Mortgage News Daily. After a sizeable move overnight, it now stands at 3.45%. “Since the beginning of February, the total damage is nearly 3/4ths of a percent, making it one of the biggest moves in any 6 weeks, ever,” said Matthew Graham, chief operating officer at Mortgage News Daily. “The purchase market always weathers these storms, and the ultra-tight supply situation coupled with still-ravenous demand in many metro areas may keep the housing market surprisingly buoyant. The bigger question is when rising rates will ultimately impact prices.” The rate is the same now as it was a year ago. The difference from a year ago, however, is that home prices are soaring. Prices are now up over 10% from this time in 2020, according to CoreLogic, & there appears to be no letup in the gains. This is due to the record low supply of homes for sale. Homebuilders are not stepping up as much as hoped, because they are facing higher costs for land, labor & materials. They also continue to experience delays in getting materials to job sites, due to Covid. Single-family housing starts came in much lower than expected in Feb & the backlog of unbuilt homes is rising. “There has been a 36% gain over the last 12 month of single-family homes permitted but not started as some projects have paused due to cost and availability of materials,” said Robert Dietz, chief economist of the National Association of Home Builders. “Single-family home building is forecasted to expand in 2021, but at a slower rate as housing affordability is challenged by higher mortgage rates and rising construction costs.” The supply crunch of existing homes is only exacerbated by higher mortgage rates. Homeowners who sell would likely have to buy their next home at a higher interest rate, so that’s a significant deterrent to moving. The number of newly listed homes for sale for last week was 24% lower year over year. The total number of homes for sale is now ½ of what it was a year ago. While this situation makes it harder for buyers, it also shows that buyer demand has not fallen off much, even in today's higher rate environment. If buyers had fallen back, the supply would be rising.
Mortgage rates just moved sharply higher, but homebuyer competition is fiercer than ever
Gold had traded lower early today amid a renewed selloff in gov bonds, which pushed yields sharply higher, with the 10-year Treasury yield up more than 9 basis points to nearly 1.73%. Rising yields are a
negative for gold, as they raise the opportunity cost of holding
non-yielding assets. Gold for Apr rose $5 to settle at $1732 an ounce. Prices, which traded as low as $1716, logged their highest finish
since Mar 2. Prices for the precious metal metal had initially rallied shortly after the Fed on yesterday said it would keep its benchmark interest rate unchanged.
Gold ends off lows after overnight gain in wake of Fed meeting
The Philadelphia Federal Reserve's business activity index jumped to 51.8 in Mar from 23.1 in the prior month. That's the highest reading since 1973. The forecast expected the index to slip to 22. Any reading above zero indicated expansion in the manufacturing sector. The Philly Fed index is based on a single stand-alone question about business conditions unlike other surveys like the national Institute for Supply Management manufacturing index, which are composites based on components. This month, the subcomponents of the Philly Fed index also had strong gains. The barometer on new orders rose to 50.9 in Mar from 23.4 in the prior month & the shipments index rose to 30.2 from 21.5. The employment index improved for the 3rd straight month. The measure gauging the 6-month outlook soared to 61.6 from 39.5 in the prior month. The prices paid index rose sharply to 75.9 in Mar from 54.4 in the prior month. That’s the highest reading since 1980. The prices-received index rose 15 points to 31.8. Manufacturers complained of worker shortages, saying there was a mismatch between what was required for employment & the workers who were applying for positions. An eye-popping result & much stronger than the similar index released by the New York Fed that hit an 8-month high of 17.4 in Mar. Economists use the New York & Philadelphia regional indices to gauge the strength of the national ISM manufacturing index, which expanded last month at the fastest pace since the pandemic struck one year ago. The manufacturing sector is humming & prices are rising.
Philly Fed factory index soars to highest level in nearly 50 years
The European Medicines Agency (EMA) has ruled that the AstraZeneca (AZN) coronavirus vaccine is safe & effective, despite some concerns over possible side effects. The
announcement comes after more than a dozen EU nations decided
to halt the use of the AZN shot, which was developed with the
University of Oxford, after around 30 cases of blood clots. A few other
countries have stopped using individual batches of the vaccine. The
EMA said that the benefits of the vaccine outweighed the
risks. It found no batch issues or quality issues with the vaccine,
although it was unable to definitively rule out a link with the blood
clot incidents. “This is a safe and effective vaccine,” EMA Exec Director Emer Cooke said. “Its
benefits in protecting people from Covid-19 with the associated risks
of death and hospitalization outweigh the possible risks. The committee
also concluded that the vaccine is not associated with an increase in
the overall risk of thromboembolic events or blood clots. … We still
cannot rule out a definitive link between these cases and the vaccine.” The stock fell 74¢.
If you would like to learn more about AZN, click on this link:
club.ino.com/trend/analysis/stock/AZN?a_aid=CD3289&a_bid=6ae5b6f7
EU regulator greenlights AstraZeneca Covid vaccine after blood clot reports
Oil futures dropped 7%, falling for a 5th straight session to finish at their lowest in more than 2 weeks, with some analysts noting concern over rising tensions between the US & Russia, as well as a slowdown in the European vaccine rollout. Pres Biden, when asked in an interview earlier week about whether Russian Pres Vladimir Putin is a killer, said “I do.” Russia then announced it's recalling its ambassador to the US for consultations. West Texas Intermediate crude for Apr fell $4.60 (7.1%) to settle at $60 a barrel, with prices suffering their largest one-day percentage loss since Sep 8. May Brent, the global benchmark, declined by $4.72 (6.9%) at $63.28 a barrel. That marked its largest daily percentage loss since Jun of last year. Prices for both WTI & Brent, based on the front-month contracts, settled at their lowest since Mar 2. Oil has also been unable to shake off weakness tied to the rise in US crude inventories. The Energy Information Administration reported that US crude inventories rose by 2.4M barrels last week. The rise followed increases reported by the agency in each of the previous 3 weeks. A sluggish vaccine rollout in Europe also remains a weight on crude, analysts said, raising questions about the speed of the recovery in demand for crude.
Oil drops 7% on Europe vaccine snag, U.S.-Russia tensions
Despite fairly good news on the US & global economies, investors were shaken by the plunge in oil futures & surge in Treasury yields. Higher interest rates will hurt just about all businesses & especially the booming market for housing. Dow had been doing well until the last 2 hours of trading. Then sellers came in to take Dow down 250 & NAZ down another 150. As an offset, Dow was vastly overbought (shown in the chart below) & profit taking was to be expected.
Dow Jones Industrials
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