Dow plunged 760 to below 34K, decliners over advancers a massive 7-1 & NAZ sank 180. The MLP index nosedived 8+ to the 173s & the REIT index dropped 5+ to the 457s. Junk bond funds dropped & Treasuries had a substantial rally (more below). Oil tumbled 4+ to the 67s (more below) & gold was even at 1814.
AMJ (Alerian MLP index tracking fund)
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The nation’s homebuilders continue to be thrilled with buyer demand, but higher construction costs are starting to eat away at their confidence. A monthly sentiment index from the National Association of Home Builders (NAHB) dropped 1 point to 80 in Jul. The index stood at 72 in Jul 2020. Anything above 50 is considered positive. The index hit a record high of 90 in Nov of last year. “Builders continue to grapple with elevated building material prices and supply shortages, particularly the price of oriented strand board, which has skyrocketed more than 500% above its January 2020 level,” said NAHB Chair Chuck Fowke. While lumber prices have fallen by more than 50% in the lumber futures market, those savings have not yet trickled down to builders, remodelers or consumers. Supply chain issues, as well as low inventory with suppliers, are both keeping retail prices elevated. Of the index's 3 components, current sales conditions fell one point to 86. Buyer traffic declined 6 points to 65 & sales expectations in the next 6 months rose 2 points to 81. “Builders are contending with shortages of building materials, buildable lots and skilled labor as well as a challenging regulatory environment. This is putting upward pressure on home prices and sidelining many prospective home buyers even as demand remains strong in a low-inventory environment,” said Robert Dietz, NAHB's chief economist.
Homebuilder confidence is still high, but it slipped this month as costs grew
Treasury yields continued to slide, with the 10-year benchmark rate falling to its lowest level in 5 months. The yield on the benchmark 30-year Treasury bond slid 10 basis points to 1.1824%. Yields move inversely to prices. The fall in yields occurs while stocks are being heavily sold by investors. They are concerned about the shape of the economic recovery amid hot inflation readings & the spread of Covid variants. The 10-year Treasury yield hovered near 1.3% on Fri, with data showing that retail sales had rebounded 0.6% in Jun, versus a 0.4% drop expected.
10-year Treasury yield falls below 1.2%, hitting a new five-month low
OPEC+ ministers agreed yesterday to boost oil supply from Aug to cool prices which have climbed to 2½ year highs as the global economy recovers from the coronavirus pandemic. The group, which includes OPEC countries & allies like Russia, crucially agreed new production allocations from May 2022 to overcome differences between Saudi Arabia & the UAE that threatened the plan. OPEC+ last year cut production by a record 10M barrels per day (bpd) amid a pandemic-induced slump in demand & collapsing prices. It has gradually reinstated some supply to leave it with a reduction of about 5.8M bpd. From Aug until Dec 2021 the group will increase supply by a further 2M bpd or 0.4M bpd a month, OPEC said. The group had agreed to extend their overall pact until the end of 2022 from an earlier planned date of Apr 2022, to leave more room for manoeuvre in case global recovery stalls due to new virus variants. While both Riyadh & the UAE had been supportive of an immediate output boost, the UAE had objected to the Saudi idea to extend the pact to Dec 2022 without getting a higher production quota. To overcome the disagreement, OPEC+ agreed new output quotas for several members from May 2022, including the UAE, Saudi Arabia, Russia, Kuwait & Iraq. The overall adjustment will add 1.6M bpd to supply from May next year. The UAE will see its baseline production, from which cuts are being calculated, increase to 3.5M bpd from May 2022 from today's 3.2M. Saudi & Russia will see their baselines rise to 11.5M bpd each from the current 11M.
OPEC+ agrees to boost oil supply as prices surge
This is a very brutal time for investors. The virus does not want to give up its fight & high inflation continues to be a major worry. Increased production of oil is taking place, adding to the many uncertainties. But there could be bargain hunting in the PM. Earnings from major corps are coming this week. Exceptions are high & the forecast for the rest of the year will get a lot of attention.
Dow Jones Industrials
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