Dow plunged 1161 (helped by limited buying into the close), decliners over advancers about 6-1 & NAZ tumbled 562. The MLP index dropped 5+ to the 207s & the REIT index sank 13+ to the 419s. Junk bond funds continued weak & Treasuries rose in price while stocks were being sold. Oil dropped 3+ to 109 & gold inched up pennies (more on both below).
AMJ (Alerian MLP Index tracking fund)
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Homebuyer demand for mortgages tumbled last week as the average interest rate on the most popular US
home loan hovered near a 13-year high, a sign the red-hot housing
market may be starting to cool off, according to new data from the
Mortgage Bankers Association (MBA). Mortgage
applications to purchase a home dropped 12% on a weekly basis & are
down 15% compared with the same week one year ago. It marked the first
time in 3 weeks that monthly mortgage demand fell. Although
mortgage rates have receded slightly from the record high notched last
week, the average rate on the 30-year loan is still around 5.378%. By
comparison, just one year ago, the 30-year rate stood at 3.00%. Since
the start of the year, rates have jumped 2% – the fastest pace of growth
since 1994. "Purchase applications fell 12% last week, as prospective homebuyers
have been put off by the higher rates and worsening affordability
conditions," said Joel Kan, an associate VP of economic &
industry forecasting at MBA. "General uncertainty about the near-term
economic outlook, as well as recent stock market volatility, may be
causing some households to delay their home search." With
mortgage rates rising, refinance activity is also plunging: Applications to refinance a home loan dropped another 10% week to week. In all, refinance demand is down 76% compared to one year ago. The
latest data comes as the Federal Reserve looks to calm the housing
market that lit up during the COVID-19 pandemic, as well as bring down
sky-high inflation. Policymakers lifted the benchmark federal funds rate by a ½ point
earlier this month & are widely expected to approve at least 2 more,
similarly sized hikes at their upcoming meetings in Jun & Jul. Following the 50-basis point increase in May, mortgage rates climbed to
5.3%. Fed Chair Jerome Powell reiterated that sentiment yesterday, pledging to "keep pushing"
until inflation falls back in line with the central bank's 2% target. Hiking interest rates tends to create higher rates on consumer &
business loans, which slows the economy by forcing employers to cut back
on spending. "What
we need to see is inflation coming down in a clear and convincing way
and we’re going to keep pushing until we see that," Powell said. "If
that involves moving past broadly understood levels of neutral we won’t
hesitate at all to do that."
Mortgage demand plummets as rates hover near 13-year high
US households are now spending the equivalent of $5K a year on gasoline, up from $2800 a year ago, according to Yardeni Research. In Mar, the annual rate of gasoline spending was at $3800, Yardeni noted. During the week of May 16, the national retail price for gasoline reached a record $4.59 per gallon. “No wonder that the Consumer Sentiment Index is so depressed. The wonder is that retail sales have been so surprisingly strong during April and May,” Yardeni said in a note. Yardeni said consumers' inflation-adjusted incomes are barely growing, but they have accumulated a lot of savings, & they are charging more on credit cards. But Yardeni said don't bet against the US consumer: “When we are happy, we spend money. When we are depressed, we spend even more money!” Retail sales data for Apr was surprisingly strong. On a year-over-year basis, retail sales rose 8.2% for the month. Gasoline sales actually declined in Apr from Mar, as prices temporarily fell before ramping up to record levels in May. Spending on gasoline in Apr surged almost 37% from a year ago, according to Commerce Department data. The price of gasoline was $3.04 per gallon a year ago. This week, the average price rose above $4 a gallon in all 50 states. The national average today was $4.57 per gallon.
Households are now spending an estimated $5,000 a year on gasoline
Finland & Sweden formally applied to join NATO today marking another step toward the Western military alliance's expansion, although the full accession process could take a year & Turkey's objections need to be overcome. The status of the besieged Azovstal steelworks complex in Mariupol, a heavily-destroyed port city in southern Ukraine, remains unknown with Ukraine tight-lipped about how many soldiers may still be in the plant. Ukraine's Deputy Defence Minister Hanna Maliar said yesterday that Kyiv knew how many soldiers were still holed up at the plant but refused to disclose the number saying the information was “sensitive.” More than 260 Ukrainian fighters, including some who are badly wounded, were evacuated Mon & taken to areas under Russia's control, the Ukrainian military said, & further evacuations were due to take place. Russia claimed soldiers in the plant had “surrendered.” The fate of the city hangs in the balance now, with Russia poised to take full control. Meanwhile, Ukraine says the Russian army has lost 28K soldiers since its invasion of Ukraine on Feb 24. Russia expelled at least 85 Western diplomats from the country as diplomatic tensions crumble over the Kremlin's ongoing war in Ukraine. At least 24 diplomats from Italy & 34 from France were ordered to leave Russia. Another 27 representatives from Spain's mission in Russia were also ordered to depart the country. The moves follow similar expulsions of Russian diplomats last month.
Finland, Sweden send NATO application
Inflation in the UK hit its highest point in 40 years today, matching the US economy that hit its own 40-year in Mar. UK consumer price inflation hit 9% for the first time since 1982 in Apr, according to the Office for National Statistics. Britain's inflation is the highest of any major European economy & surpasses even America's 40-year record high of 8.5% inflation from Mar. UK Finance Minister Rishi Sunak is facing pressure to assist households & keep the Bank of England's interest rates high despite the inflation. "We cannot protect people completely from these global challenges but are providing significant support where we can, and stand ready to take further action," Sunak said. Pres Biden has faced similar struggles in the US saying that lowering inflation is his top economic priority. Biden made the statement after news broke that the US hit 8.3% inflation in Apr, hovering near the 40-year high the country hit in Mar. The Labor Dept released its measurement of the consumer price index last week. Food in particular rose 1% over its inflation in Mar. It was the 17th month in a row that food costs have inflated. Prior to the CPI report, Biden delivered a speech blaming the inflation crisis on both the COVID-19 pandemic & Russia. Russian Pres Vladimir Putin's response to Western sanctions against his invasion of Ukraine has raised gas prices in the US. Biden has committed to release 1M barrels of oil from the country's strategic reserve for 6 months to offset the rising cost of gas. Biden also blasted "ultra-MAGA" Reps, claiming the party doesn't have their own plan to fight inflation. He went on to say that his administration has only failed to address inflation due to Rep opposition in the Senate. The Senate, currently split 50-50 between Reps & Dems, & VP Harris would wield the deciding vote in a tie.
UK inflation matches US, soars to highest point in 40 years
Gold futures ended lower, after flipping between small gains & losses, putting a pause on the yellow metal's bounce from a 3-month low. Gold for Jun shed $3, settling at $1815 an ounce. A soaring $ has kept pressure on the yellow metal, with jittery investors instead turning to the greenback & Treasuries given recent volatile markets sparked by a reversal of the Federal Reserve's easy-money stance & fight against high inflation. Treasury Secretary Janet Yellen warned of a “challenging, and uncertain” global economic outlook, due to higher food & energy prices that can depress output, spending & raise inflation “all around the world” ahead of a meeting with leaders of some of the world's biggest economies. But Yellen also said the US was “in many ways is best positioned,” given its strong labor market & economy & its releases of strategic oil reserves to help domestic energy prices from skyrocketing higher. Despite recent gains for gold, prices were 5.1% lower so far in May. They also remained 11% below their Mar 8 high of $2040, for the most-active contract.
Gold ends lower, hits pause after back-to-back gains
Oil futures ended lower, turning lower despite data showing an unexpected drop in US crude inventories & a further, sharp fall in gasoline supplies. The turn lower for crude came as an equity market rout dulled sentiment across asset markets perceived as risky. West Texas Intermediate crude for Jun fell $2.81 (2.5%) to close at $109.59 a barrel. Jul Brent crude, the global benchmark, fell $2.82 (2.5%) to settle at $109.11. The Energy Information Administration said US crude inventories fell by 3.4M barrels last week, while gasoline stocks fell 4.8M barrels & distillate supplies rose by 1.2M barrels. The forecast had expected a 2.1M barrel rise in oil inventories, while gasoline was expected to slip 100K barrels & distillates were forecast to drop by 1M barrels. The American Petroleum Institute, an industry trade group, reported that US crude-oil inventories fell 2.4M barrels last week, while gasoline stocks fell by 5.1M barrels, according to a source. Distillate inventories were seen up 1M barrels.
Oil prices end lower despite surprise drop in U.S. crude inventories as gasoline demand picks up
Dow Jones Industrials
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