Dow rose 213, advancers over decliners 5-2 & NAZ was of 54. The MLP index gained 6+ to the 207s & the REIT index bounced back 5+ to the 422s. Junk bond funds hardly budged & Treasuries were sold, raising yields (more below). Oil jumped 5+ to the 105s as gasoline prices rose to a new record & gold went up 10 to 1851.
AMJ (Alerian MLP index tracking fund)
Inflation cooled on an annual basis for the first time in months in Apr, but
rose more than expected as supply chain constraints, the Russian war in
Ukraine & strong consumer demand continued to keep consumer prices
running near a 40-year-high. The
Labor Dept said that the consumer price index, a broad
measure of the price for everyday goods including gasoline, groceries & rents, rose 8.3% in Apr from a year ago, below the 8.5%
year-over-year surge recorded in Mar. Prices jumped 0.3% in the
one-month period from Mar. Those figures were both higher than the 8.1% headline figure & 0.2% monthly gain forecast. Core prices, which exclude more volatile measurements of food &
energy, climbed 6.2% in Apr from the previous year, also more than
expected. Core prices also rose 0.6% on a monthly basis –
double the 0.3% increase notched in Mar, suggesting that underlying
inflationary pressures remain strong. The slight slowdown in inflation last month came as energy prices
declined 2.7%, driven by a 6.1% drop in gasoline (which had climbed a
stunning 18.3% the prior month as a result of the Russia-Ukraine war). Still,
price increases were widespread: Food prices have jumped 1% over the
month, marking the 17th consecutive monthly increase for that index. The
largest monthly increases were in dairy (2.5%, the sharply monthly
increase since 2007), meats, poultry, fish & eggs (1.4%) & cereal & bakery products (1.1%). Shelter, which accounts for about a 3rd of the CPI, also rose by
0.5% in Apr. The gauge has climbed 5.1% on a yearly basis, the fastest
gain since 1991.
Inflation soars in April, hovering near 40-year high
The 10-year Treasury yield jumped after a release of key inflation data showed a faster-than-expected rise in prices. The yield on the benchmark 10-year Treasury note rose more than 7 basis points to 3.064% & the yield on the 30-year Treasury bond added nearly 7 basis points to 3.197%. Yields move inversely to prices & 1 basis point is equal to 0.01%. Apr's consumer price index, a key measure of inflation, rose 0.3% month over month & 8.3% year over year. The forecast called for CPI to rise 0.2% from the month prior & 8.1% year over year. That compares with Mar's 8.5% year-over-year pace. The inflation reading is important given that this data is largely determining the Federal Reserve's direction on raising interest rates. Both pricing pressures & more aggressive rate hiking have fueled concerns about a slowdown in economic growth. Investors also continue to focus on the the conflict in Ukraine & Covid-19 lockdowns in China.
10-year Treasury yield jumps back above 3% after inflation data
It could be more listings on the market, or perhaps just fear that interest rates will move even higher, but homebuyers are showing more demand for mortgages. They are, however, turning even more to adjustable-rate mortgages (ARMs), which offer lower rates. That gives them an advantage as both rates & home prices continue to climb. Mortgage applications to purchase a home rose 5% last week compared with the previous week, according to the Mortgage Bankers Association's (MBA) seasonally adjusted index. Demand was still 8% lower than the same week one year ago, but that annual drop is now shrinking. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647K or less) increased to 5.53% from 5.36%, with points rising to 0.73 from 0.63 (including the origination fee) for loans with a 20% down payment. The rate on a 5-year ARM was 4.47%. “Despite a slow start to this year’s spring home buying season, prospective buyers are showing some resiliency to higher rates. Purchase activity has now increased for two straight weeks,” said Joel Kan, an MBA economist. “More borrowers continue to utilize ARMs to combat higher rates. The share of ARMs increased to 11% of overall loans and to 19% by dollar volume.” At the start of this year, when rates were still hovering near record lows, the ARM share was just 3% of all purchase applications. At 11% that is the highest share since Mar 2008. ARMs offer lower rates which can be fixed for terms like 5, 7, or 10 years. ARMs are fully underwritten like fixed-rate mortgages & they require a down payment. This was not the case in the early 2000s when poorly underwritten, interest-only ARMs with short teaser periods were blamed for the epic housing crash. While homebuyers are showing more interest, current homeowners have less interest in refinancing. Those applications dropped another 2% week to week & were 72% lower than a year ago. There is simply a very small pool of borrowers left who can benefit from a refinance at the current interest rates. Refinancing drove record lender profits in the first years of the coronavirus pandemic, when rates set more than a dozen record lows. Now that market has dried up.
Adjustable-rate mortgage demand surges higher
Dow Jones Industrials
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