Dow went up 23, advancers slightly ahead of decliners & NAZ slid back 33. The MLP index added 2+ to 191 & the REIT index crawled up 1 to the 416s. Junk bond funds fluctuated & Treasuries were sold, raising yields (more below). Oil rose into the 108s & gold was off 3 to 1824.
AMJ (Alerian MLP index tracking fund)
Pending home sales, a measure of signed contracts on existing homes, rose slightly in May, up 0.7% compared with Apr, according to the National Association of Realtors. That broke a 6-month streak of declining demand. Sales were still 13.6% lower than May 2021. Buyers have been contending with rising mortgage rates since the start of this year, but rates actually pulled back slightly in May & that may account for the sales gain. More supply also came on the market, & total active inventory increased as well, as some homes sat on the market longer. The average on the 30-year fixed mortgage hit a high of 5.64% in the first week of the month, but then fell to 5.25% by the end of the month, according to Mortgage News Daily. By mid-Jun it surged again to just over 6%. “Despite the small gain in pending sales from the prior month, the housing market is clearly undergoing a transition,” said Lawrence Yun, chief economist for the Realtors. “Contract signings are down sizably from a year ago because of much higher mortgage rates.” The supply of homes for sale has finally begun to rise, up 21% now from a year ago according to Realtor.com. It is still, however, about ½ of pre-covid levels. The median listing price last week was also up about 17% year over year, holding steady for the 3rd straight week.
Pending home sales post surprise increase in May, likely due to brief pullback in mortgage rates
Treasury yields were higher to start the week as market players assessed the prospect of central banks implementing more interest rate hikes to curb soaring inflation. The yield on the benchmark 10-year Treasury note was trading higher by 5 basis points at 3.179%. Meanwhile, the yield on the 30-year Treasury bond also rose around 5 basis points to 3.311%. Yields move inversely to prices. On Thurs, Federal Reserve Chair Jerome Powell reaffirmed the central bank’s “unconditional” commitment to reining in 40-year high inflation levels. Speaking at the House of Representatives Financial Services Committee, Powell acknowledged that sharply higher interest rates could push up unemployment but said that restoring price stability is “something that we need to do.”
U.S. Treasury yields start week higher as traders assess rate hikes, recession risk
Russia defaulted on its foreign-currency sovereign debt for the first time in more than a century after failing to make 2 payments by the Sun deadline. Moscow missed the deadline to meet a 30-day grace period on interest payments that were originally due May 27, but it could be a while before the default is confirmed. The debt default stems from the sanctions imposed over Russia's invasion of Ukraine, which was launched in late Feb. The default signals the first of its kind since 1918, although Russia has called it artificial because it can afford to pay its debts, but sanctions have frozen its foreign currency reserves held abroad. "There is money and there is also the readiness to pay," Russian Finance Minister Anton Siluanov said last month. "This situation, artificially created by an unfriendly country, will not have any effect on Russians’ quality of life." The Treasury Dept last month ended Russia’s ability to pay back debt to intl investors thru American banks. The Russian Finance Ministry then said it would pay $-denominated debts in rubles & offer "the opportunity for subsequent conversion into the original currency." The country owes around $40B in foreign bonds, about ½ of that is owed to foreigners. Prior to Russia's war on Ukraine, it had around $640B in foreign currency & gold reserves. Much of this had been held overseas, but has since been frozen.
Russia defaults on foreign debt for first time since 1918 following sanctions
Stocks are meandering, looking for direction. The most troubling story today is the Russian default which has the potential to upset the latest rally. Meanwhile a flattish US economy in Q2 & stubbornly high inflation will continue to weigh on the market.
Dow Jones Industrials
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