Dow slid back 47, decliners slightly ahead of advancers & NAZ was off 16. The MLP index dropped 7+ to the 187s & the REIT index rose 4+ to 400 on declining interest rates. Junk bond fund were mixed & Treasuries continued to be purchased, bringing the 10 year Treasury yield down to 3.15%. Oil retreated 5+ to the 105s & gold inched up 1 to 1840 (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)
Federal Reserve Chair Jerome Powell told congressional lawmakers the central bank is
committed to crushing the hottest inflation in 40 years, promising to
raise interest rates until there is "compelling evidence" that prices
are falling. Powell is testifying before the Senate Banking Committee on today, followed by an appearance before the House Financial Services
Committee tomorrow – in his semi-annual update on
monetary policy. "At the Fed, we understand the hardship high
inflation is causing. We are strongly committed to bringing inflation
back down, and we are moving expeditiously to do so," Powell added. "We have both the tools we need and the resolve it
will take to restore price stability on behalf of American families and
businesses." His testimony comes just one week after the Fed voted to raise interest rates
by 75 basis points for the first time since 1994, underscoring just how
serious policymakers are about tackling the inflation crisis after a
string of alarming economic reports. The move puts the key benchmark
federal funds rate 1.50-1.75%, the highest since the
pandemic began 2 years ago. Powell told reporters following the meeting
that another 75-basis point or 50-basis point increase is on the table
in Jul as officials race to catch up with runaway inflation. Officials
expect the benchmark federal funds rate to hit 3.4% by the end of the
year & 3.8% by the end of 2023 – a big upgrade from their Mar
projections. He echoed that sentiment today, pledging to
increase the short-term interest rate until there are signs that
inflation is moving closer to the Fed's 2% target.
Fed is 'committed' to fighting inflation with more rate hikes
Powell acknowledged the central bank's war on inflation could force policymakers to raise interest rates so high they drag the US economy into a recession. "It’s certainly a possibility," Powell told lawmakers today. "We are not trying to provoke and do not think we will need to provoke a recession, but we do think it’s absolutely essential that we restore price stability, really for the benefit of the labor market, as much as anything else." Powell was testifying before the Senate Banking Committee & will appear before the House Financial Services Committee tomrrow, part of his regular, semi-annual update on monetary policy. In his opening remarks, Powell pledged that Fed officials will continue to raise interest rates until they see "compelling evidence" that inflation is starting to cool off from the current 40-year high. While the central bank is hoping to orchestrate a soft landing – the sweet spot between taming consumer demand & inflation without crushing economic growth – Powell admitted the task was becoming increasingly difficult. "It is going to be very challenging," he continued. "It has been made significantly more challenging by the events of the last few months – thinking there of the war and of commodities prices and further problems with supply chains."
Powell concedes Fed may trigger recession, calls soft landing 'very challenging'
Mortgage applications to purchase a home rose 8% last week compared with the previous week, bolstered in part by demand for adjustable-rate mortgages, according to the Mortgage Bankers Association's (MBA) seasonally adjusted index. Applications were, however, 10% lower than they were in the same week one year ago. A big jump in mortgage rates may have actually spurred homebuyer demand, perhaps as consumers worried rates would move even higher. Mortgage rates surged to the highest level since 2008, while making their biggest one-week jump last week in 13 years. Meanwhile the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647K or less) increased to 5.98% from 5.65%, with points rising to 0.77 from 0.71 (including the origination fee) for loans with a 20% down payment. Rates are now nearly double what they were one year ago. “Purchase applications increased for the second straight week – driven mainly by conventional applications – and the ARM share of applications jumped back to over 10%,” wrote Joel Kan, an MBA economist. “The average loan size, at just over $420,000, is well below its $460,000 peak earlier this year and is potentially a sign that home price-growth is moderating.” Adjustable-rate mortgages offer lower interest rates & can generally be fixed for terms of 5, 7 or 10 years. While these loans are considered riskier, because they have the potential to adjust to higher or lower rates, they are underwritten much more strictly than they were during the last housing boom more than a decade ago that eventually led to an epic housing crash. Buyer demand may also be increasing because the supply of homes for sale is finally growing. Active inventory nationwide is now up 17% year over year according to Realtor.com. Homes are now selling faster than they were a year ago.
Demand for adjustable-rate mortgages surges, as interest rates make biggest jump in 13 years
Gold futures finished modestly lower, down a 3rd session in a row, as Chair Jerome Powell said that ongoing interest-rate increases will be “appropriate.” Aug edged down pennies to settle at $1838 an ounce. The Fed’s Powell continued to argue that a recession is not inevitable as a result of the interest-rate policy laid out by the central bank. “I don’t see the likelihood of a recession as particularly elevated right now,” he said. Gold started the year right around the $1800 level & peaked above $2050 an ounce in Mar before surrendering most of those gains during Q2. Futures prices have managed to hold above $1800 an ounce, but the strength of the $ has constrained the value of the yellow metal.
Gold prices down a third straight session; copper drops to a 16-month low
Oil futures moved sharply lower, with the US crude benchmark settling at its lowest price in roughly 6 weeks as investors refocused on demand worries amid rising recession expectations. West Texas Intermediate crude for Aug fell $3.33 (3%) to settle at $106.19 a barrel, after tapping a low of $101.53. Front-month contract prices logged their lowest settlement since May 12. Aug Brent crude, the global benchmark, fell $2.91 (2.5%) to $111.74 a barrel, for the lowest settlement since May 18. Investors refocused on the potential for a recession in the US & elsewhere that could crimp demand for energy products. As widely expected, the White House called on Congress to suspend the federal gas tax for 3 months & asked states to provide similar relief as consumers struggle with soaring prices in the aftermath of Russia's invasion of Ukraine in late Feb.
U.S. oil prices settle at a 6-week low as demand worries resurface
Dow Jones Industrials
No comments:
Post a Comment