Dow fell 163, decliners over advancers about 2-1 & NAZ inched up 1. The MLP index was off 1+ to the 229s & the REIT index dropped 5 to the 436s on rate fears. Junk bond funds hardly budged & Treasuries were sold, bringing higher yields (more below), Oil added 1 to go over 120 & gold went up 6 to 1858.
AMJ (Alerian MLP index tracking fund)
Mortgage rates are back on the upswing, after a brief decline in May & the housing market is still suffering from a lack of listings. As a result, mortgage demand continues to drop. Total mortgage application volume fell 6.5% last week compared with the previous week, according to the Mortgage Bankers Association's (MBA) seasonally adjusted index. Demand hit the lowest level in 22 years. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647K or less) increased to 5.40% from 5.33%, with points rising to 0.60 from 0.51 (including the origination fee) for loans with a 20% down payment. Refinance demand, which is most sensitive to weekly rate moves, fell another 6% for the week & was 75% lower than the same week one year ago. The vast majority of mortgage holders now have rates considerably lower than the current one, & even those who would like to pull cash out of their homes are choosing 2nd mortgages, rather than refinancing their first liens. “While rates were still lower than they were 4 weeks ago, they remained high enough to still suppress refinance activity. Only gov refinances saw a slight increase last week,” said Joel Kan, an MBA economist. Applications for a mortgage to purchase a home fell 7% for the week & were 21% lower than the same week one year ago. “The purchase market has suffered from persistently low housing inventory and the jump in mortgage rates over the past two months. These worsening affordability challenges have been particularly hard on prospective first-time buyers,” Kan added. Mortgage rates moved even higher to start this week, according to a separate survey by Mortgage News Daily. Rates have been in a narrow range for several weeks after moving decidedly higher in the previous months.
The Organization for Economic Cooperation & Development (OECD) has become the latest intl institution to cut its predictions for global growth this year, but has downplayed the possibility of a prolonged period of “stagflation.” The OECD estimates that global GDP will hit 3% in 2022 — a 1.5 percentage point downgrade from a projection done in Dec. “The invasion of Ukraine, along with shutdowns in major cities and ports in China due to the zero-COVID policy, has generated a new set of adverse shocks,” the Paris-based organization said in its latest economic outlook. Russia's invasion of Ukraine is having massive ramifications on the global economy, but China’s zero-Covid policy — a strategy Beijing uses to control the virus with strict lockdowns — is also a drag on global growth given the importance of the country in intl supply chains & overall consumption. The World Bank said yesterday that it had also turned more negative on global growth prospects. The institution said global GDP would reach 2.9% this year — an estimate lower from its 4.1% forecast in Jan. The OECD said in its report that the downgrade, in part, “reflects deep downturns in Russia and Ukraine.” “But growth is set to be considerably weaker than expected in most economies, especially in Europe, where an embargo on oil & coal imports from Russia is incorporated in the projections for 2023,” it said. The euro zone, the 19-nation region that shares the €, & the US do not differ much in terms of their economic outlook. The OECD said the former will grow 2.6% this year & the US will expand by 2.5%. For the UK, where the cost of living crisis is also an economic issue, GDP is seen at 3.6% this year before slumping to zero next year.
OECD slashes global growth prediction on Ukraine war and China’s zero-Covid policy
Treasury yields climbed as investors await a key inflation indicator & assess signs of slowing economic growth. The yield on the benchmark 10-year Treasury note had increased by roughly 6 basis points to 3.033%, while the yield on the 30-year Treasury bond was up 6 basis points at 3.182%. Yields move inversely to prices & a basis point is equal to 0.01%. Retail giant Target (TGT), a Dividend Aristocrat, cut its profit guidance yesterday & announced plans to get rid of excess inventory, highlighting the growing risks to economic growth arising from surging inflation. Meanwhile, a widely tracked Federal Reserve gauge is indicating that the US economy could be on course for a 2d successive qtr of contraction, a technical recession. The Atlanta Fed’s GDPNow tracker is pointing to an annualized gain in GDP of just 0.9% for the qtr. Markets are looking ahead to May's consumer price index reading on Fri, with the reading likely to be influential in the scale & speed of the Fed's monetary tightening path next week.
Treasury yields climb as investors assess growth and inflation fears
Dow Jones Industrials
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