Dow retreated 740, decliners over advancers a massive 10-1 & NAZ shed 453. The MLP index dropped 8+ to the 191s & the REIT index was off a huge 9+ to the 387s. Junk bond funds were weak & Treasuries remained in demand, bringing lower yields. Oil rose 2+ to the 117s & gold jumped 33 to 1852 (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)
US mortgage rates climbed
to their highest level in 13 years this week as the Federal Reserve
delivered the largest interest rate increase in decades to fight
inflation. Mortgage buyer Freddie Mac said that the average rate on the
30-year loan this week rose to 5.78% from 5.23%, the latest in a series
of rapid increases & the biggest one-week jump since 1987. The rate
is well above the 2.93% recorded just one year ago & marks the
steepest level since 2008. "These higher rates are the result of a shift in expectations about inflation
and the course of monetary policy," said Sam Khater, Freddie Mac's
chief economist. "Higher mortgage rates will lead to moderation from the
blistering pace of housing activity that we have experienced coming out
of the pandemic, ultimately resulting in a more balanced housing
market." The average rate on a 15-year mortgage – which is more popular among
homeowners who choose to refinance – climbed to 4.81%, up from last
week's 4.38%. By comparison, the average rate on a 15-year mortgage was
just 2.24% one year ago. Rates have risen sharply since the
start of the year, exacerbating the pressure on the US housing market,
which has seen prices continue to soar despite more expensive
mortgages. The increasingly expensive cost of a home, combined with
higher rates, is pricing more Americans out of the housing market. On
top of that, inflation is rapidly eroding Americans' purchasing power.
One analysis conducted by Moody's Analytics showed that higher prices
are costing US households on average an extra $460 per month. The Fed is raising rates
at the most aggressive pace in decades in an effort to tame sky-high
prices & reduce consumer demand. Yesterday, policymakers approved a
75-basis point rate hike, the first of its kind since 1994, amid signs
that inflationary pressures in the economy are spiraling higher. While
the Fed does not directly set the interest rate paid by consumers for
mortgages, its actions influence them. The latest Freddie Mac average is based on its survey of lenders, which
was conducted before yesterday's central bank's meeting. Some rates
climbed as high as 6% in the aftermath of the Fed meeting.
Mortgage rates surge to the highest level since 2008
The US housing market continues to get pummeled by rising interest rates and soaring inflation & data released this week shows things have gone from bad to worse. Housing starts tumbled 14.4% to a 13-month low in May to a seasonally adjusted annual rate of 1.55M units & permits for new construction fell 7% to 1.7M, according to data released by the Census Bureau. The declines were much steeper than expected. The forecast called for housing starts to fall by 1.3% & that building permits would drop by 2.1%. Perhaps unsurprisingly, home builder confidence is down, too. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index released yesterday showed that builder confidence in the market for newly built single-family homes fell for the 6th straight month in Jun, dropping 2 points from the month before to 67. The NAHB said that the ongoing decline in builder confidence was a "troubling sign for the housing market." "The housing market faces both demand-side and supply-side challenges," said NAHB chief economist Robert Dietz. "Residential construction material costs are up 19% year-over-year with cost increases for a variety of building inputs, except for lumber, which has experienced recent declines due to a housing slowdown," he added. "On the demand-side of the market, the increase for mortgage rates for the first half of 2022 has priced out a significant number of prospective home buyers, as reflected by the decline for the traffic measure of the HMI." Rates are expected to keep climbing as the Federal Reserve hikes rates in an effort to tame inflation, which sits at a 40-year high.
Housing market goes from bad to worse
Norwegian energy firm Equinor said it would deliver extra gas to the UK's Centrica over the next 3 winters, as countries in Europe look to shore up their supplies amid the ongoing war between Russia & Ukraine. Equinor, which the Norwegian state has a 67% stake in, said the new agreement would add roughly 1B cubic meters of gas per year to an existing bilateral contract with Centrica, the UK's biggest supplier of gas & electricity to consumers via British Gas. In its own statement, Centrica said it would now buy 10 bcm of gas a year from Equinor. “Against a difficult geopolitical and macroeconomic environment, this supply deal will provide further energy security for the UK,” it said. “This new gas supply agreement will see Equinor deliver to Centrica sufficient gas over the coming three winters to heat an additional 4.5 million homes,” the company added. Concerns related to both the energy transition & energy security have been thrown into sharp relief by Russia''s invasion of Ukraine, with the price of both oil & gas continuing to surge in recent months. Today, Dutch TTF Gas Futures for Jul 2022 were trading at around €145 per megawatt hour, compared to €71.66 at the start of the year. Russia is a significant supplier of both oil & gas, & a number of major economies have formulated plans to reduce their reliance on its hydrocarbons in recent months. The UK has previously said Russian imports represented less than 4% of its total gas supply in 2021, but the agreement between Equinor & Centrica highlights the importance of securing deals amid an environment of continued uncertainty and volatility. Today, the UK business & energy secretary addressed the new reality many countries were facing following the conflict in Ukraine. “When we look at Russia, we look at Ukraine, we look at gas demand, it’s vitally important to get imports from allied countries such as Norway.”
UK firm signs deal to bolster gas supplies as war in Ukraine continues
Gold prices finished higher for a 2nd session in a row, as stocks sold off following a spate of tepid economic data out of the US while the $ slipped. The latest moves in precious metals came after the price of the yellow metal whipsawed following the Federal Reserve's historic 75 basis point interest rate rise yesterday. The $, which has been cited as a catalyst for moves in metals markets this year, was lower, down 1.6% to 103.502, according to the ICE US Dollar Index. Still, although the $'s value weakened slightly today, it remained higher for the month as well as the qtr against a basket of its main rival. Gold for Aug rose $30 (1.7%) to settle at $1849 an ounce. As was the case with stocks & bonds, analysts mostly described the price action in gold as a reaction to the recent moves from central banks. Among US economic data released today, housing starts plunged, while applications for unemployment benefits in the US remained near their highest level in 5 months.
Gold prices finish higher as dollar weakens, ‘risk off’ mood dominates
Oil futures climbed, shaking off early losses from economic growth worries in the wake of the Federal Reserve's latest interest-rate hike, to finish higher after the US announced new economic sanctions on Iran. A visit by European leaders to Ukraine, meanwhile, was also likely supportive for oil prices as it signaled the potential for more sanctions against Russia's energy sector. West Texas Intermediate (WTI) crude for Jul rose $2.27 (2%) to settle at $117.58 a barrel, staging a partial rebound from yesterday's 3% decline. Aug Brent crude, the global benchmark, added $1.30 (1.1%) to $119.81 a barrel. Based on the front-month contracts, Brent & WTI both settled yesterday around their lowest in 2 weeks. The Treasury Dept said it sanctioned a network of Iranian petrochemical producers as well as “front companies” in China & the UAE which support companies it says broker the sale of Iranian petrochemicals abroad. US & global benchmark prices began today on a negative note as equities & other assets perceived as risky moved lower. Crude ended at a 2-week low yesterday after the Federal Reserve delivered a 75 basis point interest rate hike, but equities initially bounced after the decision.
Oil prices end higher as the U.S. announces new sanctions on Iran
This was another brutal days for stocks, which as become so common in the last 2 months (see below). Dow started the day with heavy selling & continued at those depressed levels for the rest of the day. The housing market is an important part of the economy & has taken blows from higher interest rates & sluggish demand (especially at the low end). Even if the economy is not technically in a recession, it feels like that. As a result, investors are staying home during trading days. The Dow is below 30K, where is was at the start of 2021 on the way up.
Dow Jones Industrials
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