Dow recovered 187, advancers over decliners 3-1 & NAZ went up 150. The MLP index inched higher in the 204s & the REIT index rose 5+ to the 393s. Junk bond funds traded higher & Treasuries were heavily bought, reducing yields. Oil was off 1+ to the 117s & gold bounced back 8 to 1821.
AMJ (Alerian MLP index tracking fund)
US consumers unexpectedly pulled back on spending in May as they confronted the hottest inflation in 4 decades. Retail sales, a measure of how much consumers spent on a basket of goods ranging from cars to food & gasoline, fell 0.3% in May from the prior month, the Commerce Dept said. The forecast expected sales to rise 0.2%. It marked a noted slowdown from the gain of 0.7% gain in Apr & the first decline in retail sales in 5 months. Weak car sales weighed on overall spending last month, as the price of new & used vehicles continued to surge higher amid supply chain constraints & persisting shortages, & the cost of borrowing also increased. In all, auto sales plunged 3.5% in May. When excluding car sales, retail sales actually rose 0.5% in May, up from 0.4% in Apr. But when excluding sales at gasoline stations, retail spending dropped 0.7% in May from the previous month, a worrisome sign that could be indicative of high gas price accounting for a bulk of consumer spending. A gallon of gasoline, on average, now costs $5.01 – a stunning 63% jump from just one year ago. The data comes as consumers face the worst inflation spike since 1981: The gov reported last week that the consumer price index climbed 8.6% in May, much higher than expected. The reading underscored how strong inflationary pressures in the economy still are. The price spike has dampened Americans' confidence in the economy, with consumer sentiment sinking in early Jun to the lowest level on record.
May retail sales unexpectedly decline as consumers confront sizzling hot inflation
Treasury yields pulled back slightly ahead of the Federal Reserve's key monetary policy announcement. The yield on the benchmark 10-year Treasury note slid to 3.39%, having notched an 11-year high of 3.48% yesterday, while the yield on the 30-year Treasury bond dropped to 3.397%. Yields move inversely to prices. The Federal Open Market Committee will conclude its 2-day meeting later & is expected to take aggressive action on interest rates in a bid to rein in inflation. The consumer price index rose by an annual 8.6% in May, its highest year-on-year increase since 1981. Traders initially anticipated a 50-basis-point interest rate hike, but in light of the red hot inflation print, the market is now pricing a more than 95% chance of a 75-basis-point increase, the biggest since 1994. The Federal Open Market Committee in May raised the target range for the federal funds rate to 0.75%-1%, from 0.25- 0.5%. Over in Europe, the ECB will hold an unscheduled monetary policy meeting today, with bond yields surging for many govs across the euro zone.
U.S. Treasury yields pull back ahead of key Fed meeting
Sentiment among the nation’s homebuilders fell for the 6th straight month to the lowest level since Jun 2020, when the economy was grappling with shutdowns stemming from the Covid pandemic. The National Association of Home Builders/Wells Fargo Housing Market Index (NAHB) fell 2 points to 67 in Jun. Anything above 50 is considered positive. The index hit 90 at the end of 2020, as the pandemic spurred strong demand for larger homes in the suburbs. Of the index's 3 components, buyer traffic fell 5 points to 48, the first time it has fallen into negative territory since Jun 2020. Current sales conditions fell 1 point to 77 & sales expectations in the next 6 months fell 2 points to 61. “Six consecutive monthly declines for the HMI is a clear sign of a slowing housing market in a high-inflation, slow-growth economic environment,” said NAHB Chair Jerry Konter. “The entry-level market has been particularly affected by declines for housing affordability and builders are adopting a more cautious stance as demand softens with higher mortgage rates.” The average rate on the 30-year fixed mortgage has risen sharply since the start of the year. In Jan it was right around 3.25%, & as of today it hit 6.28%, according to Mortgage News Daily. Mortgage demand has fallen to less than ½ of what it was a year ago. Builders also continue to face supply-side challenges. “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,” wrote Robert Dietz, NAHB's chief economist.
Homebuilder sentiment drops to lowest level in two years as housing demand slows
The central bank is widely expected to unleash its biggest single-meeting interest rate hike since 1994. Traders are biting their fingernails while waiting for the decision.
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