Dow fell 124 (but above early lows), decliners over advancers about 3-2 & NAZ was off 19. The MLP index was up 1 to 190 & the REIT index lost 1, falling to the 406s. Junk bond funds drifted lower & Treasuries saw buying, reducing yields, Oil recovered 1+ to 97 after yesterday's fall & gold bounced back 16 to 1741.
AMJ (Alerian MLP index tracking fund)
Inflation accelerated more than expected to a new 4-decade high in Jun as the price of everyday necessities remains painfully high, exacerbating a financial strain for Ms of Americans & worsening a political crisis for Pres Biden. The Labor Dept said that the consumer price index, a broad measure of the price for everyday goods, including gasoline, groceries & rents, rose 9.1% in Jun from a year ago. Prices jumped 1.3% in the one-month period from May. Those figures were both far higher than the 8.8% headline figure & 1% monthly gain forecast. It marks the fastest pace of inflation since 1981. Core prices, which exclude more volatile measurements of food & energy, climbed 5.9% from the previous year & rose 0.7% on a monthly basis – higher than in Apr & May – suggesting that underlying inflationary pressures remain strong & widespread. Price increases were extensive, suggesting that inflation may not be near its peak. Energy prices rose 7.5% in Jun from the previous month & are up 41.6% from last year. Gasoline, on average, costs 59.9% more than it did one year ago & 11.2% more than it did in May. The food index, meanwhile, climbed 1% in Jun, as consumers paid more for items like cereal, chicken, milk & fresh vegetables. In another worrisome sign, shelter costs – which account for roughly 1/3 of the CPI – sped up again in Jun, climbing 0.6%, matching an 18-year-high set in May. On an annual basis, shelter costs have climbed 5.6%, the fastest since 1991. Rent costs also surged in Jun, jumping 0.8% over the month, the largest monthly increase since 1986. Rising rents are a concerning development because higher housing costs most directly & acutely affect household budgets. Another data point that measures how much homeowners would pay in equivalent rent if they had not bought their home, also jumped 0.7% in Jun from the previous month.
Inflation spikes more than expected, hits new 40-year high
Treasury yields popped on the back of much hotter-than-expected inflation data. The 10-year Treasury yield traded 7 basis points higher at 3.03% & the 2-year rate was up 11 basis points at 3.16%. The 30-year bond rated popped 6 basis points to 3.20%. Yields move inversely to prices, and a basis point is equal to 0.01%. The consumer price index rose 9.1% in Jun on a year-over-year basis. That's well above the estimate of 8.8% & marked the fastest pace for inflation since 1981. Core CPI, which strips out volatile food & energy prices, popped 5.9%, compared with a 5.7% estimate. The data comes as investors assess the possibility of a US economic recession.
Treasury yields pop after latest U.S. inflation report beats
As consumers worry more about inflation, fewer are buying homes -- & if they are, they're buying less expensive homes. Mortgage demand fell last week compared with the previous week & the average loan size shrank as well. Mortgage applications to purchase a home fell 4% for the week & were 18% lower than the same week one year ago, according to the Mortgage Bankers Association's (MBA) seasonally adjusted index. The MBA also included an adjustment for the July Fourth holiday. Buyers have been pulling back due, in part, to higher mortgage rates, but rates held steady last week. The average contract interest rate for 30-year fixed mortgages with conforming loan balances ($647K or less) remained at 5.74%, with points decreasing to 0.59 from 0.65 (including the origination fee) for loans with a 20% down payment. “Purchase applications for both conventional and government loans continue to be weaker due to the combination of much higher mortgage rates and the worsening economic outlook,” said Joel Kan, an MBA economist. “After reaching a record $460,000 in March 2022, the average purchase loan size was $415,000 last week, pulled lower by the potential moderation of home-price growth and weaker purchase activity at the upper end of the market.” Applications to refinance a home loan, which have been incredibly weak due to higher interest rates, rose 2% for the week but were 80% lower than the same week one year ago. At the same time last year, the average mortgage rate was 3.09%. There are very few remaining borrowers who don't already have lower rates on their mortgages & who could benefit from a refinance.
Demand for big mortgages is shrinking as home prices moderate
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