Markets drift lower while investors wait on inflation data later this week

Dow was up 29 (below early highs), advancers over decliners 2-1 & NAZ declined 13.  The MLP index was up 1 to the to the 204s & the REIT index rose 3+ to the 346s.  Junk bond funds slid lower while stocks were sold & Treasuries continued to see buying.  Oil recovered 1+ to go over 90 & gold advanced 12 to 1803 (more on both below).

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Consumer expectations for where inflation will be one year from now fell sharply in Jul, according to a key Federal Reserve Bank of New York surve, a potentially reassuring sign for the central bank as it tries to cool surging prices.  The median expectation is that the inflation rate will be up 6.2% one year from now, a major decline from the 11-year high of 6.8% recorded in Jun, according to the New York Federal Reserve's Survey of Consumer Expectations.  3 years from now, consumers see inflation cooling off slightly to 3.2% – down from the 3.6% recorded last month.  Consumers anticipate that prices will drop even further over the next 5 years, projecting that the inflation rate will hover around 2.3% in 2027.  "Median inflation uncertainty—or the uncertainty expressed regarding future inflation outcomes—declined slightly at both the one- and three-year-ahead horizons," the report said.  "Uncertainty at the five-year-ahead horizon decreased more substantially."  The report is based on a rotating panel of 1300 households.  The survey plays a critical role in determining how Fed policymakers respond to the inflation crisis.  That is because actual inflation depends, at least in part, on what consumers think it will be.  It is sort of a self-fulfilling prophecy – if everyone expects prices to rise by 3% in the year, that signals to businesses that they can increase prices by at least 3%.  Workers, in turn, will want a 3% pay raise to offset the rising costs.  A steeper-than-expected increase in inflation expectations in May actually prompted Fed officials to approve the first 75 basis point interest rate hike since 1994 on fears that higher prices were becoming entrenched.

Americans reveal their inflation expectations in new survey

Consumer confidence in the housing market dropped to the lowest level since 2011, as both prospective buyers and sellers have become more pessimistic, according to a monthly survey by Fannie Mae.  Just 17% of those surveyed in Jul said now is a good time to buy a home, down from 20% in Jun.  Even more telling, however, is that the share of sellers who think it’s a good time to list their homes dropped to 67% in Jul from 76% 2 months prior.  Far fewer consumers now think home prices will rise, while the share of those who think prices will fall jumped from 27% to 30%.  Fannie Mae’s Home Purchase Sentiment Index consists of 6 components: buying conditions, selling conditions, home price outlook, mortgage rate outlook, job loss concern & change in household income.  Overall, the index fell & points in Jul to 62.8.  It's down 13 points from a year earlier & hit an all-time high of 93.7 in summer 2019, before the pandemic.  “Unfavorable mortgage rates have been increasingly cited by consumers as a top reason behind the growing perception that it’s a bad time to buy, as well as sell, a home,”  Doug Duncan, Fannie Mae's senior VP & chief economist, wrote in a release.  The average rate on the 30-year fixed mortgage started this year around 3% & then began rising steadily, briefly crossing the 6% line in Jun, according to Mortgage News Daily.  It fell back slightly since then but is still in the mid-5% range.  Just 6% of those surveyed think mortgage rates will fall, while 67% said they expect rates to rise further.  Sales of both new & existing homes have been falling sharply over the last few months, as affordability weakens & consumers worry about inflation & the broader economy.  Big losses in the stock market have also caused demand for higher-end homes to drop.  More supply is coming on the market, which is helping a little bit, but inventory is still well below historical norms, especially at the entry level.

Consumer confidence in the housing market at lowest point in over a decade

Boeing (BA), a Dow stock, will resume deliveries of its 787 Dreamliners in the coming days, the Federal Aviation Administration said.  Deliveries of the wide-body jetliners have been suspended for much of the past 2 years as regulators& BA reviewed a series of manufacturing flaws.  The resumption of deliveries is long-awaited.  The twin-aisle planes are often used for long-haul intl routes.  The Dreamliners are a key source of cash for BA as the bulk of an aircraft's price is paid when it's handed over to customers, though the manufacturer had to compensate buyers for the extensive delays.  The company earlier this year said 787 issues, including a drop in production, would cost it $5.5B.  “Boeing has made the necessary changes to ensure that the 787 Dreamliner meets all certification standards,” the FAA said.  “The FAA will inspect each aircraft before an airworthiness certificate is issued and cleared for delivery.”  BA last month said it was near the finish line of resuming 787 deliveries, which CEO Dave Calhoun called “the moment we’ve been waiting for.”  The company had 120 of the planes in inventory as of the end of last qtr.  The stock rose 87¢.
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Boeing Dreamliner deliveries to resume in the ‘coming days,’ FAA says

Oil futures ended higher, with the US benchmark extending a bounce off a 6-month low as investors weighed prospects for demand amid mixed signals on the health of the economy.  West Texas Intermediate crude for Sep rose $1.75 (2%) to close at $90.76 a barrel 

Oil extends bounce off 6-month low to end higher

Gold futures finished higher, reclaiming the key $1800 threshold, as the $ & Treasury yields retreated after Jul's jobs report was viewed as clearing the way for more Federal Reserve interest rate hikes.  Gold for Dec jumped $14 (0.8%) to settle at $1805 per ounce, its best daily percentage gain since Aug 4.  Gold futures punched higher today after Fri's jobs report showed the pace of hiring unexpectedly surged last month, suggesting the Federal Reserve may have to remain aggressive in its effort to cool the economy.  The yellow metal ended Fri lower as Treasury yields & the $ rebounded, making nonyielding gold less appealing for other currency holders.  The $ index today stood at 106.30, 0.3% lower when compared with a basket of rival currencies.  The benchmark 10-year Treasury yield  retreated to 2.76%, while the yield on the 2-year Treasury note fell to 3.19%.  Geopolitical tensions still remained in focus after House Speaker Nancy Pelosi's visit last week to Taiwan, which ramped up US-China tensions.  China said today it is extending threatening military exercises surrounding Taiwan.  On Wed, the latest look at US inflation will be released for the month of Jul.  Core inflation is expected to nudge 0.2% higher to 6.1%, according to market estimates.  Investors also were combing thru the Senate's approval of Dems' big healthcare, climate & tax package, which would pump Bs of $s into climate & healthcare programs over the next decade, paid for by a 15% minimum tax on some large corps & a 1% tax on stock buybacks.  It contains about $430B in new spending.

Gold prices end higher to reclaim $1,800 mark as investors await inflation update

Dow has had a good run in the last couple of months (see below).  Some selling should be expected.  In addition, 2 big inflation numbers will be reported this week.  Nervous investors took profits in the PM.  The strength of upward momentum recently will be tested this week.

Dow Jones Industrials