Markets edge higher after investors assess economic data

Dow was off 154, advancers slightly ahead of decliners & NAZ was off pennies.  The MLP index was up 5+ to the 224s & the REIT index dropped 5+ to the 427s on worries about higher interest rates.  Junk bond funds inched higher following recent selling & Treasuries had limited selling, keeping the 10 year Treasury yield above 3%.  Oil finished up 3+ to the 93s & gold added 10 to 1759 (more on both below).

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Sales of new US homes plunged more than expected in Jul to the lowest level in 6 years as rising mortgage rates & the relentless increase in home values slowed activity by edging prospective homebuyers out of the market.  New single-family home purchases tumbled 12.6% to a seasonally adjusted annual rate of 511K units, the Commerce Dept reported.  It marked the 6th consecutive month of declines . Economists expected new home sales – which account for a small percentage of total sales – to fall 2.5% last month.  On an annual basis, new home sales are down 29.6%.  Despite the slowdown in purchases, the cost of a new home continued to march higher in Jul, with median prices jumping nearly 9% in Jul from the previous month to $439K.  The collapse in home sales is the latest evidence of how the housing market has started to cool as the Federal Reserve hikes interest rates at the fastest pace in decades in order to bring scorching-hot inflation under control.  Policymakers already approved 2 consecutive 75-basis point rate increases in Jun & Jul & confirmed that another super-sized hike is on the table in Sep.  Following the rate hikes, the average rate on a 30-year fixed mortgage – the most popular among new homeowners – climbed to nearly 6% in Jun, though they've since moderated.  The average rate for a 30-year fixed rate mortgage hovered around 5.13% last week according to Freddie Mac.  That is significantly higher than just one year ago, when rates stood at 2.86%.  Combined with high home prices, the rapid rise in borrowing costs has pushed many entry-level homebuyers out of the market.  A new report from Redfin last week showed that home sale cancellations soared in Jul to another 2-year high as buyers retreated from the market.  About 63K home purchase agreements were called off in Jul equal to 16% of homes that went into contract that month.

New home sales plunge to lowest level since 2016

Pamela Liebman, CEO of The Corcoran Group, discussed the real estate market, stressing that the sticker shock for rents have been "really crazy."  She noted that some rents increased by 50% compared to the same time last year.  "There have been 12 months of consistently increasing rental prices so every month it’s going up," the real estate expert told, noting that the trend is "starting to slow a little bit."  Rent prices across the country have been taking a significant bite out of consumer budgets with some renters getting hit particularly hard over the past year.  Liebman noted that Brooklyn was experiencing "its highest rents ever" as well as other parts of New York City.  She also noted that rent prices in Miami Beach are "out of control," just as other parts of Florida are.  "So what does that do? It pushes people to other surrounding areas," she noted.  Rent – a real estate website owned by the brokerage Redfin – analyzed which US cities were experiencing the most expensive rental prices based on increases in the area from Jun 2021 to Jun 2022.  What Rent researcher Jon Leckie has discovered was that there have been particularly "steep price increases in peripheral markets across the country."

Rental prices are ‘consistently increasing,’ sticker shock is ‘really crazy’: Corcoran Group CEO

The € has fallen below parity with the $, diving to its lowest level in 20 years & ending a one-to-one exchange rate with the US currency.  It's a psychological barrier in the markets.  But psychology is important & the €'s slide underlines the foreboding in the 19 European countries using the currency as they struggle with an energy crisis caused by Russia's war in Ukraine.  It means the European & American currencies are worth the same amount.  While constantly changing, the € has dropped just below a value of $1 this week.  A currency's exchange rate can be a verdict on economic prospects & Europe's have been fading.  Expectations that the economy would see a rebound after turning the corner from the COVID-19 pandemic have been replaced by recession predictions.  More than anything, high energy prices & record inflation are to blame.  Europe is far more dependent on Russian oil & natural gas than the US to keep industry humming & generate electricity.  Fears that the war in Ukraine will lead to a loss of Russian oil on global markets have pushed oil prices higher.  And Russia has been cutting back natural gas supplies to the EU, which EU leaders described as retaliation for sanctions & weapons deliveries to Ukraine.  Energy prices have driven euro-area inflation to a record 8.9% in Jul, making everything from groceries to utility bills more expensive.  They also have raised fears about governments needing to ration natural gas to industries like steel, glassmaking & agriculture if Russia further reduces or shuts off the gas taps completely.  The sense of doom increased as Russia reduced the flows through the Nord Stream 1 pipeline to Germany to 20% of capacity & said it would shut it down for 3 days next week for "routine maintenance" at a compressor station.  Natural gas prices on Europe’s TTF benchmark have soared to record highs amid dwindling supplies, fears of further cutoffs and strong demand.  "If you think Euro at parity is cheap, think again," Robin Brooks, chief economist at the Institute of International Finance banking trade group, said.  "German manufacturing lost access to cheap Russian energy & thus its competitive edge."  "Global recession is coming," he said in another tweet.  The € was last valued below $1 in 2002.

Euro falls below parity with the dollar. What's the impact?

Oil prices soared more than $3 a barrel on after Saudi Arabia floated the idea of OPEC+ output cuts to support prices & with the prospect of a drop in US crude inventories.  The Saudi energy minister said OPEC+ had the means to deal with challenges including cutting production, state news agency reported.  Global benchmark Brent crude advanced 3.88% to $100.22 a barrel & US West Texas Intermediate crude ended the day $3.38 (3.7%) higher at $93.74 per barrel.

 

Gold prices finished higher for the first time in 7 sessions, with a pullback in the $ helping to put an end to the yellow metal's longest losing streak since early Jul.  Gold futures for Dec climbed $12 (0.7%) to settle at $1761 per ounce, following 6 session losses in a row for the most-active contract.  Rising Treasury yields & the $'s strength were blamed for driving the weakness in precious metals prices over the past week.  The precious metal has been smothered by a stronger $, rising Treasury yields & Federal Reserve interest rate hike jitters   However, the ICE US Dollar Index, a gauge of the $'s strength against a basket of rivals, was down 0.5% at 108.53 today, contributing to a move up in $-denominated gold prices.  The 10-year Treasury yield , meanwhile, held above 3%.  Economic data released today showed US businesses grew more slowly in Aug.  The S&P US services index dropped to 44.1 from 47.3, based on “flash” survey. It was the 5th decline in a row.

Gold prices post first gain in 7 sessions

During the semi holiday trading prior to Labor Day, investors are nervous about what will be said on higher interest rates & strength in the economy.  They see that interest rates are rising again which brought selling to the REIT sector (see above).  Nothing was decided in the stock market today.

Dow Jones Industrials