Dow rose 71, advanvers & decliners exactly even & NAZ went up 95. The MLP index was off 1+ to 210 & the REIT index fell 2+ to the 437s after a strong week. Junk bond funds crawled higher & Treasuries were purchased, lowering yields. Oil pulled back 5 to the 93s & gold added 2 to 1765.
AMJ (Alerian MLP index tracking fund)
The Federal Reserve Bank of Minneapolis Pres Neel Kashkari said that the current state of inflation is "very concerning" & "spreading out more broadly across the economy." "It’s very concerning. We keep getting inflation readings, new data that comes in as recently as this past week, and we keep getting surprised. It’s higher than we expect," Kashkari added. "And it’s not just a few categories. It’s spreading out more broadly across the economy and that’s why the Federal Reserve is acting with such urgency to get it under control and bring it back down." He stressed that although wages are increasing for many Americans, so are the costs of goods and services, which means workers experience a "real wage cut" because inflation is growing so quickly. He said wage-driven inflation is not happening & the cost of goods is partially due to disruptions in the supply chain, namely caused by the pandemic & now the war in Ukraine. "For most Americans, their wages are going up, but they’re not going up as fast as inflation, so most Americans’ real wages, real incomes are going down," he added. "They’re getting a real wage cut because inflation is growing so quickly. I mean typically, we think about wage-driven inflation where wages grow quickly and that leads to higher prices in a self-fulfilling spiral – that is not yet happening. High prices and wages are now trying to catch up to those high prices. Those high prices are now being driven by supply chains and the war in Ukraine among other factors. And so we need to get the economy back into balance before this really does become from a very wage drive inflation story." Noting the recent results of the economic cost index, he stressed that it's a good thing Americans are earning more, but the Federal Reserve cannot wait for the supply chain to adjust to get prices down. "Just at its basic level, inflation is when demand is outstripping supply. We know supply is low because of supply chains, because of the war in Ukraine, because of COVID. We hoped that supply would come online more quickly. That hasn't happened," Kashkari continued. "So, we have to get demand down in the balance. Now, I hope we get some help on the supply side, but that doesn't change the fact that the Federal Reserve has its job to do, and we are committed to doing it." "We cannot wait till supply fully heals. We have to do our part with monetary policy," he added. Kashkari argued that the new bill introduced by Sens Chuck Schumer & Joe Manchin, dubbed the Inflation Reduction Act is "not going to have much of an impact on inflation" over the next several years, & it will be the Federal Reserve's job to adjust monetary policies to get it down.
Minneapolis Fed president sends dire warning about inflation
Treasury yields rose in early trading to begin Aug as investors continue to assess the prospects for an economic recession. The yield on the benchmark 10-year Treasury note was up at 2.658% while the yield on the 30-year Treasury bond climbed to 3.02%. Yields move inversely to prices. The 2-year yield also gained to just above 2.9%, meaning the closely watched 2-year/10-year yield curve remains inverted, a situation often interpreted as a sign of impending recession. The stock market is coming off its strongest month since 2020 as longer-term interest rates moderated slightly & investors found a relief rally after months of deepening pessimism, with corp earnings offering some reprieve. The big data point this week will be Fri's nonfarm payrolls report from the Bureau of Labor Statistics, which will give more insight into the strong labor market. So far this year, the solid growth of jobs has prompted economists to say the US is currently not in a recession, even with 2 consecutive qtrs of GDP contraction.
Treasury yields climb to start August as investors weigh recession prospects
Rising mortgage rates & inflation in the wider economy caused housing demand to drop sharply in Jun, forcing home prices to cool down. Home prices are still higher than they were a year ago, but the gains slowed at the fastest pace on record in Jun, according to Black Knight, a mortgage software, data & analytics firm that began tracking this metric in the early 1970s. The annual rate of price appreciation fell 2 percentage points from 19.3% to 17.3%. Price gains are still strong because of an imbalance between supply & demand. The housing market has had a severe shortage for years. Strong demand during the coronavirus pandemic exacerbated it. Even when home prices crashed dramatically during the recession of 2007-09, the strongest single-month slowdown was 1.19 percentage points. Prices are not expected to fall nationally, given a stronger overall housing market, but higher mortgage rates are certainly taking their toll. The average rate on the 30-year fixed mortgage crossed over 6% in Jun, according to Mortgage News Daily. It has since dropped back in the lower 5% range, but that is still significantly higher than the 3% range rates were in at the start of this year. Markets seeing the sharpest drops are those that previously had the highest prices in the nation. The cooling in prices coincides with a sharp jump in the supply of homes for sale, up 22% over the last 2 months, according to Black Knight. Inventory is still, however, 54% lower than 2017-19 levels. Despite that, the strong demand in the market recently could present a problem for some. About 10% of mortgaged properties were purchased in the last year, so price drops could cause some borrowers to edge much lower in their equity positions.
Home prices cooled at a record pace in June, according to housing data firm
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