Dow went up 322 with buying into the close & closed at the highs, advancers over decliners better than 3-1 & NAZ added 207. The MLP index crawled up 1+ to the 226s & the REIT index recovered 5+ to the 435s. Junk bond funds were mixed & Treasuries saw a little buying. Oil fell 1+ to the 93s & gold rose 7 to 1769 (more on both below).
AMJ (Alerian MLP Index tracking fund)
![Live 24 hours gold chart [Kitco Inc.]](https://www.kitco.com/images/live/gold.gif?0.2180338269244485)
Mortgage rates rose sharply this week to their highest level since reaching a record near 6% in Jun, putting further pressure on the cooling housing market. Freddie Mac said that its latest Primary Mortgage Market Survey shows the average rate for the benchmark 30-year fixed-rate mortgage is now at 5.55%, a nearly ½-point jump from last week's reading of 5.13%. At this time last year, 30-year fixed-rate products averaged 2.87%. The rate for a 15-year fixed-rate note also surged, averaging 4.85% after coming in at 4.55% last week. That is more than double the average rate at this time last year when 15-year products were at 2.17%. "The combination of higher mortgage rates and the slowdown in economic growth is weighing on the housing market," said Sam Khater, Freddie Mac's chief economist. "Home sales continue to decline, prices are moderating, and consumer confidence is low." The National Association of Realtors reported this week that pending home sales dipped 1% in Jul from the month before, a 19.9% drop year over year to the lowest level since 2020. New home sales tumbled last month to the lowest level since 2016, with the median price of a new home jumping 9% from the month before to $439K. Would-be buyers, already squeezed by inflation, are increasingly getting home sale cancellations climbed in Jul to a 2-year high of 63K, equal to 16% of the homes that went under contract that month. But Khater says there are still people shopping for homes, adding, "amid waning demand, there are still potential homebuyers on the sidelines waiting to jump back into the market."
Mortgage rates hit 2-month high, putting further pressure on housing market
Momentum is building among oil producers behind the idea of cutting crude production to stabilize the market, with OPEC's president the latest to back Saudi Arabia's suggestion that the alliance might pump less—comments that pushed the price of a barrel back over $100 earlier this week. The growing consensus among members of OPEC+ threatens to keep energy prices elevated despite Biden administration efforts to get the members to pump more. Sanctions on Russian oil imposed over the invasion of Ukraine have created a supply shortage & buoyed prices to their highest levels in over a decade, creating record profits for producers after the pandemic suppressed demand. The move toward reducing output comes as the US & Iran inch closer to reviving a nuclear deal that would bring Iranian oil back onto the market, an outcome the US hoped would depress the cost of energy. OPEC's rotating pres said that the Saudi energy minister's proposal to consider a reduction in light of market volatility was "in line with our views and objectives." While the OPEC presidency doesn't have decision-making power, the holder of the position often voices consensus emerging in the organization. Earlier this week, Saudi Energy Minister Prince Abdulaziz bin Salman said oil producers could respond to volatile oil prices, "including [by] cutting production at any time and in different forms." Yesterday, OPEC Pres Bruno Jean-Richard Itoua said he could back such action because "economic conditions created by the pandemic in recent years that have led to a slowdown in global economic activity have not yet been entirely stemmed." Itoua, also the Republic of Congo's oil minister, joins a growing chorus of countries backing the Saudi position, including Iraq & Kuwait—2 of OPEC’s biggest producers—& Algeria & Venezuela. Equatorial Guinea, which is set to replace the Republic of Congo as the organization's president next year, also says it agrees that production cuts should be considered. The statements by Saudi Arabia, OPEC's biggest oil exporter, pushed intl oil prices past $100 a barrel earlier this week for the first time in more than3 weeks. It was the latest indication that Biden's high-profile visit to Jeddah in Jul didn't help toward lower prices at US gas stations, and was the opposite of what the White House hoped to achieve from the president’s trip to the kingdom.
OPEC president is open to cutting oil production
Investors are looking for new guidance in Federal Reserve Chair Jerome Powell's Jackson Hole speech tomorrrow, but he could instead deliver the same inflation fighting message, just with a much tougher edge. Powell is expected to emphasize that the central bank will use all the fire power it needs in the form of interest rate hikes to snuff out inflation. He is also likely to point out that after the Fed finishes raising rates, it is likely to hold them there, contrary to market expectations that it will actually start to cut interest rates next year. Fed watchers say Powell is also unlikely to provide any substantive clues to resolve the market debate about whether the central bank will raise rates by a ½ point or 3-qtrs of a point at its next policy meeting on Sep 21. Instead, Powell will likely reiterate that the Fed is highly dependent on incoming economic data. Before the Fed meets in Sep, there is another major employment report next Fri & the Aug consumer price index on Sep 13. The fed funds rate is now 2.25-2.5% & the Fed is targeting an end rate, or terminal rate, of 3.50-3.75% by Q1 of next year. Stocks rallied after Powell’s comments following the Jul meeting & bond yields fell, signaling that markets perceived Powell to be more dovish, or easy when it comes to interest rate expectations. But in the last week, bond yields have risen on a chorus of hawkish comments from other Fed officials. The message from last year's Jackson Hole symposium was far different. Powell was still characterizing inflation as “transitory” & Fed expectations for rate hikes were much lower. Powell said after the Jul Fed meeting that the central bank could downsize the rate cuts at some point, but he did not mention reversing them. Fed watchers say Powell may have confused market expectations when he said after Jul's Fed meeting that the central bank was close to the neutral rate. The neutral rate is the level where the Fed does not have to raise or lower rates & it had long been considered by central bank Fed officials to be 2.5%.
Powell is not likely to tell investors what they want to hear in Jackson Hole speech
Gold prices gained ground today to settle higher for a 3rd-consecutive session, as the $ & 10-year Treasury
yields pulled back. Gold prices for Dec climbed $9 (0.6%) to settle $1771 per ounce, following 2 consecutive sessions of gains. The
settlement was the highest for a most-active contract since Aug 17. The modest pullback in the $ & long-term Treasury yields off
their recent highs were helping gold recoup some of its most recent
drawdown. The ICE US Dollar Index,
a gauge of the $'s strength against a basket of rival currencies, was down 0.2%, while the 10-year Treasury yield was down 7 basis points at 3.0416%.
Gold is down 15% from its record high but here’s why it may still be key to a diversified portfolio
Oil futures posted their first loss in 3 sessions. Saudi Arabia has suggested that OPEC could decide to cut production if
an Iranian nuclear deal is reached, as an agreement would lift Western
sanctions & ultimately see additional oil barrels come onto the global
market.
However from a fundamental standpoint, any production cuts would be
aimed at offsetting the return of Iranian barrels to the global
market-& not a material new bullish catalyst. October WTI
crude fell $2.37 (2.5%) to settle at $92.52 a barrel.
Oil futures post first loss in 3 sessions
Dow Jones Industrials
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