Dow sank 308 (near session lows), decliners over advancers 4-1 & NAZ declined 134. The MLP index dropped 6+ to the 218s & the REIT index fell 6+ to the 415s. Junk bond funds remained weak & Treasury prices were little changed in trading today. Oil tumbled 5+ to the 91s & gold pulled back 13 to 1735 (more on both below).
AMJ (Alerian MLP Index tracking fund)
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New York Federal Reserve Pres John Williams said he expects interest rates to continue higher & to remain at those levels until inflation is subdued. Echoing recent comments from Fed Chair Jerome Powell, Williams said that he also is in the higher-for-longer camp when it comes to monetary policy. “We’re going to need to have restrictive policy for some time,” he said. “This is not something we’re going to do for a very short period and then change course.” That outlook comes just a few days after Powell also used the “for some time” language to describe his expectations for benchmark interest rates. In his annual policy speech at Jackson Hole, Wyoming, the Fed chief noted that “the historical record cautions strongly against prematurely loosening policy.” Along with Vice Chair Lael Brainard, Powell & Williams make up the Fed's policy brain trust. They are seeking to reduce inflation that is running near its highest level in more than 40 years & well above the central bank’s target of 2%. Williams didn't specifically say where he’d like to see rates go. But he noted that he believes reducing inflation will require real interest rates — nominal levels minus inflation — to be positive. The fed funds rate is currently targeted at 2.25-2.5%, which is well below the central bank's preferred core personal consumption expenditures price index inflation gauge, which was at 4.6% in Jul. “I do think with demand far exceeding supply, we do need to get real interest rates … above zero,” Williams added. “We need to have somewhat restrictive policy to slow demand, and we’re not there yet.” He continued that he thinks the Fed is “still quite a ways from that.” Current marking pricing is for the rate-setting Federal Open Market Committee to approve a 3rd consecutive ¾ point rate increase in Sep, followed by a ½-point move in Nov & a ¼-point hike in Dec. Markets then expect the Fed to start cutting in the fall of 2023. Williams said he's been encouraged by some tightening in financial conditions following the hikes but added he needs to see more before considering a change in policy.
Fed’s Williams pushes back on market expectations of a rate cut next year
US consumer confidence rebounded more than expected in Aug after 3 straight monthly declines, with vacation intentions rising to an 8-month high, a potential positive signal for consumer spending. The Conference Board said its consumer confidence index rose to 103.2 this month from 95.3 in Jul. The forecast called for the index to climb to 97.7. The survey's present situation index, based on consumers' assessment of current business & labor market conditions, climbed to 145.4 from 139.7 in Jul. Its expectations index, based on consumers' short-term outlook for income, business & labor market conditions, increased to 75.1 from 65.6 last month. "Purchasing intentions increased after a July pullback, and vacation intentions reached an 8-month high," said Lynn Franco, senior director of economic indicators at the Conference Board. "August's improvement in confidence may help support spending, but inflation and additional rate hikes still pose risks to economic growth in the short term."
U.S. consumer confidence rises more than expected in August
Home price increases slowed in Jun for the 3rd consecutive month, evidence that rising mortgage rates are starting to slow activity in the housing market. Prices climbed 18.6% nationally in Jun from the previous year, down slightly from the gain of 19.7% recorded in May, the S&P CoreLogic Case-Shiller index showed. "The deceleration in U.S. housing prices that we began to observe several months ago continued in June," Craig Lazzara, a managing director at S&P Dow Jones Indices, said. "Relative to May’s 19.9% gain, prices are clearly increasing at a slower rate." The Case-Shiller index reports with a 2-month delay, meaning it may not capture the latest slowdown in the market. A separate report from the National Association of Realtors last week showed that the national median home price moderated slightly in Jul, falling from a record high to $403K. That is still up 10.8% from the previous year when the median cost of a home was $364K. 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 have since moderated. The average rate for a 30-year fixed rate mortgage hovered around 5.13% last week. 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.
US home price growth cooled in June for third straight month
Oil futures fell sharply
with US prices down more than 5% as economic worries dulled the
outlook for energy demand. Traders also weighed prospects for a
production cut at yesterday's meeting of major oil producers. Oct WTI
crude fell $5.37 (5.5%) to settle at $91.64 a barrel. Front-month prices marked their lowest finish in
more than a week, a day after settling at their highest since Jul 29.
U.S. oil futures drop by more than 5%
Gold prices marked a 3rd straight decline today, with precious metals settling at their lowest in more than a month. Prices for gold had fallen near session lows shortly after data yoday showing that a survey of US consumer confidence rose in Aug for the first time in 4 months amid efforts by the Federal Reserve to tame inflation. Gold futures for Dec were off $13 (0.8%) to $1736 per ounce, with most-active contract prices logging their lowest finish since Jul 27. The surge in interest-rates rates & the $ have helped subdue gold's energy with Federal Reserve Jerome Powell's remarks on Fri. Gold, like the markets, are facing a more hawkish, stern sounding Powell who will have to keep face at the next meeting & raise rates by another 75 basis points & that is being now factored into the market. For the month, gold futures traded lower, pressured by strength in the $ as well as Treasury yields. The 10-year Treasury yield edged up by 1.3 basis points to 3.120%, while the ICE US Dollar Index, a gauge of the $'s strength vs a basket of rivals, was down nearly 0.1% at 108.786, though trading up by 2.7% month to date.
Gold, silver prices down a third straight session, settle at lowest in more than a month
Dow Jones Industrials
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