Dow recovered 87, decliners slightly ahead of advancers & NAZ was up 69. The MLP index rose 3+ to the 221s & the REIT index fell 3+ to the 409s. Junk bond funds fluctuated & Treasuries were flattish following yesterday's yield surge (more below). Oil was up 1+ to the high 88s & gold slid back 3 to 1714.
AMJ (Alerian MLP index tracking fund)
Inflation at the wholesale level cooled in Aug for the 2nd
consecutive month, although prices for everyday necessities remain at a
multi-decade high, squeezing businesses & Ms of American
households. The Labor Dept said that its producer price index, which measures inflation at the wholesale level
before it reaches consumers, declined 0.1% in Aug from the previous
month. On an annual basis, prices soared 8.7% – a marked decline from
the 9.8% increase recorded in Jul & the lowest level since Aug
2021. The forecast called for an annual gain of 8.8% & a monthly drop of 0.1%. Excluding
food, energy & trade services, inflation at the wholesale level
increased 0.2% for the month. That is below the expectation for a gain
of 0.3%. Over the past 12 months, core prices climbed 5.7%. Overall, prices for goods fell 1.2% last month, the biggest contributor
to the drop in the headline inflation figure. That decrease can largely
be traced to a 6% plunge in prices for final demand energy,
including a stunning 12.7% decline in gasoline prices. Food prices were flat in August & did not increase
from the previous month. Meanwhile, the services index advanced 0.4% in Aug, the 4th
consecutive rise. A majority of that increase stemmed from a 0.8% jump
in trade services.
Wholesale inflation declines but prices still near multi-decade high
Treasury yields continued to climb higher as investors digested the previous session's dramatic market route triggered by a hot inflation reading. The yield on the 2-year Treasury, the part of the curve most sensitive to Fed policy, was trading roughly 5 basis points higher to reach 3.805%, or its highest level since 2007. Yesterday's session saw it surge 17 points. Yields move inversely to prices & a basis point is equal to 0.01%. Meanwhile, the yield on the benchmark 10-year Treasury note was up about 4 basis points, trading at 3.466% & the yield on the 30-year Treasury bond was up more than 2 basis points at 3.533%. Aug's consumer price index report saw inflation rise 0.1% month on month. Markets had expected a lower reading due to a fall in gas prices, which dropped 10.6% from the previous month. Some traders are now expecting a full point rate hike from the Federal Reserve at its September meeting.
Bond yields continue climbing, 2-year Treasury tops 3.8%
Mortgage demand appears to have nowhere to go but down, as interest rates go up. Application volume dropped 1.2% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. The week’s results include an adjustment for the observance of Labor Day. Since last year, homebuyers' demand for mortgages has fallen by nearly a 3rd. Mortgage rates, which had been easing slightly thru Jul-Aug, pushed higher yet again, after Federal Reserve Chair Jerome Powell made it clear to investors that the central bank would stay tough on inflation, even if it caused consumers some pain. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647K or less) increased to 6.01% from 5.94%, with points decreasing to 0.76 from 0.79 (including the origination fee) for loans with a 20% down payment. “The 30-year fixed mortgage rate hit the 6% mark for the first time since 2008 – rising to 6.01% – which is essentially double what it was a year ago,” said Joel Kan, MBA's associate VP of economic & industry forecasting. Refinance demand fell another 4% for the week & was 83% lower than the same week one year ago. Mortgage rates jumped significantly higher this week, after the monthly inflation number came in higher than expected. That had investors worried that the Federal Reserve would hike rates more than expected at its next meeting. “It was one of the last shoes to drop before the Fed announcement on September 21st, and it arrived at a time where the market had fully priced in a 75bp hike, but was willing to consider something even higher if the data was convincing,” wrote Matthew Graham, chief operating officer of Mortgage News Daily. “This was arguably convincing enough for the Fed to at least open the conversation.”
Homebuyer mortgage demand falls 29% since last year, as rates surge past 6%
Dow Jones Industrials
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