Dow was off 39, decliners over advancers 2-1 & NAZ retreated 174. The MLP index went up 1+ to the 224s & the REIT index fell 2+ to the 379s. Junk bond funds crawled higher & Treasuries saw very heavy buying, sharply reducing yields. Oil dropped 1+ to the 85s & gold was flattish at 1777 (more on both below).
AMJ (Alerian MLP Index tracking fund)
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San Francisco Federal Reserve Pres Mary Daly said she expects the central bank to raise interest rates at least another percentage point, & possibly more, before it can pause to evaluate how the inflation fight is going. Daly added that her most recent estimate in the Fed’s summary of economic projections puts the benchmark overnight lending rate around 5%. She noted that the right range is probably 4.75-5.25% from its current targeted 3.75%-4%. “I still think of that as a reasonable landing place for us before we hold, and the holding part is really important,” she continued. “It’s a raise-to-hold strategy.” Thus far, the Federal Reserve has hiked the fed funds rate, which spills over into a slew of other consumer debt products, 6 times, including 4 consecutive 0.75 percentage point moves. Looking ahead, market pricing is largely in line with what Daly suggested. Traders see the central bank adding another 0.5 percentage point when it meets again in mid-Dec, then moving a bit higher before stopping around 4.75-5%. She sees a point where the Fed will be able to evaluate the impact of its hikes before moving higher, but that is not now. “Pausing is off the table right now. It’s not even part of the discussion,” she said. “Right now, the discussion is rightly around slowing the pace and ... focusing our attention really on what is the level of interest rates that will end up being sufficiently restrictive.” She expects higher rates to continue to have an impact on the economy & bring inflation back in line. “When we raise it and hold, over time as we’re holding monetary policy is becoming tighter as inflation comes down, so that’s another factor we’ll have to consider,” she added. Daly said that her goal is to bring inflation down “as efficiently and as gently as we can.”
Fed’s Daly sees rates rising at least another percentage point as ‘pausing is off the table’
Despite a decline in mortgage rates in the past week, one area of the mortgage market isn't seeing relief — the refinance market. The Refinance Index decreased 2% from the previous week, according to the weekly survey from the Mortgage Banker's Association (MBA). The refinance share of mortgage activity decreased to 27.6% of total applications from 28.1% the previous week. "Refinance activity remained depressed, down 88% over the year," said Joel Kan, MBA's VP & deputy chief economist. "There is very little refinance incentive with rates so much higher than last year." Mortgage rates declined as Treasury yields moved lower following signs of inflation easing. The average contract interest rate for 30-year fixed mortgages decreased to 6.90% from 7.14%. With the reduction, there were some bright spots in the latest data. Overall demand for mortgage applications increased 2.7% from the prior week. "Application activity, adjusted to account for the Veterans Day holiday, increased in response to the drop in rates – driven by a 4% rise in home purchase applications," said Kan. "Purchase applications increased for all loan types, and the average purchase loan dipped to its smallest amount since January 2021".
Mortgage refinancing plummets despite recent rate decline
It is crucial for the ECB to convey its commitment to bringing prices down in order to keep inflation expectations anchored, according to its VP Luis de Guindos. He said that the main risk of a wage-price spiral was the perception that the central bank’s credibility was not strong enough. “That’s why we are making such a commitment with price stability … and that we will do whatever is necessary in order to reduce inflation to the level that we consider as price stability, which is 2%,” he said. Wages have been rising in the euro zone, but were not yet doing so at a rate that was “excessive,” de Guindos added. But, he continued, the lesson from the stagflation seen in the 1970s was that monetary policy needed to be focused on avoiding 2nd-round effects. Euro zone inflation is running at 10.7%, the highest level in the bloc's history & the ECB has hiked its benchmark rate to 1.5%, a level not seen since 2009, before the sovereign debt crisis. De Guindos said he could not specify what the ECB's terminal rate would be, even though markets were “demanding guidance,” but the central bank had to “say very clearly that we are going to do our job, that we will reduce inflation, and that we will raise rates to the level that is compatible with the convergence of inflation to our price stability definition.” The ECB just published a Financial Stability Review which outlined challenges facing businesses & households from the poor economic outlook, high inflation & monetary tightening. It argues govs need to provide vulnerable sectors with targeted support without interfering with the normalization of monetary policy. Economists predict the euro zone is heading for a deep recession amid plunging consumer confidence. De Guindos said banks needed to be “cautious and prudent,” avoid being blinded by a short-term increase in profitability due to higher interest rates & prepare for the potential coming rise in insolvencies & the reduced repayment capacity of households.
ECB will do ‘whatever is necessary’ to tame inflation, says vice president
Gold futures finished with a modest loss, with prices
shaking off early gains. The precious metal saw a very brief spurt of safe-haven buying on
initial reports yesterday of an apparent wayward missile landing in
Poland.
Poland reportedly said today, however, that there is no indication
that the missile was an intentional attack. Gold now seems to be simply digesting its recent price rebound,
awaiting the next catalyst.
Gold for Dec fell $1 to settle at
$1775 an ounce.
Gold Futures Give Up Early Gains To Finish Lower
Oil futures declined, with US prices settling at their lower in roughly 3 weeks. Prices remain in negative territory with various geopolitical influences. from an oil tanker hit by a bomb-carrying drone off the coast of Oman, to Russia tensions being dismissed in favor of a focus on the more bearish elements such as weak Chinese economic data & demand. US benchmark West Texas Intermediate crude for Dec fell 1.33 (1.5%) to settle at 85.59 a barrel, the lowest finish for a most-active contract since Oct 25.
U.S. oil prices post their lowest finish in about 3 weeks
Dow Jones Industrials
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