Markets slip lower as investors eye debt-ceiling talks and vote in DC

Dow was off 131, decliners over advancers 4-3 & NAZ declined 82.  The MLP index pulled back 1+ to the 219s & the REIT index was up 2 to the 357s.  Junk bond funds fluctuated & Treasuries continued to see strong buying.  Oil dropped 1+ to 68 after yesterday's fall & gold added 5 to 1982 (more on both below).

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US job openings unexpectedly jumped in Apr to the highest level in 3 months, keeping pressure on Federal Reserve policymakers as they try to cool the economy with an aggressive interest-rate hike campaign.  The Labor Dept said that there were 10.1M job openings in Apr, an increase from the upwardly revised 9.75M openings reported in the previous month.  The forecast expected a reading of 9.38M.  It marked a major increase from Mar, when the gov reported an upwardly revised 9.75M number of available jobs.  Job openings remain historically high.  Before the COVID-19 pandemic began in early 2020, the highest on record was 7.6M.  There are roughly 1. 7 jobs per unemployed American.  The Federal Reserve closely watches these figures as it tries to gauge labor market tightness & wrestle inflation under control.  The higher-than-expected figure indicates that demand for employees still far outpaces the supply of available workers.  The central bank has responded to the inflation crisis & the extremely tight labor market by raising interest rates at the fastest pace in decades.  Officials have so far approved 10 straight rate hikes & have signaled that another increase is on the table at their Jun meeting following a slew of surprisingly hot economic data.  The latest jobs data could give policymakers more space to hike again.  Traders are now pricing in a 66.3% chance of another qtr-percentage-point increase during the Fed's Jun 13-14 meeting, a significant rise from just one day ago, when 36.4% projected another hike, according to the CME Group's FedWatch tool.  The number of Americans quitting their jobs, meanwhile, was mostly unchanged at 3.8M, or roughly 2.4% of the workforce, indicating that workers remain confident they can leave their jobs & find employment elsewhere.

Job openings unexpectedly surge to highest level in 3 months

One top Fed bank official doesn't see a reason to pause interest rate hikes.  Pres of the Federal Reserve Bank of Cleveland, Loretta Mester said there was no "compelling" reason to wait before implementing another interest rate rise should economic data confirm that more must be done to bring US inflation under control.  The Fed bank pres was pushing back against recent suggestions from some policymakers who argued the US central bank should forego a rate rise at its next meeting in Jun.  The agreement this weekend between the White House & Rep congressional leaders on the US borrowing limit "relieved uncertainty about the economy," Mester added.  The deal will be put to a vote in the House of Representatives later today.  There has been division among policymakers over fresh rate rises, with some officials hinting at a pause in Jun.  Mester said she could still be swayed by incoming employment data due on Fri as well as the next inflation report, which will be released ahead of the next Fed meeting on starting Jun 13.  The Fed has raised its benchmark rate by more than 5 percentage points in a little over a year.  The fed funds rate now hovers at 5.00-5.25%.  Mester is not currently a voting member of the policy-setting Federal Open Market Committee.  Fed chair Jay Powell recently hinted he supported a pause, pointing to the number of rate rises the Fed has implemented.

Fed's Mester sees no 'compelling' reason to halt rate hikes: report

House Speaker Kevin McCarthy & White House officials worked to shore up support for a bill that would raise the debt ceiling & cut gov spending, as the House prepared to vote on the legislation.  Congress & the White House are rushing to pass the legislation before Jun 5, the earliest date the US risks a first-ever sovereign debt default.  Treasury Secretary Janet Yellen has said federal funds could dry up in the coming days unless lawmakers raise the borrowing limit.  Failure to do so would roil global financial markets, spark job losses in the US & jeopardize vital gov benefits for Ms of Americans.  To prevent what Yellen has called a potential “catastrophe,” congressional leaders will need to win support for the agreement from both parties in a divided Congress.  The GOP-controlled House is expected to vote tonight, followed by the Dem-held Senate later this week.  According to informal party whip counts, more than 30 House Reps, mostly conservative hardliners, planned to vote against the Fiscal Responsibility Act, despite lobbying from party leaders.  Dems were also divided heading into today's votes, although it was difficult to gauge the full extent of the opposition.  Rep Pramila Jayapal, chair of the Congressional Progressive Caucus, said she would vote against the bill, but as of midday the caucus itself had not taken an official position.  House Dem leadership planned to back the deal, despite the fact that it was negotiated by the White House with little participation from Dems in Congress.  “I support it without hesitation or reservation or trepidation,” Democratic Leader Hakeem Jeffries said.  “Not because it’s perfect, but in divided government we cannot allow the perfect to be the enemy of the good.”  The center-left New Democrat Coalition also backed the bill, saying in a statement that its 94 members would “ensure that this bill gets to President Biden’s desk without unnecessary delay.”  The 64 member bipartisan Problem Solvers Caucus endorsed the plan, all but guaranteeing that the 32 Dems in the caucus would cast their votes for the bill.  The significance of these pockets of Dem support became increasingly clea, as both parties recognized that McCarthy would need Dem votes just to get the debt limit bill to the House floor for a final vote, let alone to actually pass it.

Biden, McCarthy work to shore up support for debt ceiling bill ahead of House vote

Gold futures ended with a gain, but overall strength in the $ was among the reasons why prices for the metal posted a loss for the month.  A debt deal is not necessarily bad news for gold.  Congress appears to be in a position to pass a debt deal that will avoid a catastrophic default, which initially was hurting gold prices.  The details behind the proposed piece of legislation, however, includes significantly lower spending, which will be a major blow to the economic outlook & likely trigger a much harder hitting recession.  Gold for Aug climbed $5 to settle at $1982 an ounce, with most-active prices logging a monthly decline of 1.8%.

Gold Futures End Higher, Post a Loss for the Month

Oil futures declined after weak economic data out of China underlined worries about demand from one of the world's largest crude importers.  Overall, concerns about demand helped pull US oil prices down by more than 11% for the month.  West Texas Intermediate crude for Jul fell $1.37 (2%) to settle at $68.09 a barrel.  Prices based on the front month, which settled at their lowest since Mar 20, marked a monthly loss of 11.3%.  Jul Brent crude the global benchmark, lost 88¢ (1.2%) at $72.66 a barrel on the contract's expiration day, ending 8.7% lower for the month.  Aug Brent the near front-month contract, shed $1.11 (1.5%) to $72.60 a barrel.  Oil prices got slammed on concerns that the Chinese economy hit a brick wall, talk that OPEC won't back up the tough talk by Saudi Arabia & the possibility that the US might be working towards a plan that could lead toward the lifting of some sanctions on Iran.  A Jun 4 meeting of OPEC+ is in focus.  Saudi Arabia's energy minister earlier this month warned that short sellers should “watch out,” remarks that were viewed by analysts as a warning that a further round of production cuts could be in the offing.

U.S. oil futures settle at lowest since March

For the month, Dow lost 1100.  All eyes will be watching the vote in DC tonight.  The indications are that it will be very close.

Dow Jones Industrials 

Maekets slide before the debt ceiling vote later today

Dow slipped back 261, decliners over advancers 5-2 & NAZ declined 91.  The MLP index was down 1+ to 220 & the REIT index edged lower to the 353s.  Junk bond funds drifted lower & Treasuries were in demand, reducing yields (more below).  Oil was off to the 68s after yesterday's sharp decline & gold gained 10 to 1987.

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The compromise bill to raise the debt ceiling passed its first major test in the House Rules Committee, where it advanced to the House floor in a 7-6 vote, with 2 of the panel's 9 Reps opposing it.  A floor vote on the Fiscal Responsibility Act is planned for tonight.  Late stage support from GOP Thomas Massie cleared the way for the bill to be approved by 7 of the 9 Reps on the committee.  The panel's makeup is heavily skewed toward the party in the majority, 9-4, a setup meant to ensure that legislation does not get held up by a few dissenters siding with the minority.  Shortly before the committee cleared the bill, the nonpartisan Congressional Budget Office (CBO) released its assessment of the bill's impact on federal debt & deficits.  The CBO estimated that if the legislation were “enacted and appropriations that are subject to caps” were carried out as planned, “budget deficits would be reduced by about $1.5 trillion” over the next decade.  The CBO “score” was in line with what both parties were anticipating, but the additional certainty provided by the numbers could help shore up the bill's support in a full House vote.  The legislation is the product of a deal hammered out by House Speaker Kevin McCarthy & Pres Biden to cap federal baseline spending for 2 years in exchange for Rep votes to raise the debt ceiling beyond next year's elections & into 2025.  The bill still needs to pass the full GOP-majority House & the Dem-controlled Senate before Mon, when the Treasury Dept projects the US would be unlikely to have enough money to meet its debt obligations.  Yesterday, a bloc of more than 20 conservative Reps announced they would oppose the compromise deal.  They accused McCarthy of caving in to the White House in exchange for “cosmetic” policy tweaks, & not the transformative change they were promised.

Debt ceiling bill clears key hurdle, teeing up final House vote

Mortgage rates shot higher last week, as stronger economic data stoked more fear that the Federal Reserve will not lower interest rates anytime soon.  In turn, mortgage demand dropped to the lowest level since the end of Feb.  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726K or less) increased to 6.91% from 6.69%, with points rising to 0.83 from 0.66 (including the origination fee) for loans with a 20% down payment.  That was the weekly average according to the Mortgage Bankers Association (MBA), but other daily reads saw the rate head over 7%.  As a result, mortgage applications to refinance a home loan, which are most sensitive to rate changes, decreased by 7% last week from the previous week, seasonally adjusted.  Application volume was 45% lower than the same week one year ago.  Applications for a mortgage to purchase a home dropped 3% for the week & were 31% lower than the same week a year ago.  “Application volumes for both purchase and refinance loans decreased last week due to these higher rates,” said Michael Fratantoni, MBA's chief economist, in a release.  “While refinance demand is almost entirely driven by the level of rates, purchase volume continues to be constrained by the lack of homes on the market.”  With home prices starting to regain steam, mortgage rates higher & inventory levels still well below normal, potential homebuyers are getting hit from all sides on affordability.  The higher rates are, the less inclined current owners will be to list their homes for sale.  The vast majority of homeowners today have mortgages with interest rates below 5%.

Mortgage demand drops to the lowest level in three months

Treasuries declined as investors fretted over the debt ceiling bill, which the House of Representatives is expected to vote on later in the day, & awaited key jobs data.  The yield on the 10-year Treasury was trading 4 basis points lower at 3.654% & the 2-year Treasury yield was last down by more than 3 basis points at 4.436%.  Yields & prices have an inverted relationship & one basis point equals 0.01%.  Jitters over the Fiscal Responsibility Act, which would raise the US debt ceiling & therefore prevent the gov from defaulting on its debt as early as Jun 5, continued.  Yesterday it cleared a key vote in the House Rules Committee with a 7-6 majority & is now expected to go before the House floor today, according to a tentative House voting schedule.  It the bill passes the House vote, it would then also need to be approved by the Senate before it could come into effect.  Politicians on both sides of the aisle have criticized the compromise struck between Pres Biden & House Speaker Kevin McCarthy.  At least 20 Reps said that they would vote against the bill.  Uncertainty about whether the central bank will pause or continue with its rate-hiking campaign, which aims to ease inflation & cool the economy, at its Jun policy meeting has spread in recent weeks.

Treasury yields fall as investors await debt ceiling deal vote

New economic data continues to be sluggish.  But traders are more concerned about the very big vote in DC later today.

Dow Jones Industrials

 

Markets slip as traders weigh Congress passing a debt ceiling bill

Dow finished down 50, advancers barely ahead of decliners & NAZ went up 41.  The MLP index was off 1+ to the 221s & the REIT index edged up 1+ to the 355s.  Junk bond funds fluctuated & Treasuries saw heavy buying, sharply reducing yields.  Oil remained weak, down almost 3 to the 69s, while gold rose 14 to 1977 (more on both below).

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The compromise bill to raise the debt ceiling that House Reps released Sun faces its first major test in the House Rules Committee, where 2 of the panel’s 9 Reps have already signaled they will oppose bringing it to the House floor for a vote.  The Fiscal Responsibility Act is the product of a deal hammered out by House Speaker Kevin McCarthy & Pres Biden to cap federal baseline spending for 2 years in exchange for Rep votes to raise the debt ceiling beyond next year's elections & into 2025.  The bill needs to pass before Jun 5, when the Treasury Dept projects the US would be unlikely to have enough money to meet its debt obligations.  But a bloc of at least 20 conservative Reps rejected the compromise deal.  They accused McCarthy of caving in to the White House in exchange for “cosmetic” policy tweaks & not the transformative change they were promised.  They lobbied against the deal on social media & in the Capitol.  “It’s not just that every Republican should vote against it. It’s a little bit more than that. This is a career-defining vote for every Republican,” said GOP Rep Dan Bishop.  Several prominent conservative groups also publicly opposed the bill & said they would measure or “score” GOP lawmakers by how they voted on it.  The Koch-aligned FreedomWorks group, the anti-tax Club for Growth & the conservative Heritage Foundation all panned the deal.  Over the course of the day, opposition to the bill evolved into a more pointed critique of McCarthy from this vocal minority in the GOP.  Several Dems, too, panned the deal, which includes new work requirements for food stamps that many progressives said was a red line.  But the White House defended the agreement.  “It’s usually a sign of a good compromise if there’s some folks who are a little bit unhappy on each side, but I think ultimately what we have here is a good, fair deal,” National Economic Council Deputy Director Bharat Ramamurti said.  “I think the macro economic impact of this deal is likely to be fairly minimal,” he said, adding that the deal was about as good as Biden could have hoped for in a bill that could pass the GOP-controlled House.  The Office of Management & Budget also released a formal statement of policy today urging House members to support the bill, saying it “reflects a bipartisan compromise to avoid a first-ever default.”  A vote on the Fiscal Responsibility Act is planned for tomorrow evening, according to a tentative House voting schedule.

Debt ceiling bill faces a tough path in the House as GOP opposition grows

Home prices rose for the 2nd straight month in Mar as buyers confronted steep competition & limited inventory.  Prices increased 0.7% nationally in the period from Feb to Mar, the S&P CoreLogic Case-Shiller index showed.  On an annual basis, prices are down just 3.6% from their peak in Jun 2022, according to the index.  "The modest increases in home prices we saw a month ago accelerated in March 2023," said Craig Lazzara, managing director at S&P DJ.  "Two months of increasing prices do not a definitive recovery make, but March’s results suggest that the decline in home prices that began in June 2022 may have come to an end."  There was a major discrepancy in the price gains in the 20 cities:  Miami saw a 7.7% annual gain, making it the best-performing city for the 8th straight month.  Tampa, meanwhile, posted a 4.8% increase, followed by Charlotte, NC with an increase of 4.7%.  "Home prices continue to rise with low inventory plaguing the market, despite high mortgage rates and widespread unaffordability," said Nicole Bachaud, Zillow senior economist.  "However, on an annual level, prices are still recovering from pandemic-era highs."  as mortgage rates have slowly declined from a peak of 7% – & as buyers grapple with limited inventory – the housing market has shown early signs of stirring back to life.  A separate report released last week showed the National Association of Home Builders/Wells Fargo Housing Market Index, which measures the pulse of the single-family housing market, rose 5 points to 50, the highest reading since Jul.  It marked the first time in nearly a year that the index pulled out of negative territory.

Home prices jump again in March amid low supply, competitive market

China's much-vaunted economic rebound after its emergence from strict zero-Covid lockdown measures has yet to fully materialize, prompting some economists to speculate that further fiscal stimulus or monetary policy easing could be coming down the pipeline.  China's services & consumption data came in strong in Apr, aligning with expectations of consumers leading the charge as pent-up demand is unleashed — but the rebound in the call for services isn’t yet spilling over into greater demand for goods, partly because unemployment remains high.  Major Chinese industrial firms’ profits plunged 20.6% year-on-year between Jan & Apr.  Manufacturing activity also contracted for the first time in 3 months, according to the Caixin China general manufacturing purchasing managers’ index.  Industrial production rose 5.6% on the year in Apr, marking an acceleration from the previous month but only hitting ½ the expected expansion rate among surveyed economists.  The job market also remains fragile.  Data from China’s Bureau of Statistics shows that 6M of the 96M 16 to 24-year-olds in the urban labor force are currently unemployed.  From this figure, Goldman Sachs estimates there are now 3M more unemployed urban youths relative to the period before the Covid-19 pandemic.  Capital Economics assessed that, despite losing some momentum, China's economic recovery was still progressing at the start of Q2, with scope for further service sector-led improvement.  “Indeed, more timely data including those covering the Labour Day holiday suggest travel and consumer spending were still strengthening this month,” China Economist Sheana Yue & Head of China Economics Julian Evans-Pritchard said.  “But with the challenging external picture continuing to cloud over the exports outlook, struggles in the housing market persisting, and extensive policy support unlikely, sequential q/q growth is set to moderate over the rest of the year.”

China’s disappointing rebound could bring in more stimulus, economists say

Gold futures finished higher, with the precious metal finding support due to a retreat in Treasury yields.  Deal or no deal, a US debt rating downgrade is a huge possibility & there could rerun the paradoxical buy the debt of the defaulter.  In that case, there could be a rally in rates, if the market priced in a more dovish Fed on a ratings agency downgrade & this would be gold positive.  Gold for Aug climbed $14 (0.7%) to settle at $1977 an ounce.

Gold Futures End Higher on the back of Retreat in U.S. Treasury Yields

US oil futures declined, settling below $70 a barrel for the first time since early May.  Oil prices slide back again as investors look towards the next stage of the US debt ceiling saga & concerns that sticky inflation will likely act as a brake on demand & therefore the wider global economy.  Output levels, which were expected to get tightened during the months of Apr & May, haven't been as tight as expected, so supplies are higher than expected.  Jul West Texas Intermediate crude fell $3.21 (4.4%) to settle at $69.46 a barrel, the lowest finish since May 4.

U.S. oil futures settle below $70 a barrel, at lowest in nearly 4 weeks

Times are tense in DC & high drama is expected to last until the debt crisis is resolved which could easily last into next week.  Demand for gold & Treasuries is strong again.

Dow Jones Industrials