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).
AMJ (Alerian MLP Index tracking fund)
![Live 24 hours gold chart [Kitco Inc.]](https://www.kitco.com/images/live/gold.gif?0.2180338269244485)
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
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