Dow retreated 68, advancers over decliners about 5-4 & NAZ went up 29. The MLP index rose, along with oil, 3+ to the 246s & the REIT index slid back 2+ to the 335s. Junk bond funds were weak & Treasuries saw selling which raised yields. Oil soared 3+ on lower inventories to the high 93s & gold sank 24 to 1895 (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)
A key measure of home-purchase applications dropped again last week as consumer demand cooled sharply amid a recent surge in mortgage rates. The Mortgage Bankers Association's index of mortgage applications fell 1.3%. The data also showed that the average rate on the popular 30-year loan climbed to 7.41% from 7.31% the previous week, the highest level since 2000. By comparison, just one year ago, rates hovered around 5.65%. "Mortgage rates moved to their highest levels in over 20 years as Treasury yields increased late last week," said Joel Kan, MBA's deputy chief economist. "Based on the FOMC’s most recent projections, rates are expected to be higher for longer, which drove the increase in Treasury yields." The steeper rates weighed heavily on housing demand, with applications for a mortgage to purchase a home sliding 2% for the week & application volume is down 27% compared with the same time last year. Demand for refinancing also continued to fall last week, sliding another 1%, according to the survey. Compared with the same time last year, refinance applications are down 21%. "Both prospective homebuyers and homeowners continue to feel the impact of these elevated rates," Kan said. "Many homeowners have little incentive to refinance." Officials signaled during their policy-setting meeting last week that another rate hike is on the table this year & that rates are likely to remain elevated for some time. Not only are higher mortgage rates dampening consumer demand, but they are also limiting inventory. That is because sellers who locked in a low mortgage rate before the pandemic have been reluctant to sell with rates continuing to hover near a 2-decade high, leaving few options for eager would-be buyers.
Mortgage rates surge to 23-year high, rapidly cooling demand
As the United Auto Workers' strike against Ford (F), General Motors (GM) & Stellantis (STLA) moves thru its 2nd week, the economic effects are beginning to ripple thru the automakers' vast supply base. While
the automakers & their larger Tier 1 suppliers likely have the
resources to weather an extended work stoppage, there's a network of
smaller suppliers that could be hit hard by a prolonged strike, or even
go out of business entirely. That
network includes about 5600 companies, most in the upper Midwest,
that provide seats, suspension components, wiring harnesses &
thousands of other parts used in brand-name vehicles. It's substantial,
employing an estimated 871K workers, according to the American
Automotive Policy Council. Those smaller suppliers have only
recently recovered from the shocks of the Covid-19 pandemic & the
resulting global shortage of semiconductors. Now, they're coming under
pressure to increase their own workers’ wages, in an environment where
higher interest rates have made it more costly to borrow money, &
staring down the threat of ongoing auto workers' strikes. “We represent a lot of suppliers that are very, very concerned about
where this is going,” said Dennis Devaney, a Detroit attorney who has
represented both GM & Ford & who once served as a board member for
the National Labor Relations Board. Devaney noted that some
suppliers are still struggling with supplies of semiconductors & other
components, in part because their Chinese counterparts are still
recovering from Covid-related shutdowns & other logistical issues
since the global health crisis. “The last thing they need from an economic perspective is a strike by the UAW,” he said. Some of the small suppliers may only be able to hold out a few weeks if the automaker factories they support are struck. Harbour
Results, a manufacturing advisory firm near Detroit, estimates that
about 30% of those smaller suppliers were in poor financial shape, or
“unbankable” in Harbour's view, as of the end of 2022, with another 21%
characterized as struggling.
UAW strikes threaten already vulnerable auto parts suppliers
Amid high inflation & rising interest rates, most Americans believe the economy is in bad shape, according to a poll from Quinnipiac. 71% of Americans described the economy as either not so good or poor & 51% said it's getting worse, the survey said. However, 60% of Americans said their financial situation was either excellent (10%) or good (50%). But whether they have healthy wallets, the conditions of the economy take priority for Americans when determining whom to vote for in the next presidential election. When registered voters were given a list of 8 issues & asked to rank the most important ones in deciding who to elect pres, 32% cited the economy. That was followed by preserving democracy (28%). "If democracy is the complex engine that guides the country’s future, it’s clear a vast majority of Americans now fear a catastrophic breakdown is possible," Quinnipiac University Polling Analyst Tim Malloy said. Despite the state of the nation, inflation remains a global concern. On a world scale, 37% of respondents cited inflation as their main concern in Aug, according to the latest data from the What Worries the World Survey by Ipsos. Inflation increased to 3.2% in Jul, according to the latest consumer price index (CPI) data released by the Bureau of Labor Statistics (BLS). The year-over-year spike was primarily driven by the costs of housing which increased 7.7%. At the same time, the food away from home index rose to 7.1% & the index for food overall climbed to 4.9%. With inflation still sitting above the Federal Reserve's target range, the central bank could deliver another interest rate hike in its Sep meeting. In addition, Fed officials have expressed that they are not softening their tightening on monetary policy until it's clear they are within reach of meeting their goals.
Most Americans see the economy in bad shape and getting worse
Gold closed at a 6-month low as treasury yields rose & the $ continues to strengthen. Gold for Dec closed down $28 to settle at $1890 per ounce, the lowest since Mar 10. The price of the metal has dropped 3.9% over the past week after the Federal Reserve indicated it expected to hike interest rates once more prior to the end of the year & is likely to keep rates high for longer than expected. The hawkish outlook has boosted the $ & treasury yields, bearish notes for gold. Still, weak equity markets are offering some support for the precious metal as investors move to its safe haven. The ICE dollar index was last seen up 0.53 points to 106.76, after earlier touching 106.84, the highest since Nov.
Gold Falls to a Six-Month Low as the Dollar and Treasury Yields Move Higher
West Texas Intermediate (WTI) crude oil closed at the highest in 13 months as traders focus on supply concerns as US inventories fell last week. WTI crude for Nov closed up $3.29 to $93.68 per barrel, the highest since Aug 24, 2022, while Nov Brent crude, the global benchmark, settled up $2.59 to $96.55. In its weekly survey, the Energy Information Administration reported US oil inventories, fell by 2.2M barrels last week, more than the 0.32M barrel drop estimate & countering a report yesterday from the American Petroleum Institute showing stocks rose by 1.59M barrels last week. Supplies at the Cushing, Oklahoma, storage hub, the pricing point for the WTI contract, also fell, dropping 0.94M barrels to 21.96M barrels, the lowest since Jul 2022.
WTI Crude Oil Rises to a 13-Month High on Tight Supplies, Lower US Inventories
The Dow chart below looks cheerless in the last 2 months. There is not much else to say. High interest rates along with higher oil prices will be a significant drag on the economy & there is no quick fix.Dow Jones Industrials
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