Markets climb carefully to finish the best monthly advance in 2023

Dow shot up 520 with heavy buying into the close & touched an intra day high, advancers over decliners about 2-1 but NAZ slid back 32.  The MLP index added 2+ to 259 & the REIT index eased up 2+ to the 265s.  Junk bond funds continued mixed & Treasuries saw more selling, driving yields higher.  Oil dropped 1+ to the low 76s & gold fell 10 to 1056, still near record highs (more on both below).

AMJ (Alerian MLP Index tracking fund)

The influential Organization of the Petroleum Exporting Countries coalition & its allies, collectively known as OPEC+, opted against formally deepening production cuts, while de facto leader Saudi Arabia extended its 1M barrel per day voluntary trim into the first qtr & other members announced further reductions.  The policy steps were decided in a virtual meeting delayed by internal disagreements over the baselines, the levels off which quotas are decided, of the OPEC group's largest West African members, Nigeria & Angola.  The spat postponed talks initially scheduled to be held in person in Vienna over the weekend of Nov 25-26.  The baselines of Angola, Nigeria & Congo remain under study.  The OPEC+ alliance had already instituted a 2M barrel per day cut in place until the end of 2024, with several coalition members voluntarily pledging a further 1.66M barrel per day decline over that same period.  While OPEC+ has not formally endorsed production reductions, market participants are following the possibility of further voluntary cuts announced by key participants to the coalition.  Already, Saudi state media has announced that Riyadh will extend its voluntary reduction of 1M barrels per day, which it has had in place since Jul, until the end of Q1-2024.  Russian Deputy Prime Minister Alexander Novak, who represents his country in OPEC+ affairs, has said Moscow will implement a voluntary supply cut totaling 300K barrels per day of crude & 200K barrels per day of petroleum products over that same period.  Close Saudi ally Kuwait will enforce a 135K barrel per day reduction in Q1, while the Energy Ministry of OPEC member Algeria said it would trim a further 51K barrels per day.  Oman said it will also reduce output by 42K barrels per day in that same period.

Oil kingpin Saudi Arabia extends its production cut as OPEC+ holds policy

Mortgage rates fell again this week, continuing a downward trend that has sparked a recent uptick in demand & fueled hopes that more homeowners will be willing to sell amid an ongoing inventory shortage.  Still, affordability struggles remain.  Freddie Mac reported that the average rate on the benchmark 30-year fixed mortgage fell for the 5th straight week to 7.22%, down from 7.29% last week.  At this time a year ago, the 30-year note averaged 6.49%.  The average rate for a 15-year fixed mortgage also declined, dropping to 6.56% from 6.67% the week prior.  The 15-year rate averaged 5.67% a year ago.  "Market sentiment has significantly shifted over the last month, leading to a continued decline in mortgage rates," said Sam Khater, Freddie Mac's chief economist.  "The current trajectory of rates is an encouraging development for potential homebuyers, with purchase application activity recently rising to the same level as mid-September when rates were similar to today’s levels," Khater continued.  "The modest uptick in demand over the last month signals that there will likely be more competition in a market that remains starved for inventory."  The Mortgage Bankers Association (MBA) reported that mortgage applications have climbed for 4 straight weeks.  The decline in rates helped to spur more housing demand, with applications for a mortgage to purchase a home climbing 5% for the week.  Still, application volume remains down 19% compared with the same time last year.  "In addition to helping to improve affordability for homebuyers, a continued decline in mortgage rates could also convince some homeowners to sell, which would increase the low supply of existing homes on the market," MBA Pres & CEO Bob Breoksmit said.  But many homeowners who are locked in at significantly lower rates than are available today are reluctant to move or unable to afford to do so.  Realtor.com reported that pending home sales fell 1.5% in Oct to the lowest level since the real estate agency began tracking the data in 2001.  More prospective buyers are now looking to new construction rather than existing homes, as builders can often offer more favorable rate terms, but builders appear to be having some jitters, too.  "While buyers faced limited existing home inventory, especially as mortgage rates climbed in October, new construction activity picked up, offering hope that additional home supply is inbound," said Realtor.com senior economic research analyst Hannah Jones.  "However," Jones added, "as the cost of homeownership remains out of reach for many would-be buyers, homebuilder sentiment fell to the lowest level since December 2022, suggesting builders are concerned about how ongoing affordability headwinds will impact buyer demand."

Mortgage rates continue downward trend, remain above 7%

Signed contracts to buy previously owned homes in the US fell last month to the lowest level on record as a spike in mortgage rates locked many would-be buyers out of the market.  The National Association of Realtors (NAR) said that its pending home sales index decreased 1.5% in Oct to the lowest reading since the gauge was established in 2001.  The forecast expected contracts to decline by 2%.  "During October, mortgage rates were at their highest, and contract signings for existing homes were at their lowest in more than 20 years," said Lawrence Yun, NAR chief economist.  "Recent weeks' successive declines in mortgage rates will help qualify more home buyers, but limited housing inventory is significantly preventing housing demand from fully being satisfied."  Pending sales remain down 8.5% from the same time last year.  The report suggests that the housing market still has a long way to go before it recovers from the deep freeze that it entered as a result of the Federal Reserve's interest-rate hike campaign.  "Given that inventory levels remain low, and the real estate market generally slows heading into the holidays, pending home sales might not bounce right back from this low point," said Kate Wood, a home & mortgage expert at NerdWallet.  Borrowing costs have retreated noticeably over the course of Nov, as many investors believe the Fed is done hiking interest rates following two cooler-than-expected inflation reports last week.  Rates on the popular 30-year fixed mortgage fell to a 2-month low of 7.44% last week, according to Freddie Mac, down from a high of 7.79% at the end of Oct.  Still, rates remain well above the pre-pandemic average of 3.9%.  The astronomic rise in mortgage rates over the past year is not only dampening consumer demand but is 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.  A recent report from Realtor.com shows that the total number of homes for sale, including those that were under contract but not yet sold, fell by 4% in Sep, compared with the same time a year ago.  Available home supply remains down a stunning 45.1% from the typical amount before the COVID-19 pandemic began in early 2020.

High mortgage rates continue to take their toll on the US housing market

Gold closed lower as the $ moved higher even after a key US inflation measure eased last month.  Gold for Feb closed down $9 to settle at $2057 per ounce.  US core personal consumption expenditures, the Federal Reserve's preferred inflation gauge, rose by 0.2% in Oct, down from 0.3% a month earlier & 3.5% on an annualized basis, down from 3.7%.  The results met the consensus estimate.  The result shows US inflation continues to slow with interest rates at the higher in more than 2 decades.  With inflation on the downswing, the Federal Reserve is no longer expected to further hike rates & the focus is turning to when the central bank will begin cutting them.  Despite the dovish result, the $ & treasury yields rose, bearish for gold.  The ICE dollar index was last seen up 7.8 points to 103.54 & the 2-year note was last seen paying 4.713%, up 3.3 basis points, while the yield on the 10-year note was up 7.3 points to 4.338%.

Gold Closes with a Loss as the Dollar and Yields Rise Even as a US Measure Showed Inflation Slowed Last Month

US oil futures settled with a loss of more than 2%, even as OPEC+ announced that several of its member countries agreed to voluntary cuts totaling 2.2M barrels a day for Q1-2024 (see above).  While oil prices initially rallied on the extension & expansion of OPEC+ output cuts into 2024, investors remain concerned about OPEC compliance & global demand growth going into the seasonally soft winter demand period.  Outside of Saudi Arabia, OPEC+ members historically struggle in compliance with planned cuts, leading to some market skepticism about the actual magnitude of cuts that will be implemented.  Jan West Texas Intermediate crude fell $1.90 (2.4%) to settle at $75.96 a barrel.

U.S. Oil Futures Settle More Than 2% Lower After OPEC+ Announces Voluntary Output Cuts

Look below, the Dow had a stellar month up 2900 for a new record.  But market breadth was only a mediocre 3- 2 & NAZ did not participate in the rally.  Many stocks remain below record levels.  Bulls say this performance will bring new records shortly.  Maybe.  At the same time safe haven gold is only 1% below its record.  Stocks are risky investments while gold is the classic safe haven investment.  Something has to give.

Dow Jones Industrials