Markets extend recent rally on encouraging inflation data

Dow gained 163 (but still under 35K), advancers over decliners 4-3 & NAZ was up 9.  The MLP index finished fractionally higher to slightly above 250 & the REIT index stayed in the 354s.  Junk bond funds eased lower after yesterday's rise & Treasuries were heavily sold after yesterday's buying frenzy.  Oil slid back 1+ to the 76s & gold edged down 1 to 1965 (more on both below).

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Current homeowners & potential homebuyers are responding to lower mortgage rates, albeit slowly.  Mortgage demand rose 2.8% last week, compared with the previous week, according to the Mortgage Bankers Association's (MBA) seasonally adjusted index.  That was the 2nd straight week of gains.  After dropping sharply the previous week, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726K or less) remained unchanged at 7.61% last week, with points decreasing to 0.67 from 0.69, including the origination fee, for loans with a 20% down payment.  “Although Treasury rates dipped midweek, mortgage rates were little changed on average through the week,” said Joel Kan, MBA's VP & deputy chief economist.  Still, applications to refinance a home loan increased 2% for the week & were 7% higher than the same week one year ago.  Mortgage rates this month are not that much different from Nov of last year, so there is not a lot of new incentive to refinance.  Most borrowers carry much lower interest rates due to the record low rates seen during the first few years of the Covid-19 pandemic.  Applications for a mortgage to purchase a home increased 3% from the previous week & were 12% lower than the same week a year ago.  Lower rates may help a little, but still-rising home prices & the still-low supply of homes are bigger hurdles for today's potential buyers.  “Both purchase and refinance applications increased to the highest weekly pace in five weeks but remain at very low levels. Despite the recent downward trend, mortgage rates at current levels are still challenging for many prospective homebuyers and current homeowners,” added Kan.

Mortgage demand climbs to the highest level in five weeks after interest rates move lower

Americans hit the brakes on retail spending in Oct as they confronted still-high inflation & steep interest rates.  Retail sales, a measure of how much consumers spent on a number of everyday goods including cars, food & gasoline, fell 0.1% in Oct, the Commerce Dept said.  That is above the 0.3% decline projected but below the revised 0.9% gain recorded in Sep.  Excluding the more volatile measurements of gasoline and autos, sales climbed 0.1% last month.  The Oct advance is not adjusted for inflation, meaning that consumers may be spending the same but getting less bang for their buck.  "The highly anticipated slowdown in retail spending has started, but it’s not drastic, and October’s numbers would seem pretty good if not stacked against September’s blockbuster report," said Robert Frick, corp economist at Navy Federal Credit Union.  Consumers continued to spend at grocery stores, electronics & appliance stores, health & personal stores & restaurants & bars – a bellwether of discretionary spending.  They also continued to open their wallets when online shopping, with spending at non-store retailers climbing 0.2% from the previous month.  However, they pulled back their spending on big-ticket items such as cars & furniture.  Spending also dropped at miscellaneous shops.  Sales fell in 7 of 13 retail categories last month.  A solid job market & big wage increases have helped to buoy consumer spending in recent months, despite high inflation.  However, many economists have been predicting that consumers will grow more cautious as student loan payments resume & high-interest rates continue to work their way thru the economy.  On top of that, more Americans are relying on their credit cards to cover necessities.  Credit card debt surged to a new record in the 3rd qtr, while delinquencies are also on the rise.

The American spending slowdown is here

The United Auto Workers' (UAW) tentative agreement with General Motors (GM) is back on track for ratification after a handful of large plants voted against the pact in recent days, according to ongoing voting results published today by the union.  As of this PM, the deal had the support of about 54% of the roughly 31K autoworkers whose votes had been finalized by the union.  Results were still pending at several small facilities & a crossover plant in mid-Michigan, which a local chapter reported voted 60% against the pact.  The broad approval marks a swing in voting after several major assembly plants in Michigan, Indiana, Missouri, Kentucky & Tennessee, representing more than 19K of GM’s roughly 50K union employees under the tentative agreement, voted against the deal & spurred uncertainty about its prospects.  A few hours ago, GM's Arlington Assembly plant in Texas, which represents 4900 autoworkers, voted in support of the deal, with roughly 60% of production workers & 65% of skilled trades union workers voting in favor.  A joint venture battery plant now included under the tentative agreements also had 96% (1313) votes, in support of the pact.  The stock fell 7¢.
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GM-UAW deal back on track for ratification

Gold closed with a small loss, falling for the first time in 3 sessions another US inflation measure came in under expectations while the $ & yields rose.  Gold for Dec closed down $2 to settle at $1964 per ounce, falling off an overnight high $1979 after the US reported the largest monthly drop in its producer price index in more than 3 years, while retail sales last month fell for the first time in 7 months.  The producer price index rose at a 1.3% annualized rate in Oct, down from 2.2% a month earlier & under expectations for a 1.9% increase, firming expectations that the Federal Reserve will not require further interest rate hikes after yesterday's report that showed a smaller than expected rise in consumer prices.  The ICE dollar index, which fell to the lowest in 2 months yesterday following the inflation report, regained some ground today, last seen up 0.36 points to 104.42.  Treasury yields also rose, bearish for gold since it offers no interest.  The 2-year note was last seen paying 4.927%, up 8.4 basis points, while the yield on the US 10-year note was up 10.9 basis points to 4.554.

Gold Closes With a Loss as the Dollar and Yields Rise

West Texas Intermediate (WTI) crude oil closed with a loss as a report showed another rise in US inventories, while the $ recovered some ground lost after the US yesterday said inflation rose less than expected last month, while fresh data showed the largest drop in the producer price index in more than 3 years.  WTI crude for Dec closed down $1.60 to $76.66 per barrel, while Jan Brent crude, the global benchmark, was last seen down $1.26 to $81.21.  The Energy Information Administration reported US oil inventories rose by 3.6M barrels last week, its first inventory report in 2 weeks after suspending reporting last week, its first inventory report in 2 weeks after suspending reporting last week for a systems upgrade.

WTI Crude Oil Closes Lower as US Inventories Rise, While Another Inflation Measure Comes in Under Expectations

Dow is back above 35K, making the bulls happy.  However, soggy retain sales along with along with 2 major wars around the globe should get more attention.  Then there are high interest rates.  Even if rate hikes have ended, living with highly inflated prices can pinch economic activity.  In the meantime, investors enjoy seeing higher stocks prices.

Dow Jones Industrials