Dow retreated 220 (session lows), decliners over advancers about 3-1 & NAZ dropped 128. The MLP index slid back to the 244s & the REIT index fell 5+ to the 335s while yields rose again. Junk bond funds drifted lower & Treasuries saw very heavy selling, bringing substantially higher yields (more below). Oil finished up chump change in the 75s & gold added 6 to 1964 (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)
Federal Reserve Chair Jerome Powell said that he & his fellow policymakers are encouraged by the slowing pace of inflation but are unsure whether they've done enough to keep the momentum going. Speaking after the central bank voted to hold benchmark policy rates steady, Powell said in remarks for an IMF audience that more work could be ahead in the battle against high prices. “The Federal Open Market Committee is committed to achieving a stance of monetary policy that is sufficiently restrictive to bring inflation down to 2 percent over time; we are not confident that we have achieved such a stance,” he said. The speech comes with inflation still well above the Fed's long-standing goal but also considerably below its peak levels in the first ½ of 2022. In a series of 11 rate hikes that constituted the most aggressive policy tightening since the early 1980s, the committee took its benchmark rate from near zero to 5.25-5.50%. Those hikes have coincided with the Fed’s preferred inflation gauge, the core personal consumption expenditures price index, to fall to an annual rate of 3.7%, from 5.3% in Feb 2022. The more widely followed consumer price index peaked above 9% in Jun of last year. Powell said that inflation is “well above” where the Fed would like to see it. “My colleagues and I are gratified by this progress but expect that the process of getting inflation sustainably down to 2 percent has a long way to go,” he said. As in recent speeches, Powell stressed that the Fed nevertheless can be cautious as the risks between doing too much & too little have come into closer balance. “If it becomes appropriate to tighten policy further, we will not hesitate to do so,” he added. “We will continue to move carefully, however, allowing us to address both the risk of being misled by a few good months of data, and the risk of overtightening.” Markets are largely convinced the Fed is thru hiking rates. Futures pricing, according to the CME Group, indicates less than a 10% probability that the FOMC will approve a final rate hike at its Dec 12-13 meeting, even though committee members in Sep penciled in an additional qtr percentage point hike before the end of the year. Traders anticipate that the Fed will start cutting next year, probably around Jun. Powell noted the progress the economy has made. Gross domestic product accelerated at a “quite strong” 4.9% annualized pace in the 3rd qtr, though Powell said the expectation is for growth to “moderate in coming quarters.” Unemployment remains low, though the jobless rate has risen ½ a percentage point this year, a move commonly associated with recessions. Powell noted that the Fed is “attentive” that stronger than expected growth could undermine the fight against inflation & “warrant a response from monetary policy.”
Powell says Fed is ‘not confident’ it has done enough to bring inflation down
Mortgage rates dropped for a 2nd consecutive week but remain at the highest level in more than 2 decades, providing little relief for those taking on new home loans. Freddie Mac reported that the average rate on the benchmark 30-year fixed mortgage fell to 7.5% from 7.76% the previous week & 7.08% during the same week last year. The average rate on the 15-year note also fell, hitting 6.81%, down from 7.03% the week prior. A year ago, the rate on a 15-year mortgage was at 6.38%. "As Treasury yields decline, the 30-year fixed-rate mortgage dropped a quarter of a percent, the largest one-week decrease since last November," said Sam Khater, Freddie Mac's chief economist. "Incoming data show that household debt continues to rise, primarily due to mortgage, credit card and student loan balances," Khater continued. "Many consumers are feeling strained by the high cost of living, so unless mortgage rates decrease significantly, the housing market will remain stagnant." While the easing of rates has sparked an uptick in demand, the trend provides little solace to those buying homes. The average monthly payment for a new mortgage surged last month as home prices remained elevated amid an ongoing inventory shortage, while rates climbed for 5 consecutive weeks. Realtor.com's monthly housing market trends report found the median listing price for homes was at the same level in Oct as last year, but the higher rates pushed monthly costs up by more than $166 on average. That is a 7.4% jump compared with last year & a new record since the online realty firm began tracking the data in 2016.
Mortgage rates fall for second straight week after cost of monthly payments surge in October
Treasury Secretary Janet Yellen said during a pivotal meeting with her Chinese counterpart that a full separation of the world's 2 largest economies would be "disastrous" for both countries. "The United States has no desire to decouple from China," Yellen said. "A full separation of our economies would be economically disastrous for both our countries, and for the world." Yellen also touted the "significant progress" made between the US & China in their communication lines, despite recent tension between the powers amid Beijing's refusal to condemn the Russian war in Ukraine, the rising threat of a crisis in the Taiwan Strait & ongoing economic competitiveness. "When we have concerns about specific economic practices, such as those that prevent American firms and workers from competing on a level playing field, we will communicate them directly," she said. Yellen said that both China & the US have an "obligation" to lead on issues facing the global economy, including climate change, debt distress in low-income nations & emerging markets. The US will continue to use its status as an economic powerhouse for national security purposes, including taking "targeted actions to protect our and our allies' national security." "We are also committed to communicating clearly about these actions to prevent any misunderstandings or miscalculations," she added. "And we welcome more clarity on China’s thinking and actions." The talks precede a high-stakes meeting next week between Pres Biden & Chinese Pres Xi Jinping during the Asia-Pacific Economic Cooperation forum in San Francisco, which begins on Sat. Xi is also expected to speak to top US business execs at a dinner following the meeting with Biden. Beijing laid out some of its concerns about US policy ahead of the meeting between Yellen & he, underscoring the fragile nature of the US-China relationship. The list of grievances includes the Biden administration's policy on China, efforts to exclude Beijing from the supply chain system, restrictions on technology products like advanced semiconductor chips, tariffs imposed on Chinese goods and restrictions on the operation of Chinese companies within the US. "The United States has so far included more than 1,300 Chinese companies on various sanctions lists," state-run media company China Central Television wrote. "If it wants to cooperate with China, the United States also needs to slim down this list."
Janet Yellen warns that decoupling from China would be 'economically disastrous'
Gold futures rose for the first time in 4 days despite a steady $ & higher treasury yields ahead of a speech from Federal Reserve chair Jerome Powell. Gold for Dec closed up $12 to settle at $1969 per ounce, rising off the session low of $1948. The rise also comes despite concerns over another potential hike to US interest rates as treasury yields ease is also weighing on gold after hawkish statements from members of the Federal Reserve's policy committee this week. The $ was mostly steady, with the ICE dollar index last seen up 0.05 points to 105.64. Treasury yields moved higher, with the 2-year note last seen up 8.4 basis points to 5.012, while the 10-year note was paying 4.643%, up 13.7 basis points.
Gold Closes Higher Ahead of Jerome Powell Speech
Oil futures finished a bit higher after posting 2 consecutive session declines. The oil market's recent collapse suggests not only has the market taken out the risk of a loss of supply from the Israel-Hamas conflict, but from any other conflict in the universe. It is also signaling a potential global recession that despite some real demand concerns, has not happened yet. Dec West Texas Intermediate crude edged up by 41¢ (0.5%) to settle at $75.74 a barrel. It settled yesterday at the lowest front-month contract finish since Jul 17.
Oil prices finish higher after back-to-back losses
As in the past, Powell's comments were not well received. Traders want to hear that rates will start declining in the near future because these high rates are doing damage to the economy. Next week will bring inflation data although that should be more of what the stock market has gotten used to recently. The headwinds for the stock market have not gone away.Dow Jones Industrials
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