Markets rise as the Fed's key reading on consumer inflation cools

Dow went up 299, advancers over decliners a relatively modest 3-2 & NAZ fell 88.  The MLP index gained 3 to 258 & the REIT index added 2+ to the 364s.  Junk bond funds were mixed & Treasuries had selling which drove yields higher following recent reclines.  Oil rose fractionally to the 78s ahead of OPEC's meeting on setting production goals & gold was down 10 to 2066.

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An inflation measure closely watched by the Federal Reserve eased in Oct, providing some welcome relief to Ms of Americans who have been crushed by higher prices.  The personal consumption expenditures (PCE) index showed that consumer prices were unchanged from the previous month, according to the Labor Dept.  On an annual basis, prices climbed 3%, down from the 3.4% recorded the previous month.  The figures were both mostly in line with estimates.  In another sign the Fed's fight against inflation is making progress, core prices, which strip out the more volatile measurements of food & energy, climbed 0.2% from the previous month & 3.5% from the previous year.  It marked the best reading for core inflation since 2021.  While the Fed is targeting the PCE headline figure as it tries to wrestle consumer prices back to 2%, Chair Jerome Powell previously said that core data is actually a better indicator of inflation.  Still, both the core & headline numbers point to inflation that continues to run above the Fed's preferred 2% target.  Other figures included in the report showed that consumer spending rose just 0.2% in Oct, compared to a 0.7% increase in Sep.  Many economists anticipate that spending will slow in the coming months as consumers continue to grapple with expensive goods, high interest rates & the resumption of federal student loan payments.

Fed's preferred inflation gauge eases in October

A key measure of home-purchase applications rose for the 4th straight week as an ongoing drop in mortgage rates reignited demand among consumers.  The Mortgage Bankers Association's (MBA) index of mortgage applications rose 3% last week, compared with the previous week.  The data also showed that the average rate on the popular 30-year loan dropped to 7.37%, the lowest level in 10 weeks.  That is also a notable drop from just one month ago, when rates hovered around 7.91%.  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.  However, demand for refinancing plunged 9% for the week & remains up just 1% from the year-ago period.  Although mortgage rates are falling, they remain 88 percentage points higher than they were a year ago, offering little incentive to homeowners who already locked in a lower rate.  "The purchase market remains depressed because of the ongoing, low supply of existing homes on the market," said Joel Kan, MBA deputy chief economist.  "Similarly, refinance activity will likely be muted for some time, even with the recent decline in rates, as many borrowers locked in much lower rates in 2020 and 2021."  The interest rate-sensitive housing market has cooled rapidly following the Federal Reserve's aggressive tightening campaign.  Policymakers have raised the benchmark federal funds rate 11 consecutive times since Mar 2021 in an attempt to crush stubborn inflation & slow the economy.  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.

Mortgage demand rises again as rates drop to 10-week low

Pending home sales, a measure of signed contracts on existing homes, dropped 1.5% in Oct from Sep.  They hit the lowest level since the National Association of Realtors (NAR) began tracking this metric in 2001, meaning it's even worse than readings during the financial crisis over a decade ago.  Sales were down 8.5% from Oct of last year.  Because the index measures signed contracts, it is the most recent indicator of housing demand.  It reflects the buyers who were out shopping in Oct, which was when the popular 30-year fixed mortgage rate briefly shot higher than 8%.  Rates have since pulled back to around 7.3%, according to Mortgage News Daily.  The realtors continue to say it's not just high rates but still very low supply of homes for sale that is deflating activity.  “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,” Lawrence Yun, chief economist for the NAR, said.  “Multiple offers, of course, yield only one winner, with the rest left to continue their search.”  Pending sales fell in all regions month-to-month except in the Northeast.  They fell most steeply in the West, which is where homes are most expensive.  Sales were down everywhere compared with a year ago.  Tight supply still-strong demand have kept pressure on home prices, which not only continue to hit new highs but appear to be accelerating in their gains.  Realtors noted that sales of homes priced above $750K have been increasing simply because there is more supply on the high end of the market.

Pending home sales drop to a record low, even worse than during the financial crisis

Today's inflation news was good, but not a great surprise.  While times of extraordinary high rates should be over, inflation is still around.  Meanwhile Nov is shaping up as the best month of this year.  Results from the OPEC+ meeting on setting production levels going forward should be announced today or tomorrow.  Whatever is decided will influence investors' attitude towards stocks.

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