Dow rose 322 (session high), advancers over decliners 5-2 & NAZ gained 185. The MLP index was up 1+ to the 255s & the REIT index crawled higher in the 389s. Junk bond funds fluctuated & Treasuries had some selling which raised yields marginally. Oil remained fractionally lower in the high 73s & gold added 8 to 2056 (more on both below).
AMJ (Alerian MLP Index tracking fund)
Mortgage rates ticked down again this week, continuing a series of declines since the end of Oct. The trend is beginning to spark signs of life in the stalled real estate market, but economists do not expect affordability to improve materially any time soon. Freddie Mac's latest Primary Mortgage Market Survey released today showed that the average rate for the benchmark 30-year fixed mortgage fell to 6.67% this week, down from 6.95% last week but still higher than 6.27% a year ago. At the same time, the rate on the 15-year fixed mortgage fell, averaging 5.95% after coming in last week at 6.38%. One year ago, the rate on the 15-year fixed note averaged 5.69%. "Lower rates are bringing potential home buyers who were previously waiting on the sidelines back into the market and builders already are starting to feel the positive effects," said Sam Khater, Freddie Mac's chief economist. "A rise in home builder confidence, followed by new home construction reaching its highest level since May, signals a response to meet heightened demand as current inventory remains low." Data from the National Association of Realtors shows existing home sales ticked up by 0.8% in Nov after 5 months of declines & the Commerce Dept reported housing starts surged 14.8% last month, signaling progress in the stagnant market. Still, according to Realtor.com senior economic research analyst Hannah Jones, both buyer & seller activity remain near recent lows. "Though recent data signals a shift towards a more hospitable housing market, the return to balance will be slow," Jones said reacting to the latest mortgage rates. "Mortgage rates and home prices are well above pre-pandemic levels, and are projected to remain elevated through next year." Jones pointed out home prices remain elevated & the housing market remains under-supplied, noting the median listing price for a home in the US in Nov was 37.7% higher than in 2019, while for-sale inventory was 34% lower than before the pandemic.
Mortgage rates continue downward trend, housing market still sluggish
With the Red Sea diversions by shipping companies including Maersk continuing amid the risk of attacks by the Houthis, global logistics managers are faced with a 2-front storm of rising ocean 2 air freight prices & stranded cargo. Both are threats to the global supply chain after 3 tumultuous years of inflationary pressures & delays from Covid disruptions which recently seemed to finally have been vanquished. The ceiling in ocean freight prices shot up in a matter of hours today as a result of more vessels diverting from the Red Sea. Logistics managers were quoted this morning an ocean freight rate of $10K per 40-foot container from Shanghai to the UK. Last week, rates were $1900 for a 20-foot container, to $2400 for a 40-foot container. Truck rates in the Middle East now being quoted are more than double. Alan Baer, CEO of OL USA said while pricing is undergoing rapid adjustments as ocean carriers work to recover the added costs of diverting their vessels, these massive jumps in rates need to be clarified as the shipping community of importers & exporters, along with gov regulators seek to better understand the overall drivers of these large increases. “During Covid, we had a slower build-up in freight prices due to the impact the pandemic had on the global supply chain,” Baer said. “What we are experiencing here is a light switch event where vessels are being redirected in real time. But, that said, in certain trade lanes you are seeing freight rates going up between 100 to 300 percent. This does not appear to be totally driven by changes in supply and demand.” As of today, 158 vessels are currently re-routing away from the Rea Sea carrying over 2.1M cargo containers, Kuehne. The value of this cargo based on MDS Transmodal estimates of $50K per container is $105B. There is no short-term end to the attacks in sight.
Container rates hit $10,000 as ocean freight inflation soars in Red Sea crisis
General Motors (GM) bought out roughly ½ of Buick dealers across the US due to their reluctance to sell electric vehicles as the automaker looks to transition to EVs. About ½ of GM's 2000 Buick dealers accepted the voluntary buyout. The program remains open so additional dealers may opt to take the buyout instead of making the EV-related investments that GM required for them to continue selling Buicks, as GM is planning for the brand's vehicles to be 100% electric by 2030. A spokesperson for the company said, "Buick is transforming, launching the best vehicles the brand has ever had and is the fastest growing mainstream brand in 2023. This all needs to be supported by the best customer experience in the transition to EVs." "As stated before, this year we’ve given dealers who are not aligned with Buick’s future to exit voluntarily in a respectful and structured way; with the full support of our National Dealer Council," his statement continued. Last year, GM began planning to offer buyouts to its network of Buick dealers after it told the dealers to invest at least $300K to facilitate the selling & servicing of electric vehicles, including initiatives like the installation of EV chargers & training of staff, or give up the Buick franchise. The company noted in its statement that Buick sales are up nearly 60% this year even as it reduced the number of dealer points by 47%. It added that 90% of the US population lives within a roughly 25-mile radius of a Buick dealer so they will continue to have access to parts & service. The stock rose 79¢.
GM bought out nearly half of Buick dealers who opted against selling EVs
Gold moved higher as the $ fell to a 5-month low on weak economic data. Gold for Feb closed up $3 to $2051 per ounce. The rise came as the US revised 3rd-qtr growth in its GDP to 4.9% from 5.2%, lower than the estimate for a rise of 5.1%. The Philadelphia Fed manufacturing survey was also weaker than expected, coming in at -10.5, while expectations were for a reading of -4.0, showing continuing weakness for the sector. The $ weakened following the data, with the ICE dollar index last seen down 0.44 points to 101.97, the lowest since Jul 31. Treasury yields rose, bearish for gold since it offers no interest. The 2-year not was last seen paying 4.347%, up 0.8 basis points, while the yield on the 10-year note was up 4.9 basis points to 3.897%.
Gold Closes with a Gain as the Dollar Drops to a Five-Month Low on Weak Economic Data
West Texas Intermediate (WTI) crude oil closed with a loss amid a shake-up in OPEC as Angola quit the cartel while record US production & high inventories offset geopolitical concerns over the safety of Red Sea shipping. WTI crude for Feb closed down 33¢ to $73.89 per barrel, trading between $72.44-74.58 during the session. Feb Brent crude, the global benchmark was last seen down 63¢ to $79.07. The drop comes as Angola said it is withdrawing from OPEC+. The African country had pushed for higher productions quotas at the Nov 30 meeting of the group, which ended with further voluntary production cuts. It produces 1.1M barrels of oil per day & reports said its departure is a protest over OPEC's production restrictions. Record US production & rising inventories are also pressuring oil. The Energy Information Administration reported the country's production rose 13.3M barrels per day last week, up by 1.2M bpd over a year. As well, US oil inventories rose again, climbing by 2.9M barrels, while most analysts expected a drop in stocks.
WTI Crude Falls as Record US Oil Production, and Angola's Withdrawal From OPEC Offset Red Sea Disruption
Dow is up a staggering 5K, setting new records, during the last 2 months (see below). It seems that the main driver is the Fed's signalling that it intends to raise interest rates 3 times next year, beginning in Mar. However its mission is to deal in reality which will be based on economic data in the coming months. Seemingly inflation rates will be moderate & far below the very high interest rates in the last couple of years. But that scenario needs to play out over time, which makes it appear that the market has gotten ahead of itself. While stocks have been in a rally mode, safe have gold & Treasuries have also been climbing.Dow Jones Industrials
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