Markets tread water as investors wait for more labor-market data

Dow was off 70 with selling in the last 2 hours of trading, advancers & decliners were essentially even & NAZ fell 83.  The MLP index dropped 5 to the 251s & the REIT index slipped back 1+ to the 373s.  Junk bond funds fluctuated & Treasuries saw buying which reduced yields.  Oil tumbled almost 4 to the 69s & gold rebounded 11 to 2047 (more on both below).

AMJ (Alerian MLP Index tracking fund)

A key measure of home-purchase applications rose for the 5th straight week as an ongoing drop in mortgage rates reignited demand among consumers.  The Mortgage Bankers Association's (MBA) index of mortgage applications rose 2.8% last week, compared with the previous week.  The data also showed that the average rate on the popular 30-year loan dropped to 7.17%, the lowest level since Aug.  That is also a notable drop from just one month ago, when rates hovered around 7.91%.  "Slower inflation, and financial markets anticipating the potential end of the Fed’s hiking cycle, are both behind the recent decline in rates," said Joel Kan, MBA's VP & deputy chief economist.  Officials signaled during their policy-setting meeting in Nov that another rate hike is on the table this year & that rates are likely to remain elevated for some time.  However, many economists believe the central bank is done raising interest rates, which has helped to bring down painfully high mortgage rates.  The higher mortgage rates have not only dampened consumer demand over the past year, but also severely limited 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, according to the report.

Mortgage rates plummet to lowest level since August, reigniting housing demand

Exxon (XOM), a Dow stock & Dividend Aristocrat, expects earnings to more than double thru 2027 relative to 2019 as the energy giant moves forward with a slew of cost-cutting measures.  It said it's on track to grow its earnings & cash flow by $14B over the next 4 years, as the company slashes costs, grows production, & increases sales of chemicals, lower emission fuels & performance lubricants.  The oil giant plans to cut structural costs by another $6B thru the end of 2027, delivering $15B in total savings compared with 2019.  The announcement comes nearly 2 months after XOM agreed to buy Pioneer Natural Resources  for nearly $60B ($235 a share).  This is XOM's largest deal since it bought Mobil during the late 1990s.  Pioneer is the largest producer in the Midland Basin, a section of the Permian.  After the merger  closes, which is expected to do so in H1-2024, the oil giant plans to increase its annual share repurchase program to $20B in 2024 thru 2025, up from $17.5B in 2023.  The company anticipates capital expenditures of $23-25B in 2024 & $22-27B annually from 2025 thru 2027.  Those expenditures should generate average returns of 30%, with more than 90% of the spending having payback periods of less than a decade.  “We remain committed to providing the energy and products that raise living standards around the world while building a new business to reduce emissions in hard-to-decarbonize parts of the economy,” CEO Darren Woods said.  “ExxonMobil is uniquely equipped to do both, and we’re confident that both present significant opportunities for profitable growth.”  The oil giant expects oil & gas production to be about 3.8M oil-equivalent barrels per day in 2024 & then rise to 4.2M bpd by 2027 driven by growth in the Permian Basin & Guyana.  XOM is also increasing its investments in lower carbon emissions projects to $20B thru 2027, up from $17B previously.  The company plans to slash its own upstream greenhouse gas emissions up to 50% by 2030.  The oil giant said it has already achieved ½ of that planned reduction.  The company is focusing on carbon capture, lithium for electric vehicle batteries, hydrogen & biofuels.  Its investments in these spaces are expected to generate returns of 15%.  The stock fell 1.28.

Exxon expects big earnings boost from cost cuts, will boost share buybacks

US crude declined nearly 4% with retail gasoline prices hitting the lowest point since Jan ahead of the holiday shopping & travel season.  The West Texas Intermediate contract for Jan fell $2.80 (3.9%) to $69.52 a barrel, while the Brent contract for Feb declined $2.68 (3.5%) to $74.52 a barrel.  US crude & the global benchmark have hit their lowest levels since Jun, despite efforts by OPEC+ to boost prices by promising to slash supply in the first qtr of 2024.  Prices at the pump in the US, meanwhile, have followed oil prices lower to hit $3.22 a gallon on average, the lowest price since Jan 3.  Oil prices have been on a steep downward trajectory from Sep highs as nations outside OPEC+, particularly the US, pump crude at breakneck clip & worries grow about the Chinese economy.  Moody's yesterday downgraded its outlook for China's gov credit raging to negative from stable.  US crude inventories fell by 4.6M barrels for the week ending Dec 1 & gasoline supplied to the market increased by 260K barrels per day, according to the Energy Information Agency.  Falling inventories & rising gasoline deliveries implies higher demand, which would typically boost oil prices.  Pessimism about the economic outlook in China, however, appeared to be weighing heavier on crude prices.  Oil traders have also been skeptical OPEC+, which includes OPEC members & its allies like Russia, will deliver on supply cuts of 2.2M bpd in the first qtr next year.  Several OPEC+ members announced the voluntary cuts last week after the group failed to reach a unanimous agreement on production targets.  Saudi Energy Minister Price Abdulaziz bin Salman & Russian Deputy Prime Minister Alexander Novak sought to assure the market this week that they could extend or even deepen the promised cuts.

U.S. crude drops below $70 per barrel, gas prices fall to 11-month low

Gold prices rose after 2 weaker sessions after the metal rose to a record last week as the $ weakened & mixed treasury yields offered little direction.  Gold for Feb closed up $11 to settle at $2047 per ounce.  The price of the precious metal rose to a record $2089 per ounce on Fri, followed by 2 sessions of profit taking until finding support today.  Gold is showing signs of stabilizing after a premature rally forced a major round of long liquidation.  The rise comes as the $ steadies.  The ICE dollar index was last seen unchanged at 104.05 points.  Treasury yields were mixed, with the 2-year note last seen paying 4.599%, up 4.1 basis points, while the yield on 10-year note was down 6.5 basis points to 4.111%.

Gold Rises as the Dollar Steadies amid Mixed Treasury Yields

Oil futures fell for a 5th straight session, leading US prices to settle below $70 a barrel for the first time in more than 5 months.  The market is doubtful about the efficacy of OPEC's latest output cuts.  The fact that US is exporting near 6M barrels of oil per day also makes the job of the producers in the OPEC+ group difficult, as they have to give up more market share as part of their agreement to withhold supplies.  Jan West Texas Intermediate crude fell $2.94 (4.1%) to settle at $69.38 a barrel.  Prices based on the front-month contract settled at their lowest since Jun 27.

U.S. Oil Futures Fall a Fifth Session to Settle at Lowest Since Late June

Once again, nothing was decided in the stock market.  This week, Dow is down 190.  The monthly jobs report on Fri should be the big mover for stocks.  Oil is big in the news, with all its news being negative.  Plans for production cuts are not being believed.  However as a commodity, it is subject to sudden & wild price swings.  The bearish attitude will not last.  Gold reaching a new record on Fri is another example of price swings in a commodity.

Dow Jones Industrials