Dow went up 73, advancers barely ahead of decliners & NAZ added 55. The MLP index remained in the 256s & the REIT index was fractionally higher to the 392s. Junk bond funds saw limited buying & Treasuries were flattish (more below). Oil rose slightly in the 72s & gold inched up 1 to 2034.
AMJ (Alerian MLP Index tracking fund)
A key measure of home-purchase applications surged at the start of the new year despite a slight uptick in mortgage rates. The Mortgage Bankers Association's (MBA's) index of mortgage applications rose 9.9% last week, compared with one week earlier. The data also showed that the average rate on the popular 30-year loan started the year at 6.81%. While that is down from a peak of 8% in Oct, it is slightly higher than it was the previous week. "Despite an uptick in mortgage rates to start 2024, applications increased after adjusting for the holiday," said Joel Kan, MBA's deputy chief economist. Housing demand stirred back to life after dropping at the end of Dec, even with the recent rise in rates. Applications for a mortgage to purchase a home climbed 6% from one week earlier but application volume is down 16% compared with the same time last year. Demand for refinancing also moved higher last week, jumping 19% from the previous 2 weeks. Compared with the same time last year, refinance applications are up about 30%. "The increase in purchase and refinance applications for both conventional and government loans is promising to start the year but was likely due to some catch-up in activity after the holiday season and year-end rate declines," Kan said. "Mortgage rates and applications have been volatile in recent weeks and overall activity remains low." Higher 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. Available home supply remains down a stunning 34.3% from the typical amount before the COVID-19 pandemic began in early 2020, according to a separate report published by Realtor.com.
Mortgage demand surges at start of new year even as interest rates rise
Treasury yields fell as investors considered what could be ahead for inflation & how this could affect interest rates and the overall economy. The yield on the 10-year Treasury was down by more than 2 basis points to 3.992% after hovering around the 4% mark throughout the beginning of the week & the 2-year Treasury yield was last nearly 4 basis points lower at 4.335%. Yields & prices have an inverted relationship & 1 basis point equals 0.01%. Dec's consumer price index is due tomorrow ahead of the producer price index, which tracks wholesale prices, on Fri. Investors are hoping that the figures will reflect that inflationary pressures are easing as this could indicate that elevated interest rates are taking effect & rates could be cut soon, or at least not go any higher. The Federal Reserve's meeting minutes published earlier this month suggested that policymakers believe rate cuts this year are likely, but significant uncertainty about monetary policy remains. Some officials also did not exclude the possibility of further rate hikes depending on how the economy develops, the minutes showed. The Fed has not provided a timeline on when rates may be cut, though many investors are hoping the first cut could come as soon as Mar, when the Fed's 2nd meeting of the year will take place. Markets are widely expecting rates to remain unchanged for what would be the 4th time in a row at the Fed's Jan meeting, which is due to take place on Jan 30-31.
10-year Treasury yield dips below 4% as investors weigh inflation outlook
The US national debt surpassed $34T this month for the first time in history & with large deficits expected to continue, questions about the sustainability of the debt burden are likely to mount. The federal gov just recorded its 3rd-largest deficit in history when the US ran a $1.7T deficit in fiscal year 2023, which concluded at the end of Sep. That comes after the expiration of many of the COVID relief programs that drove the country's 2 largest deficits, $3.1T in FY2020 & $2.7T in FY2021, with rising costs of servicing the national debt a key factor. As deficits persist at historically high levels & the national debt swells, concerns are growing about whether America's debt dilemma could turn into a debt crisis, in large part due to relatively high interest rates brought about by the Federal Reserve's fight against inflation. "The time to start worrying is now," Marc Goldwein, senior VP & senior policy director for the nonpartisan Committee for a Responsible Federal Budget (CRFB), said. "There’s no sort of crisis inflection point. But the higher your debt is and the higher interest rates are, the bigger the threat to your near- and long-term sustainability." The exact point at which the federal debt and the cost of servicing it becomes unsustainable is an open question. A recent report by the Congressional Research Service (CRS) noted, "Of particular concern is that the new interest rate environment could accelerate the timeline for reaching a ‘tipping point’ where GDP growth is persistently and adversely affected or a default on the debt… becomes imminent." The CRS report explained that while there isn’t a consensus among economists about where the tipping point is, some estimates range from debt-to-GDP ratios of 80% to 200% & beyond, a range the US currently finds itself within. For example, the Penn-Wharton Budget Model noted in a report from Oct that "the U.S. debt held by the public cannot exceed about 200 percent of GDP of GDP even under today’s generally favorable market conditions."
US national debt tops $34T: How much debt is too much debt?
There is not much for traders to do while waiting for the inflation data. And that is widely expected to be mild.Dow Jones Industrials
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