Markets lose traction as earlier gains diminish

Dow slid back 99, decliners ahead of advancers 5-4 & NAZ went up 55.  The MLP index rose 1+ to the 259s & the REIT index dropped 5+ to the 276s on higher yields.  Junk bond funds edged higher & Treasuries saw selling, driving yields higher.  Oil climbed to the 75s & gold was off 11 to 2014 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Treasury yields were lower as investors brace themselves for 2 key pieces of economic data in the 2nd ½ of the week.  The yield on the benchmark 10-year Treasury note was down more than 1 points at 4.136% & the yield on the 2-year Treasury note  rose less than 1 basis point to 4.355%.  Yields move inversely to prices.  2 significant pieces of economic data are on the slate this week: a preliminary 4th-qtr GDP growth figure is due tomorrow, followed by the Commerce Dept's closely watched personal consumption expenditures price index for Dec on Fri.  Both data points will inform the Federal Reserve as it maps out when & by how much to begin cutting interest rates, which will be a key factor in determining the path of markets & the economy this year.  Focus on rates is likely to ramp up over the coming week, according to Deutsche Bank's Head of Global Economics Jim Reid, with the Bank of Canada announcing a policy decision on Wed, followed by the ECB on Thurs & the Fed on Jan 31.  “For the Fed, the chance of a cut by March fell to just 38% at the intraday low yesterday, but this rose to 49% at the close, with most of this rise appearing to follow some dovish interview comments by former St Louis Fed President Bullard,” Reid said.  “When it comes to 2024 as a whole, 137bps of cuts are now priced in by the December meeting, up from the near-two-month low of 133bps on Monday. So that’s still a sizeable amount of cuts expected this year, particularly in a non-recession scenario, but a notable shift back since the intraday peak on January 12, when 170bps of cuts were priced in for 2024.”

Treasury yields pull back as big economic data releases come into view

A key measure of home-purchase applications rose again last week even as mortgage rates ticked higher.  The Mortgage Bankers Association's (MBA) index of mortgage applications rose 3.7% last week, compared with 1 week earlier.  The data also showed that the average rate on the popular 30-year loan started the year at 6.78%.  While that is down from a peak of 8% in Oct, it is slightly higher than it was the previous week.  "Mortgage rates increased slightly last week, but there continues to be an upward trend in purchase activity," said Joel Kan, MBA's deputy chief economist.  The rise in mortgage rates has done little to cool housing demand at the start of the new year.  Applications for a mortgage to purchase a home climbed 8% from 1 week earlier, although volume is down 18% compared with the same time last year.  However, demand for refinancing moved lower last week, falling 7% from the previous week.  Compared with the same time last year, refinance applications are down about 8%.  "Refinance applications declined over the week and remained at low levels," Kan said.  "There is still little incentive for homeowners to refinance with rates at these levels."  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 rises again even as interest rates increase

Chipotle Mexican Grill (CMG) hopes to recruit 19K new employees to make its burritos & bowls this spring, the company said.  The company's hiring target suggests it’s expecting an even busier spring than usual, despite another round of menu price hikes in Oct.  The chain's recruitment goal is about 27% higher than a year ago, when it sought 15K new workers for its burrito season in Mar thru May.  Having enough workers becomes even more important during its busy period because the chain needs plenty of employees to meet higher demand.  The spring weather lures back customers who stayed away during the winter months, but the chain's concentration in college towns means sales usually slow in the summer.  The compoany has more than 110K workers.  Attracting workers has become more difficult for the restaurant industry in recent years, largely due to the pandemic.  Hundreds of thousands of restaurant jobs disappeared as bars & eateries shuttered, either temporarily or permanently.  Industry veterans switched to white-collar or warehouse jobs, seeking safety from Covid-19, better working conditions or both.  In Sep, the restaurant workforce finally bounced back to pre-pandemic levels, according to the Dept of Labor.  But even before Covid, restaurants struggled to hire & retain younger workers, who often seek internships instead.  CMG is expected to report its 4th-qtr earnings on Feb 6.  The stock advanced 9.77. 

Chipotle wants to hire 19,000 workers for busy spring season

Gold closed lower, reversing early gains as treasury yields rose following robust economic data.  Gold for Apr closed down $10 to settle at $2035 per ounce.  The drop come as treasury yields rose sharply after the S&P flash US manufacturing purchasing managers index showed growth in the sector, rising to 50.3 points this month, up from 47.9 in Dec & ahead of expectations of a 47.2 reading.  A reading above 50 indicates growth.  The 2-year note was last seen paying 4.394%, up 4.5 basis points, while the yield on the 10-year note was up 4.5 basis points to 4.183%.  The ICE dollar index was last seen down 0.43 points to 103.19.

Gold Closes Lower as Yields Climb After Positive Manufacturing PMI Index

West Texas Intermediate (WTI) crude oil closed with a gain as a report showed a larger than expected drop in US oil inventories last week as China reported new economic stimulus measures.  WTI crude oil for Mar closed up 72¢ to settle at $75.09 per barrel, while Mar Brent crude, the global benchmark was last seen up 37¢ to $79.92.  China is cutting the amount of reserves banks must hold, boosting cash in the #1 oil importer's economy which is struggling to cope with a debt crisis in its real-estate sector.  The Energy Information Administration reported US oil inventories fell by 9.2M barrels last week, triple the expectation, as much of the country suffered thru a bitter cold snap.  Gasoline & distillate inventories also fell.  The drop in inventories comes as turmoil in the Middle East continues & a new threat to Russian exports after Ukraine on the weekend attacked a port on Russia's Baltic Sea coast, raising concerns over the security of its western exports.  Still, prices remain rangebound as supply threats are countered by weak seasonal demand & rising non-OPEC+ supply.

WTI Crude Oil Rises on China Stimulus Measures and a Big Drop in US Inventories

Even though earnings are center stage, the debate over when the Federal Reserve will cut interest rates persists.  Investors are nervous about the future of rate cuts & the Fed can not indicate its plans.  After the Dow rose 735 in the last week, the stock market stalled at 38K in the last 2 days.  GDP data tomorrow may not help the bulls.

Dow Jones Industrials