Markets hesitate while waiting for the Fed minutes

Dow was off 75, advancers were slightly ahead of decliners & NAZ declined 92.  The MLP index crawled up to the 271s & the REIT index inched up to the 377s.  Junk bond funds were.in demand & Treasuries hardly budged ahead of the minutes for the last Fed meeting (more below).  Oil was higher in the 77s & gold hardly budged at 2028.

AMJ (Alerian MLP Index tracking fund)

The Mortgage Bankers Association's (MBA) index of mortgage applications tumbled 10.6% last week, compared with a 2.3% drop the previous week, according to new data.  The data also showed that the average rate on the popular 30-year loan rose to 7.06% last week.  While that is down from a peak of 8% in Oct, it marks the highest level for interest rates since Dec 2023.  "Mortgage rates moved back above 7 percent last week following news that inflation picked up in January, dimming hopes of a near-term rate cut," said Mike Fratantoni, MBA's chief economist.  Housing demand has ground to a halt as rates move higher.  Applications for a mortgage to purchase a home dropped 10% from the previous week.  Application volume is down 13% compared with the same time last year.  Demand for refinancing also fell last week, declining 11% from the previous week.  Compared with the same time last year, refinance applications are up just 0.1%.  "Potential homebuyers are quite sensitive to these rate changes, as affordability is strained with both higher rates and higher home values in this supply-constrained market," Frantantoni added.  The interest rate-sensitive housing market has cooled rapidly as a result of the Federal Reserve's aggressive tightening campaign.  Policymakers lifted the benchmark federal funds rate 11 times over the course of 16 meetings in an attempt to crush stubborn inflation & slow the economy.  Officials signaled during their most recent policy-setting meeting in Jan that they are done raising interest rates, but are not quite ready to pivot to cutting them yet.  Investors had previously penciled in a series of aggressive rate reductions beginning as early as Mar.  Now, most economists expect the cuts to begin in May or Jun amid signs that inflation remains abnormally high.  Higher mortgage rates are not only dampening consumer demand, they are limiting 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 nosedives as interest rates cross back over 7%

Treasury yields declined as investors looked ahead to the release of the minutes from the Federal Reserve's last meeting.  The yield on the 10-year Treasury was more than 1 basis points lower at 4.262% & the 2-year Treasury  yield was last down by about 2 basis points to 4.593%.  Yields & prices move inversely & 1 basis point equals 0.01%.  Investors awaited the release of minutes from the Fed's Jan meeting, which could provide fresh hints about the path ahead for interest rates.  Prior to the Jan meeting, traders had been pricing in a high chance of rate cuts beginning as early as Mar.  In a post-meeting press conference, however, Fed Chair Jerome Powell said this was unlikely, dampening hopes from investors.  Expectations have since moved to a Jun rate cut.  Economic data released last week also dashed hopes that rate cuts will begin sooner rather than later, especially as Fed officials have indicated that their decision-making will be data-led.  Both the consumer price index & producer price index came in hotter than expected for Jan, which suggested to many investors that inflation is more persistent than they had hoped.  Alongside uncertainty about the timeline for rate cuts, questions have also emerged about how many rate cuts will take place this year.  At the tail-end of 2023, the Fed indicated that it was expecting 3 cuts to take place this year.  Investors were hopeful that more cuts than this would happen, but Fed policymakers have since suggested it could be even fewer.

2-year Treasury yield dips as investors await Fed meeting minutes

Germany's GDP is now expected to grow by just 0.2% this year, as the country wades in “tricky waters,” German Economy Minister Robert Habeck said.  The revised GDP growth forecast is down from a previous estimate of 1.3%.  Habeck said the gov now anticipates German GDP to grow by 1% in 2025.  The minister attributed the revised forecast to an unstable global economic environment & to the low growth of world trade, alongside higher interest rates.  Those issues have negatively impacted investments, especially in the construction industry.  German housebuilding is amongst the sectors that have been most affected by this, with developers canceling projects & order numbers declining, according to recent data.  Analysts fear the sector may face further difficulties this year.  “The economy is in tricky waters,” Habeck said.  “We are coming out of the crisis more slowly than we had hoped.”  This is despite energy costs & inflation falling & consumer spending power increasing again, he added.  Habeck nevertheless maintained that Germany has proven resilient in the face of losing access to Russian seaborne crude & oil product supplies, as a result of the war in Ukraine.

Germany slashes 2024 growth forecast to just 0.2% as economy in ‘tricky waters,’ minister says

The stock market is quiet as investors are waiting for clues from the Fed's minutes in the PM.  Economies across the globe are feeling the adverse effects of high interest rates.

Dow Jones Industrials