Dow went up 36, advancers over decliners 4-3 & NAZ dipped 7. The MLP index was even in the 281s & the REIT index slid lower in the 378s. Junk bond funds were mixed & Treasuries hardly budged ahead of the news conference later today(more below). Oil was off 1+ to the 81s after recent strength & gold inched up 1 to 2161.
AMJ (Alerian MLP Index tracking fund)
Mortgage interest rates rose last week for the first time in 3 weeks. As a result, total mortgage application volume dropped 1.6% compared with the previous week, according to the Mortgage Bankers Association's (MBA) seasonally adjusted index. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766K or less) increased to 6.97% from 6.84%, with points decreasing to 0.64 from 0.65 (including the origination fee) for loans with a 20% down payment. That was the weekly average, but another index from Mortgage News Daily, which looks at daily rates, had the 30-year fixed mortgage moving back over 7% last Thurs. “Mortgage rates increased last week as incoming data showed inflation was still hotter than expected, which stoked concerns about the timing and extent to which the Fed might be able to reduce the fed funds rates this year,” said Joel Kan, MBA's VP & deputy chief economist. Applications to refinance a home loan, which are most sensitive to weekly rate changes, fell 3% compared with the previous week & were also 3% lower than the same week one year ago. Applications for a mortgage to purchase a home fell 1% for the week & were 14% lower than the same week one year ago. Purchase demand is not as sensitive to small moves in interest rates. Demand is also coming up against high prices & very limited supply. “With housing supply low and prices high, the average loan size for purchase applications increased to the highest level since May 2022,” Kan added. Rates are now in the low 7% range, just shy of the 2024 ceiling hit 2 weeks ago. That ceiling could either remain in place or be broken today with the latest Federal Reserve announcement on interest rates & the ensuing press conference. “The market is already expecting a bit of an unfriendly change this time around, but the reality could easily differ from expectations. To whatever extent it does, mortgage rates are likely to make bigger moves, for better or worse,” wrote Matthew Graham, COO of Mortgage News Daily.
Weekly mortgage demand drops as interest rates rise again
ECB chief Christine Lagarde reiterated that policymakers will consider bringing interest rates down in Jun, but sketched an uncertain path beyond that. “By June we will have a new set of projections that will confirm whether the inflation path we foresaw in our March forecast remains valid,” Lagarde said. The Jun meeting has been flagged as a potential turning point by many members of the ECB's Governing Council, which votes on rate moves, as it will be the first gathering for which data from spring wage negotiations will be available. The ECB is on alert for potential knock-on inflationary effects from rising salaries. Data available by Jun will also provide more insight into the path of underlying inflation & the direction of the labor market, according to Lagarde. “If these data reveal a sufficient degree of alignment between the path of underlying inflation and our projections, and assuming transmission remains strong, we will be able to move into the dialling back phase of our policy cycle and make policy less restrictive,” she said. “But thereafter, domestic price pressures will still be visible. We expect services inflation, for example, to remain elevated for most of this year. So, there will be a period ahead where we need to confirm on an ongoing basis that the incoming data supports our inflation outlook.” Lagarde's message overall was highly positive on the path on inflation, despite flagging geopolitical uncertainty & ongoing domestic price pressures. Euro zone inflation cooled to 2.6% in Feb, though the print for services remained stickier at 3.9%. “Unlike in the earlier phases of our policy cycle, there are reasons to believe that the expected disinflationary path will continue,” Lagarde said, stressing confidence in the latest set of staff macroeconomic projections, which see inflation averaging 2.3% in 2024, 2% in 2025 & 1.9% in 2026. The euro zone's central bank has held rates steady since bringing them to a record high in Sep. Until its Mar meeting, the bank's messaging was that it was too early to discuss when to start rate cuts. It next meets in Apr, then Jun. Market attention is now moving to how many rate cuts the ECB is likely to carry out over the course of this year. Money markets indicate 3 cuts taking place by Dec, along with a potential 4th.
European Central Bank’s Lagarde signals June cut, says future rate path uncertain
Treasury yields were little changed as investors awaited the Federal Reserve's latest interest rate decision & guidance about monetary policy & the economy. The 10-year Treasury yield was at 4.295% after dipping by less than 1 basis point & the 2-year Treasury yield was last down less than 1 basis point to 4.692%. Yields & prices move in opposite directions & 1 basis point is equivalent to 0.01%. The Federal Reserve’s latest interest rate decision later today following its policy meeting, with investors nearly unanimously expecting rates will be left unchanged. The central bank is also due to announce its economic & interest rate projections for the rest of 2024 & beyond. Investors are hoping to gain clarity on when interest rates may be cut. The Fed has previously suggested that it sees 3 cuts taking place this year, but there is concern among some investors that it might be fewer. Recent economic data indicating that inflation may be more persistent than hoped has added to uncertainty about the interest rate outlook, leading to less optimism about where rates will end the year.
Treasury yields are flat ahead of Fed rate decision, monetary policy guidance
Everybody is waiting to hear from Powell about future interest rate cuts. His comments could bring a lot of activity in the stock market.Dow Jones Industrials
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