Dow finished down 2 in choppy trading, advancers only slightly ahead of decliners NAZ soared 271. The MLP index slid a little lower to 281 & the REIT index added 1+ to the 369s. Junk bond funds remained weak & Treasuries had only light selling giving yields limited gains. Oil was lower by almost 1 to the low 85s & gold jumped 32 to 2380 (more on both below).
AMJ (Alerian MLP Index tracking fund)
Mortgage rates marched higher this week, nearing 7% with no relief in sight for the sluggish housing market. Freddie Mac's latest Primary Mortgage Market Survey showed that the average rate on the benchmark 30-year fixed mortgage rose to 6.88% this week from 6.82% last week & the average rate on a 30-year loan was 6.27% a year ago. The average rate on the 15-year fixed mortgage jumped to 6.16% from 6.06% last week & 1 year ago, the rate on the 15-year fixed note averaged 5.54%. "Mortgage rates have been drifting higher for most of the year due to sustained inflation and the reevaluation of the Federal Reserve's monetary policy path," said Sam Khater, Freddie Mac's chief economist. "While newly released inflation data from March continues to show a trend of very little movement, the financial market’s reaction paints a far different economic picture." Khater added, "It’s clear that while the trend in inflation data has been close to flat for nearly a year, the narrative is much less clear and resembles the unrealized expectations of a recession from a year ago." The combination of persistently elevated rates & record-high home prices has left the housing market stalled for months, as many would-be buyers & sellers remain on the sidelines waiting for affordability to improve.
Mortgage rates climb again, approaching 7%
The Federal Reserve should be able to start cutting interest rates by the end of 2024, according to Kristalina Georgieva, managing director of the IMF. “We remain on our projection that we would see, by the end of the year, the Fed being in a position to take some action in a direction of bringing interest rates down,” Georgieva said. “But again, don’t hurry until the data tells you you can do it.” Her comments come after recent inflation data, which reflected price growth well above the 2% target, has bolstered concerns that the central bank will not begin lowering rates as early as some had previously hoped. Fed funds futures pricing data suggests that the first rate cut could come in Sep, according to the CME FedWatch Tool. Those fears have contributed to a recent pullback in the US stock market. Data today showed wholesale prices rose 0.2% in Mar, slightly under the estimate. That came a day after a report indicated consumer prices climbed more than anticipated & marked an acceleration for inflation. Georgieva said the Fed should continue following economic data, which will signal when it's appropriate to begin reducing the cost of borrowing money. People should be optimistic about the future of the US as the country does not feel as much upward pressure on labor costs compared with other places, the former World Bank CEO said. And the US gov can play a relatively bigger role in keeping the economy from overheating which is another reason for optimism on the country's financial health. Still, Georgieva warned that keeping interest rates elevated for longer than expected can create risks to financial stability for the rest of the world. Meanwhile, she said central banks around the world will be less likely to follow the direction of the US Fed as conditions diverge. “Inflation is going down,” Georgieva said. “But, it is not yet where we want it to be.”
Fed can start cutting interest rates by end of 2024, IMF managing director says
Fewer Americans applied for jobless benefits last week as the labor market continues to thrive despite the Federal Reserve's efforts to cool it. The Labor Dept reported that filings for unemployment claims last ending fell 11K to 211K from the previous week's 222K. The 4-week average of claims, which smooths out some of the week-to-week swings, fell by 250 to 214K. In total, 1.82M Americans were collecting jobless benefits during the latest week, an increase of 28K from the previous week and the most since Jan. Weekly unemployment claims are considered a proxy for the number of US layoffs in a given week & a sign of where the job market is headed. They have remained at historically low levels since the pandemic purge of Ms of jobs in the spring of 2020. The Federal Reserve raised its benchmark borrowing rate 11 times beginning in Mar 2022 in a bid to stifle the 4-decade high inflation that took hold after the economy bounced back from the COVID-19 recession of 2020. Part of the Fed's goal was to loosen the labor market & cool wage growth, which it believes contributed to persistently high inflation. Many economists thought there was a chance the rapid rate hikes could tip the country into recession, but jobs have remained plentiful & the economy has held up better than expected thanks to strong consumer spending. Though layoffs remain at low levels, companies have been announcing more job cuts recently, mostly across technology & media.
Fewer Americans file for jobless claims as labor market continues to shrug off higher interest rates
Gold fluctuated as the latest US inflation reading trailed estimates, a day after hotter-than-expected price data roiled markets. Gold for Jun closed up $32 to settle at $2380 per ounce. The Mar producer price index (PPI) for final demand rose 2.1% from a year earlier, Labor Dept data showed. That's the most in 11 months, but below the 2.2% estimate. The PPI data along with a hot consumer inflation report yesterday underpinned the bumpy path the Federal Reserve faces in achieving its 2% target. Still, the details in the PPI report offered some calm for investors worried about a re-acceleration of inflation. Several categories in the PPI report that are used to inform the Fed's preferred inflation measure, the personal consumption expenditures price gauge, such as health care & portfolio management, came in softer. Prices remain just shy of a record reached Tues, underpinned by strong appetite from investors that are not interest-rate funding sensitive, those looking for a hedge against geopolitical worries & risks in the financial markets. Strong buying by central banks also provide support as they rotate out of US Treasury holdings into gold. Bullion’s 15%-plus rally since mid-Feb is expected to fuel more gains.
Gold Wavers as Traders Mull Fed Rate Path After US PPI
Oil futures finished lower, consolidating the previous session's gain, as investors weighed the potential for Iranian attacks in retaliation for a strike on the country’s embassy in Syria that was attributed to Israel. West Texas Intermediate crude (WTI) for May fell $1.19 (1.4%) to settle at $85.02 a barrel after tacking on nearly 1.2% yesterday & Jun Brent crude, the global benchmark, lost 74¢ (0.8%) at $89.74.
Oil prices settle lower as traders weigh risks of an Iranian attack on Israel
Buyers returned in the PM although selling in the last hour took Dow to about even. Traders are analyzing the new inflation data. Meanwhile, the 10-year Treasury yield traded around 4.56%, steadying after surging to touch its highest level since Nov yesterday.
Dow Jones Industrials
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