Monday, June 10, 2024

Markets rose ahead of a huge week of economic and inflation data

Dow finished up 75 after selling in the AM, but advancers barely ahead of  decliners & NAZ gained 59.  The MLP index jumped 4 to the 282s & the REIT index added 1+ to the 373s.  Junk bond funds hardly budged & Treasuries continued to see selling which drove yields higher.  Oil rose 2+ to nearly 78 & gold recovered 3 to 2328 after its collapse on Fri (more on both below).

Dow Jones Industrials 

Americans are bracing for high inflation to stick around over the next few years, according to a key Federal Reserve Bank of New York survey.  The median expectation is that the inflation rate will be up 3.2% one year from now, according to the New York Federal Reserve's Survey of Consumer Expectations, down slightly from the 3.3% reading recorded in Apr.  But consumers anticipate that inflation will remain high in the coming years.  The 3-year-ahead expectation held steady at 2.8%, while the 5-year-ahead expectation jumped to 3% from 2.8% the previous month.  That remains above the Fed's 2% target, indicating that inflation could be here to stay.  By comparison, central bank policymakers projected in their latest economic forecasts that inflation will fall to 2.1% by 2025 & eventually settle at around 2% in 2026.  While Americans think that inflation will decline slightly over the next year, they expect the cost of necessities such as gas, food & rent will be unchanged.  They are also anticipating a sharp 0.4% rise in the price of medical care, to 9.1%, & a 0.6% drop in the cost of college, to 8.4%.  The survey, based on a rotating panel of 1300 households, plays a critical role in determining how Fed policymakers respond to the inflation crisis.  Speaking during a panel discussion in mid-May, Powell said that recent inflation figures, which came in higher than expected during the first 3 months of the year, suggest it will take longer than previously thought to attain the confidence needed to start loosening monetary policy.  "We did not expect this to be a smooth road, but these were higher than I think anybody expected," he said at the time.  "What that has told us is that we will need to be patient and let restrictive policy do its work."  The New York Fed survey also pointed to growing optimism about the labor market.  The mean perceived probability of losing one's job in the next 12 months tumbled by 2.7 percentage points to 12.4%, dropping below the 12-month average of 13.2%.  Americans are also more hopeful about the odds of finding a new job if they lose their current one.  The mean perceived probability of finding a job rose to 52.2% in May, up from a 3-year low in Apr.

Americans' inflation expectations creep higher again, key NY Fed survey shows

Gas prices experienced the largest drop of the year this week & are likely to continue dipping into the summer, according to the latest AAA report.  The national average cost for a gallon of gas was $3.48, a significant 8¢ dip from the previous week.  The lower gas prices will likely linger as motorists head into summer & plan Fourth of Jul road trips.  "This drop in pump prices appears to have some sticking power for now," AAA Spokesperson Andrew Gross said.  "More states should see their averages dip below $3 a gallon in the coming weeks."  Switching to summer blend fuel typically drives costs up at the pump because the blend is designed to lower emissions during the summer & is more expensive to refine.  However, this summer, a combination of lower oil prices & high product output means prices are likely to drop further even as drivers head deeper into the summer driving season, according to Patrick De Haan, head of petroleum analysis at GasBuddy.  "The calendar has closed on May, and so too has the door closed on rising gas prices, with the national average declining to its lowest level since March," DeHaan said.  "With GasBuddy data showing gasoline demand plummeting after Memorial Day, and refiners inputting the largest amount of oil into their facilities in years, it's very likely we'll continue to see gas prices fall as we approach July 4.  "Diesel prices also continue to decline to their lowest level in nearly 11 months," DeHaan continued.  "The future looks bright for falling fuel prices across the board, though we'll have to keep our eyes on hurricane season."

Gas prices to keep dropping as motorists plan Fourth of July road trips

Experts are torn about where exactly the housing market is headed in the latter ½ of the year.  “Mostly, we think the housing market is going to improve over the next half of the year,” Glenn Kelman, chief exec of Redfin, a real estate brokerage site, said last month.  “We’ve hit rock bottom in the first quarter of 2024 and I would expect the housing market to do a little bit better,” Kelman said.  Other experts are less sure about the market's prospects for improvement.  “It’s a very strange market & it's kind of hard to predict,” said Jeff Ostrowski, a housing analyst at Bankrate.com.  The mortgage rate lock-in effect seems to be wearing off, said Orphe Divounguy, senior economist at Zillow.  The mortgage rate lock-in effect, or the golden handcuff effect, kept many homeowners with extremely low mortgage rates from listing their homes last year as they didn't want to finance a new home at a much higher interest rate.  During the week ending Jun 1, newly listed homes grew 2.1% from a year ago, according  to a weekly housing trends report by Realtor.com.  In the same period, available inventory of homes for sale grew 35.5% compared with last year, Realtor.com found.  Kelman also pointed out that demand for homeownership remains high, especially among buyers who have been putting off the home purchase for a long time.  While the market is seeing more listings, the boost in supply is not enough to attract buyers, according to Doug Duncan, senior VP & chief economist at Fannie Mae.  “Listings have trended generally upward of late, suggesting to us that a rising number of current homeowners can no longer put off moving,” said Duncan earlier this month.  “However, we believe the ongoing affordability challenges are likely to weigh on how quickly these new listings convert to actual sales.”  The 30-year fixed rate mortgage slid 6.99% on Jun 6 after climbing 7.22% on May 20, according to Freddie Mac data via the Federal Reserve.  “Mortgage rates are down a bit from May highs, but that hasn’t spurred a surge of competition among buyers in the housing market,” Divounguy said.  Affordability remains a top priority for buyers & rates stayed above 7% for long.

What to expect from the housing market in the second half of 2024, according to real estate experts

Gold prices rebounded after the precious metal's biggest daily drop in 3½ years in the last session, as investors awaited US inflation data & the Federal Reserve's decision on interest rates later this week.  Spot gold was up 0.8% at $2310 per ounce & US gold futures rose 0.2% to $2328.  The sell-off on Fri seemed a bit excessive & bargain hunters are surfacing at this lower price point.  With so much data & so many events coming out, there's going to be more volatility & more fireworks this week.  Bullion lost about $83 an ounce on Fri, declining 3.5% in its biggest one-day drop since Nov 2020 after a stronger-than-expected US jobs report dented hopes for a Sep interest rate cut & reports that China's central bank was holding off gold purchases put off investors betting on Chinese demand.

Gold rebounds as market’s focus turns to U.S. inflation data

West Texas Intermediate (WTI) crude oil closed up 2.9% on expectations higher summer demand will winnow inventories after OPEC+ earlier this month extended 2.2M barrels per day of voluntary production cuts to the end of Sep.  WTI crude oil for Jul closed up $2.21 to settle at $77.74 per barrel, while Aug Brent crude, the global benchmark, was last seen up $1.91 to $81.53.  Prices last week dropped 1.8% after OPEC+ said it expects to begin rolling back the voluntary production cuts in the 4th qtr if market conditions are amenable.  However, the focus is moving to the impact of extending the cuts thru the high-demand summer driving season ahead of fresh demand forecasts from OPEC & the Energy Information Administration tomorrow, with the Intl Energy Agency releasing its monthly Oil Market report on Wed.

WTI Oil Closes up 2.9% as Focus Turns to Tight Supply During High-Demand Summer Driving Season

The bulls returned in the PM & with the Dow closing in on 40K, but may not be ready to take it over.  Meanwhile fundamental problems have not gone away, starting with high inflation which may be around for some time.

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