Dow fell 234 (session low), decliners slightly ahead of advancers & NAZ lost 171. The MLP index eased back to the 277s & the REIT index drifted 3+ lower to 405 Junk bond funds remained mixed & Treasuries had more selling which raised yields. Oil went up 2+ to the 75s & gold slid 1 to 2429 (more on both below).
Dow Jones Industrials
A key measure of home-purchase applications surged last week as mortgage rates dropped to the lowest level in more than a year. The Mortgage Bankers Association's (MBA) index of mortgage applications jumped 6.9% for the week ended Aug 2, according to new data. At the same time, the average rate on the popular 30-year loan dropped to 6.55% last week from 6.82%, the lowest level for interest rates since May 2023. "Mortgage rates decreased across the board last week," said Joel Kan, MBA's deputy chief economist. He said the decline follows "doveish communication from the Federal Reserve and a weak jobs report, which added to increased concerns of an economy slowing more rapidly than expected." The drop in rates also fueled a surge in refinancing applications, which rose 16% for the week & were 59% higher than the same week 1 year ago. Refinancing allows homeowners to essentially take out a brand-new loan on their property, which is typically used to pay off the original mortgage. It can offer several benefits, including a lower interest rate, a lower monthly payment or a shorter loan life. Rising home values can give homeowners the opportunity to refinance on more favorable terms. Persistently high mortgage rates, however, have discouraged many homeowners to refinance recently. Currently, about 80% of mortgage holders have a rate below 5%, according to a Zillow survey. Despite falling mortgage rates, purchase applications remained subdued last week. Applications for a mortgage to purchase a home rose just 1% for the week & are 11% lower than they were last year. "Despite the downward movement in rates, purchase activity only saw small gains," Kan said. "For-sale inventory is beginning to increase gradually in some parts of the country, and homebuyers might be biding their time to enter the market given the prospect of lower rates."
Mortgage demand roars back to life as rates drop to lowest level in a year
Shares of Shopify (SHOP) popped after the Canadian e-commerce company topped expectations for the 2nd qtr, citing strong demand despite “a mixed consumer spend environment.” For the qtr, EPS was 26¢ vs 20¢ expected & revenue was $2.05B vs $2.01B expected. Gross merchandise volume (the total volume of merchandise sold on
the platform) jumped 22% during the qtr to $67.2B,
easily topping estimates of $65.8B. SHOP sells software for merchants who run online
businesses as well as services such as advertising & payment
processing tools. Jeff Hoffmeister said the company continued to “take share” during the qtr even as
consumer spending remains in flux amid a rocky economic backdrop. Execs said its merchants have been able to navigate the
consumer slowdown, a factor it attributed to the “very diverse set” of
businesses that use its platform. “I think that our merchants do
seem to be, you know, outperforming and doing better than others,” Pres Harley Finkelstein said. “And I think a
big part of the reason that we are not seeing the same thing that others
might is because we simply have merchants across a ton of verticals and
across a ton of [geographies].” For
the 3rd qtr, SHOP said it expects revenue to grow at a
low-to-mid-20s percentage rate year over year. Analysts expect sales to grow 21% year over year to $2.07B. The stock jumped 9.75 (18%).
Shopify shares soar 22% after earnings top expectations, company gives upbeat forecast
In ruling that Google (GOOG) has
held a monopoly in internet search, US judge Amit Mehta invoked the
company at the center of the most famous tech antitrust case in US
history. A federal judge determined in 1999 that Microsoft (MSFT), a Dow stock, had illegally used the market power of its
Windows operating system to box out rival browsers, namely Netscape
Navigator. A settlement in 2001 forced the software giant to stop
disadvantaging competitors in its PC deals. GOOG's landmark case,
filed by the gov in 2020, alleged that the company has kept its
share of the search market by creating strong barriers to entry & a
feedback loop that sustained its dominance. The court found that Google
violated Section 2 of the Sherman Act, which outlaws monopolies. “The
end result here is not dissimilar from the Microsoft court’s conclusion
as to the browser market,” Mehta wrote in his 300-page ruling. “Just as
the agreements in that case help[ed] keep usage of Navigator below the
critical level necessary for Navigator or any other rival to pose a real
threat to Microsoft’s monopoly, Google’s distribution agreements have
constrained the query volumes of its rivals, thereby inoculating Google
against any genuine competitive threat.” Mehta said 1 key similarity is the “power of the default.” For Google, that refers to its search position on Apple's (AAPL), a Dow stock, iPhone & Samsung devices — deals that cost the company billions of dollars a year in payouts. “Users are free to navigate to Google’s rivals through non-default search access points, but they rarely do,” Mehta wrote. Shares of GOOG went up 1¢ & shares of MSFT lost 1.72.
Google’s antitrust ruling has experts looking to 25-year-old Microsoft case for answers
Gold prices pared gains as the $ & Treasury yields edged higher, although mounting bets of US interest rate cuts in Sep & rising geopolitical tensions in the Middle East underpinned bullion. Spot gold was flat at $2388 per ounce, after rising as much as 0.7% earlier in the session. US gold futures settled mostly unchanged at $2432. The $ rose 0.2% against its rivals, while benchmark 10-year Treasury yields also rose, putting pressure on bullion. Meanwhile, China's central bank held back on buying gold for its reserves for a 3rd straight month in Jul. There has been some improvement in the appetite for gold in the West, but China leads the way in this regard & if they're not buying as much, then that's going to have a bigger impact on the aggregate global gold demand.
Gold pares gains as higher US dollar, bond yields weigh
Oil prices gained more than 2%, bouncing back from multi-month lows, after data showed a bigger-than-expected draw in US crude stockpiles, even as worries about weak oil demand in China persisted. Brent crude futures settled up $1.85 (2.4%) at $78.33 a barrel & US West Texas Intermediate crude gained $2.03 (2.8%) to $75.23. US crude stocks fell for a 6th week in a row, dropping by 3.7M barrels to 429M barrels last week, gov data showed, more than expectations for a 700K-barrel draw. Industry data from the American Petroleum Institute had shown an unexpected build in crude & gasoline inventories. Brent slumped to its lowest since early Jan & WTI touched its lowest since Feb, as a global stock market rout deepened on concerns about a potential recession in the US after weak jobs data. Both oil benchmarks broke a 3-session declining streak on yesterday.
Oil Settles 2% Higher On Falling US Crude Stockpiles, Rebounds From Multi-Month Lows
Stocks snapped a 3-day losing streak for the major
averages. All 3 of the major averages had been up more than 1% early in
the session. Sellers took command in the PM. The fear index, rose from the low 20s in the AM but finished in the 27s (still at high levels). Some investors are getting nervous. Among many reports, the Consumer Price index for Jul will be released on Aug 14. Expect more volatility!
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