Markets rise cautiously on cooling consumer prices

Dow climbed 242 (closing just over 40K), advancers over decliners 5-4 & NAZ inched up 4.  The MLP index rose 5+ to the 274s & the REIT index was up 1+ to 412.  Junk bond funds were mixed & Treasuries continued to see buying which lowered yields.  Oil dropped 1+ to the 77s & gold retreated 23 to 2483 (more on both below).

Dow Jones Industrials 

Middle- & lower-income Americans are running low on disposable cash & are on track to have less than they were on pace to have before the COVID pandemic disrupted the economy, a study by the Federal Reserve Bank of San Francisco found.  The study found that while the top 20% of households by income saw their liquid assets – including cash & funds in savings, checking & money market accounts – rise sharply in 2020 & early 2021, they dropped & are now about 2% below what would've been expected without the pandemic's impact.  The trend is even worse for the American households that represent the lowest 80% by income, who saw their assets rise less sharply & depleted their excess savings more quickly.  That has left their liquid assets about 13% lower than the projected path of their finances before the pandemic.  That development comes as credit card delinquencies among middle- & low-income families rose earlier, faster & to "notably higher" rates than those of high-income families.  Consumer spending, which accounts for about 2/3 of US economic output, & the labor market were surprisingly resilient while the Federal Reserve raised interest rates aggressively in 2022-23 as it sought to tamp down inflation.  Those dynamics have boosted optimism among policymakers that they'll be able to quell inflation without triggering a recession & a sharp rise in unemployment & achieve a "soft landing" to this inflationary cycle.  While that strength in the economy has given them the ability to hold the Fed's benchmark federal funds rate at 5.25-5.50% to keep pushing inflation downward to the central bank's 2% target, recent economic data have prompted concerns the policy may be slowing the economy down too much.

Americans running out of disposable cash, SF Fed says

Applications to refinance a home loan surged 35% last week, compared with the previous week, according to the Mortgage Bankers Association's (MBA) seasonally adjusted index.  They were up a whopping 118% when compared with the same week 1 year ago.  This, even though the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766K or less) fell very slightly, to 6.54% from 6.55%, with points decreasing to 0.57 from 0.58 (including the origination fee) for loans with a 20% down payment.  While rates dropped just 1 basis point last week, they were down 33 basis points in the past 4 weeks.  They were also 62 basis points lower than the same week a year ago.  “The refinance index also saw its strongest week since May 2022, driven by gains in conventional, FHA, and VA applications,” said Joel Kan, an MBA economist.  Applications for a mortgage to purchase a home rose just 3% for the week & were still 8% lower than the same week 1 year ago.  Today's homebuyers are dealing with a lot more than high interest rates.  They are still up against high home prices & low supply.  There is also a feeling among some buyers, according to agents, that mortgage rates may fall even lower, so they are waiting before making such a large purchase.  The refinance share of mortgage activity increased to 48.6% of total applications from 41.7% in the previous week.  1 year ago, refinance volume was just 29% of total applications.  Mortgage rates started this week essentially flat, but that could change with the release of the gov's monthly inflation report, the consumer price index.  “There’s no way to know ahead of time whether the data will be friendly or damaging--only that CPI is responsible for some of the biggest spikes and drops over the past few years,” wrote Matthew Graham, COO at Mortgage News Daily.

Mortgage refinancing surges 35% in one week, as interest rates hit lowest level in over a year

Finding work is still tough for many jobseekers facing drawn-out interview processes & stiffer competition for roles in some industries, but that could soon change.  “It’s getting progressively harder to land a job,” ZipRecruiter chief economist Julia Pollak said.  The unemployment rate ticked up to 4.3% in Jul & the length of joblessness increased while hiring has slowed, fueling fears of a broader economic slowdown.  Companies are warier about hiring amid high interest rates & sharply rising wages, but many still want to hire, Pollak adds.  Dawn Fay, operational pres at Robert Half, a recruitment & staffing firm in New York, notes that many of the employers she works with feared an imminent recession & pulled back on hiring in the first ½ of 2024 as a result.  That is starting to turn around.  Some of her clients are building out their human resources teams, usually not a priority in a soft labor market, & other fields like finance, sales & professional services are hiring again.  In Jun, Robert Half surveyed more than 2500 hiring managers at companies with 20 or more employees in the US.  52% of companies said they're planning to hire for new permanent positions in the 2nd ½ of the year & another 43% plan to fill vacancies.  “Companies have been running pretty lean for most of the year and are finally reaching the point where their staff is feeling overworked or, in some cases, struggling with burnout,” says Fay.  “They’re looking to recruit people in strategic positions to support those critical business needs.”

52% of U.S. companies are hiring in the fall and winter—the most in-demand roles

Gold prices fell 1% after data showed US consumer prices rebounded as expected in Jul, pouring water on expectations for a sizeable rate cut from the Federal Reserve next month.  Spot gold fell 1% to $2440 per ounce & US gold futures settled 1.1% lower at $2479.  The US consumer price index increased 0.2% last month, after falling 0.1% in Jun, the Labor Dept's Bureau of Labor Statistics said.  In the 12 months thru Jul, the CPI increased 2.9%, after advancing 3% in Jun.  Markets now see a 36% chance of a 50-basis point rate cut by the Fed in Sep versus that of 50% prior to the release of US CPI data, according to the CME FedWatch Tool.  Lower interest rates reduce the opportunity cost of holding the non-yielding bullion.

Gold Slips 1% As Large Rate-Cut Hopes Dim After US CPI Data

West Texas Intermediate (WTI) crude oil closed lower, giving up early gains as a report showed a rise in US oil inventories last week, even as US inflation eased last month & Middle East tensions continue to run hot.  WTI oil for Sep closed $1.37 lower to $76.98 per barrel, while Oct Brent crude, the global benchmark, was last seen down $1.00 to $79.69.  In its weekly survey, the Energy Information Administration reported US oil inventories last week rose by 1.4M barrels, contrary to an estimate for a 2M barrel drop & a survey from the American Petroleum Institute that showed a 5.2M barrel drop.  The Bureau of Labor Statistics reported the Jul Consumer Price Index (CPI) fell to a 2.9% annualized pace from 3.0% in Jun & the consensus estimate for a 3.0% rise.  Core CPI, which excludes volatile food & energy, ran at a 3.2% pace last month, matching the estimate & down from 3.3% in Jun.  The data follows on yesterday's release of the Jul Producer Price Index (PPI) which also showed a lower than expected rise, firming market hopes the Federal Reserve will begin to cut interest rates at the Sep meeting of its policy committee.

WTI Moves Down as an Unexpected Rise U.S. Inventories Offsets Rate Cut Optimism

The inflation signals could get the Fed closer to a rate cut.  Even the most hawkish members of the Fed are signaling they need just a bit more good data to be ready to support an interest rate cut.  More signs of cooling inflation, combined with a cooling job market, would likely leave the Fed positioned for a rate cut at its Sep meeting.