Dow rose 95, advancers over decliners about 2-1 & NAZ fell 52. The MLP index added 1+ to the 287s & the REIT index went up 4 to the 429s. Junk bond funds inched higher & Treasuries had a little buying keeping yields little changed (more below). Oil was even, just above 68, & gold recovered 5 to 2611.
Dow Jones Industrials
Inflation ticked slightly higher in Oct as prices remained stubbornly high for consumers, giving Federal Reserve policymakers more data to consider ahead of their meeting next month. The Labor Dept said that the consumer price index (CPI), a broad measure of how much everyday goods like gasoline, groceries & rent cost, rose 0.2% in Oct from the prior month & was up 2.6% from a year ago. The forecast predicted that inflation would come in at 0.2% in Oct while ticking up to 2.6% on an annual basis. The annual figure was up compared with a month ago, when the headline rate was 2.4%, while the monthly price growth was unchanged from Sep. Core prices, which exclude more volatile measurements of gasoline & food to better assess price growth trends, were up 0.3% on a monthly basis in Oct & 3.3% from a year ago, both of which were unchanged compared with last month's readings. The report showed signs that inflationary pressures in the US economy are persisting despite progress over the past year in bringing inflation closer to the Federal Reserve's 2% target. High inflation has created severe financial pressures for most US households, which are forced to pay more for everyday necessities like food & rent. Price hikes are particularly for lower-income Americans, because they tend to spend more of their already-stretched paycheck on necessities & therefore have less flexibility to save money. Over ½ of the rise in CPI was caused by shelter prices, which rose 0.4% in Oct on a monthly basis, while food prices were up 0.2% & energy prices were unchanged. Core CPI's rise was due in part to prices for used cars & trucks rising by 2.7% compared with Sep. Food prices were up 0.2% on a monthly basis & 2.1% from a year ago, though food away from home was up 3.8% in that period. Energy prices are down 4.9% compared to a year ago, with gasoline down 12.4%. However, electricity prices are up 4% while utility gas service is up 4.5%. Shelter prices are also up 4.9% from last year, while the cost of transportation services increased 8.2% & medical care services by 3.8% in that period. Each of those rose 0.4% on a monthly basis.
Inflation rises 2.6% in October, in line with expectations
The 10-year Treasury yield slid as investors assessed a key inflation reading that came in as expected. The yield on the 10-year Treasury fell less than 1 basis points to 4.429% & the 2-year Treasury yield fell about 6 basis points to 4.281%. 1 basis point is equal to 0.01% & yields & prices move in opposite directions. The tame inflation reading puts the Federal Reserve on course to lower interest rates next month, with markets last pricing in a 79% likelihood of a qtr percentage point cut, according to the CME FedWatch Tool. Bond yields soared last week after Pres-elect Trump's victory, with expectations that his pro-business policies & tax cuts could boost economic growth. However, economists also expect that these policies could result in higher inflation.
10-year Treasury yield slides after tame inflation report
Mortgage rates continued to climb last week as investors considered the future of the economy under a Trump presidency. The mortgage market basically took a breather. Total application volume was essentially flat, rising just 0.5% last week, compared with the previous one, according to the Mortgage Bankers Association's seasonally adjusted index. While tiny, the increase marked the first rise in overall demand in 7 weeks. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $766K or less increased to 6.86% from 6.81%, with points decreasing to 0.60 from 0.68, including the origination fee, for loans with a 20% down payment. “Mortgage rates continued to increase last week, driven by higher Treasury yields as financial markets digested the likely impacts of a Trump presidency,” said Joel Kan, the Mortgage Bankers Association's deputy chief economist. “The Federal Reserve’s 25-basis-point rate cut was already anticipated and did little to move the markets.” Applications to refinance a home loan, which are most sensitive to weekly moves in interest rates, fell 2% for the week to the lowest level since May. They were, however, 43% higher than the same week 1 year ago. Last year at that time, mortgage rates were 75 basis points higher. Applications for a mortgage to purchase a home rose 2% for the week & were 1% higher than the same week 1 year ago. Homebuyers may be looking at lower rates than last year, but they are also seeing higher home prices. Meanwhile, the supply of homes for sale remains lean. Kan noted that applications for loans backed by the Federal Housing Administration & the Dept of Veterans Affairs helped drive stronger purchase activity, increasing 3% & 9%, respectively. “FHA mortgage rates bucked the overall trend and were lower over the week, which likely helped some borrowers,” Kan said. “Conventional purchase applications were also up slightly.” “The market continues to work through election-related volatility,” wrote Matthew Graham, COO at Mortgage News Daily. “That involves a complex set of considerations. Some of them have to do with actual expectations for changes in fiscal policy in the coming years. Some of the considerations are as simple as traders going through the process of exiting (and re-setting) trading positions heading into the election.”
Mortgage demand stalls as financial markets digest Trump presidency
Stocks were mixed as investors weighed fresh consumer inflation data that looked to keep the Federal Reserve on pace for another rate cut next month. Inflation has taken center stage again after the post-election rose higher hit a wall. The FOMO market lost some zest as it ponders whether Pres-elect Trump's policies could boost inflation as well as the economy. That has helped push Treasury yields higher, promising higher borrowing costs all around.
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