Dow dropped 195 (session lows)
, decliners over advancers 3-1 & NAZ was off 10. The MLP index edged up to the 243s & the REIT index fell 4+ to the 362s. Junk bond funds slid lower & Treasuries continued to be sold, taking yields much higher. Oil added 1+ to the 86s (an almost 1 year high) & gold slid back 15 to 1951 (more on both below).
AMJ (Alerian MLP Index tracking fund)
![Live 24 hours gold chart [Kitco Inc.]](https://www.kitco.com/images/live/gold.gif?0.2180338269244485)
Saudi Arabia & Russia deepened their oil supply cuts, announcing an agreement to continue scaling back production by 1M barrels per day thru the end of 2023. The voluntary move will put crude output at about 9M barrels a day & will be reviewed on a monthly basis, according to the Saudi Press Agency. Riyadh began scaling back output in Jul & has extended the production cut twice so far. Oil prices jumped after the fresh supply curb. The spike in oil costs comes as consumers continue to grapple with already-steep gas prices. The average cost of a gallon of regular gasoline was about $3.81, a historically high price for this time of the year. Although prices remain well below the record high of $5.01 notched in Jun 2022. More expensive oil & gasoline threaten to exacerbate stubborn inflation that is still running about 2 times higher than the pre-pandemic average. The cuts are likely to keep oil prices high in the upcoming months at a time when global demand for crude is reaching record highs – & set to expand further, despite mounting concern over China's economic growth. The latest export cuts come in addition to existing supply reductions by the group of oil-producing nations (OPEC+). The group already had in place oil output cuts of about 3.7M barrels per day when Saudi Arabia introduced the additional supply cut. The White House has previously criticized the action, with Pres Biden vowing there "will be consequences" for Saudi Arabia.
Saudi Arabia extends oil production cuts to end of 2023, sending prices soaring
After bottoming out below 3% in Jan 2021, the average rate for a 30-year, fixed-rate mortgage sits above 7%, which is just too high for many homeowners to consider selling. At today's rates, most homeowners would need to finance a new home at a higher rate than the rate they currently hold, adding hundreds of $s a month to their mortgage payment. That has created an incentive to stay where they are. “Even if they bought a cheaper house, their payments would go up,” said Nicole Bachaud, a senior economist at Zillow. “These existing homeowners either can’t or are unwilling to sell their home because they can’t afford a mortgage on a new home,” Bachaud said. But there is a tipping point, recent reports found: Homeowners are nearly twice as willing to sell their home if their mortgage rate is 5% or higher, according to Zillow, & 71% of prospective homebuyers who plan to purchase their next home with a mortgage said they would not accept a rate above 5.5%, that is the “magic mortgage rate,” according to a survey by John Burns Research & Consulting. Since it’s unlikely rates will drop anytime soon, this has created a golden handcuff effect. Similar to the financial incentives employers may offer to discourage employees from leaving a company, homeowners are now bound by their low mortgage rate. Most homeowners today have mortgages with interest rates below 4% or even below 3%, after moving or refinancing when rates hit record lows during the Covid pandemic. Nearly 82% of home shoppers said they felt “locked in” by their existing low-rate mortgage, according to a separate survey by Realtor.com.
Mortgage rate tipping point: Homeowners say 5% is the magic number to move
Warner Bros Discovery (WBD) is preparing investors for the effects of the writers' & actors' strikes if they continue thru the end of this year. The company
said it adjusted its expectations, assuming the financial impact of the
strikes will persist through the end of the year. It noted this isn't a
prediction of when the strikes will end, but instead shows the
financial impact on its TV & movie studios as production is halted. WBD expects adjusted earnings before interest,
taxes, depreciation & amortization will take a hit of $300--500M, putting it in the full-year range of $10.5-11B. Members of the Writers Guild of America union have been
on strike for more than 100 days & the actors joined picket lines in
Jul. The work stoppage has come at a moment when media companies are
trying to make streaming businesses profitable & pushing consumers
back into theaters. WBD is not only an owner of a movie & TV studio, but also has the largest portfolio of pay TV networks. “While
[Warner Bros. Discovery] is hopeful these strikes will be resolved
soon, it cannot predict when the strikes will ultimately end,” the
company said. Negotiations between the studios & writers have been heated recently, & CEO David Zaslav has been part of the discussions. The stock rose 4¢.
If you would like to learn more about WBD, click on this link:
club.ino.com/trend/analysis/stock/WBD_aid=CD3289&a_bid=6aeoso5b6f7
Warner Bros Discovery expects earnings hit of up to $500 million as strikes drag
Gold futures declined, with prices for the front-month contract settling at their lowest in about a week. The continued resilience in Treasury yields, along with the firmer $ has served to pull gold prices down from their one-month highs of last week. Dec gold declined by $14 (0.7%) to settle at $1952 an ounce, the lowest most-active contract finish since Aug 28.
Gold futures settle at their lowest in a week
US oil futures settled at their highest since Nov, lifted by news that Saudi Arabia & Russia have decided to extend their production cuts to the end of the year. Oct West Texas Intermediate crude climbed $1.14 (1.3%) to settle at $86.69 a barrel. Prices based on front-month contract ended at their highest since mid-Nov.
U.S. oil futures end at highest since November
Treasury yields & oil are each in rally mode while stocks are struggling. Even though the US economy is fairly strong, high interest rates & higher oil prices have to ability pinch the economy very hard. This can bring talk about a recession.Dow Jones Industrials
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