Markets struggle looking for direction following yesterday's surge

Dow was up 112, advancers over decliners 4-1 & NAZ added 27.  The MLP index rose 3+ to 252 & the REIT index jumped again, gaining 9 to 397.  Junk bond funds continued to be in demand & Treasuries saw more buying which lowered yields.  Oil gained 2 to the 71s & gold surged 50 to 2047 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Mortgage rates continued to drop last week after hitting a 23-year high in Oct.   Between Dec 1-7, rates for 30-year fixed-rate mortgages fell from an average of 7.05% to 6.95%, according to mortgage finance agency Freddie Mac.  This marks the 7th straight week of decline & the first time in 4 months that rates dropped below 7%.  Even with still-elevated housing prices & a shortage of new homes, the dip will likely lure house hunters who have been waiting to buy.  With inflation continuing to decelerate & the Federal Reserve expected to lower rates by mid-2024, “we likely will see a gradual thawing of the housing market in the new year,” Freddie Mac chief economist Sam Khater said.

Mortgage rates dropped below 7%

The ECB left interest rates unchanged as expected & signaled an early end to its last remaining bond purchase scheme, wrapping up a decade-long experiment in hoovering up debt across the 20-nation euro zone.  The ECB raised interest rates to a record high earlier this year but unexpectedly benign inflation data over the past few months has all but ruled out further policy tightening, shifting the debate to how fast it will reverse course.  Looking to stem these intensifying rate cut bets, the ECB did not even hint that policy easing was creeping over the horizon & instead maintained its guidance for steady rates ahead.  "The key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to (the inflation) goal," the ECB said.  Markets on the other hand see 2 cuts by Apr & 155 basis points of easing in all of 2024, even though a host of conservative policymakers have tried to push back against those expectations in the run up to the Dec meeting.  Attention now turns to ECB Pres Christine Lagarde's where she is expected to temper rate cut bets but is unlikely to repeat her previous guidance that several quarters of steady rates are ahead.  Pulling the plug on its last bond-buying scheme, the €1.7T Pandemic Emergency Purchase Programme, the ECB said it will start tapering reinvestments from mid-2024.  The ECB said full reinvestment under the PEPP will end on Jun 30 & the portfolio will then fall by €7.5B per month until the end of the year.  Previously, all cash from maturing debt in the PEPP was set to be reinvested thru the end of 2024 but a host of policymakers have argued the program has fulfilled its purpose, so there was no economic logic behind keeping to the original end date.

ECB leaves rates unchanged, starts pulling plug on bond buys

The number of Americans filing for jobless benefits fell last week as the labor market continues to thrive despite high interest rates & elevated costs.  Applications for unemployment benefits fell by 19K to 202K last week, the Labor Dept reported.  The forecast was expecting around 224K.  About 1.88M people were collecting unemployment benefits in the latest week, 20K more than the previous week.  Jobless claim applications are seen as representative of the number of layoffs in a given week.  Hiring has slowed from the breakneck pace of 2021 & 2022 when the economy rebounded from the COVID-19 recession.  Employers added a record 606K jobs a month in 2021 & nearly 400K per month last year.  That has slowed to an average of 232K jobs per month this year, a still-solid number.  US employers added a healthy 199K jobs last month & the unemployment rate fell to 3.7%, fresh signs that the economy could achieve an elusive “soft landing,” in which inflation would return to the Federal Reserve's 2% target without causing a steep recession.  The jobless rate has now remained below 4% for nearly 2 years, the longest such streak since the late 1960s.  The 4-week moving average of jobless claim applications, which flattens out some of weekly volatility, fell by 7K to 213K.

US applications for jobless benefits fall again as labor market continues to thrive

Gold futures climbed by more than 2%, posting their biggest one-day gain since Oct & lifting prices closer to record highs in one fell swoop after the Federal Reserve signaled 3 interest-rate cuts for next year.  Gold for Feb climbed $47 (2.4%) to settle at $2044 an ounce after trading as high as $2062.  The one-day $ & percentage climb was the largest since Oct.  Prices for most-active gold futures last reached a record-high settlement on Dec 1 at $2089.  The intraday record is $2152 from Dec 4.  Overall, the sudden death of higher for longer at the Fed has only taken gold back to breakeven for Dec so far & it leaves the market $100 below last week's top.

Gold futures leap closer to record highs in one fell swoop

West Texas Intermediate (WTI) crude oil closed higher after the Intl Energy Agency raised its 2024 demand forecast & the $ fell to a 4-month low after the Federal Reserve said it expected to cut interest rates next year.  WTI crude oil for Jan closed up $2.11 to settle at $71.58 per barrel, while Feb Brent crude, the global benchmark, was last seen up $2.45 to $76.71.  In its monthly Oil Market Report, the Intl Energy Agency raised its expectations for 2024 demand to 1.1M barrels per day above 2023, up from its Nov forecast for a rise of 0.93M bpd over 2023 demand.  The figure was well under OPEC's 2024 demand forecast of 2.2M barrels over 2023 issued yesterday.  Oil was also supported by a weaker $, which fell to the lowest since Aug after the Federal Reserve indicated it is likely to begin lowering interest rates in 2024, boosting risk appetite.  The ICE dollar index was last seen down 0.93 points to 101.94.

WTI Crude Rises as the Dollar Falls After the Fed Turns Dovish; IEA Bumps Up Its 2024 Demand Forecast

After a stellar Nov, Dow is up 1200 in Dec & has advanced in 1½ months to an eye-popping 4100 in Nov-Dec.  That spells extremely overbought.  Enjoy the high values while they last.  Oil is oversold while the MidEast war rages on.

Dow Jones Industrials