Dow slipped back 10, advancers over declines 2-1 & NAZ was up 46. The MLP index added 1+ to the 255s & the REIT index rose 1+ to the 395s. Junk bond funds were weak & Treasuries had limited buying which reduced yields slightly. Oil was fractionally higher to the 74s & gold fell 6 to 2046.
AMJ (Alerian MLP Index tracking fund)
Mortgage demand fell last week compared with the previous week, despite a continued drop in rates, according to the Mortgage Bankers Association's (MBA) seasonally adjusted index. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726K or less) decreased to 6.83% from 7.07%, with points increasing to 0.60 from 0.59 (including the origination fee) for loans with a 20% down payment. Even with the recent decline, rates are still much higher than they were at the start of the Covid pandemic. “With the positive news about the drop in inflation, and the FOMC [Federal Open Market Committee] projections proclaiming a pivot towards rate cuts, the 30-year fixed mortgage rate reached its lowest level since June 2023,” said Mike Fratantoni, MBA senior VP & chief economist. “At least as of last week, borrowers’ response to this rate move was rather tepid,” Fratantoni added. Applications to refinance a home loan dropped 2% for the week ended Fri, after jumping 19% the week before, according to the MBA. Refinance demand was 18% higher than the same week one year ago, however. Applications for a mortgage to purchase a home declined 1% for the week & were 18% lower than the same period last year. Despite the drop in demand, the Mortgage Bankers Association predicted good news ahead for the market, despite expecting a “mild recession” in the first ½ of next year. “We expect that this path for monetary policy should support further declines in mortgage rates, just in time for the spring housing market,” the group said, referring to the Federal Reserve's recent signal that it is looking to cut its benchmark rate multiple times next year. “We are forecasting modest growth in new and existing home sales in 2024, supporting growth in purchase originations.” The association said it expects mortgage origination volume to increase 22% in 2024 to $2T, with a 14% rise in purchase volume & a 56% jump in refinance demand.
Mortgage demand slips despite another drop in interest rates
The 10-year Treasury yield fell to its lowest level since Jul as traders assessed the path of future rate cuts from the Federal Reserve. The yield on the benchmark 10-year Treasury note was last down around 4 basis points to 3.879%. Earlier in the session, it hit a low of 3.871%, its lowest level since Jul 27 when the 10-year yielded as low as 3.839%. The 2-year yield slipped about 6 basis points to 4.382%. Meanwhile, the yield on the 30-year Treasury bond dropped 3 basis points to 4.005%. Yields move inversely to prices & 1 basis point equals 0.01%. Treasury yields have come off their highs after the Fed last week indicated 3 likely interest rate cuts in 2024. The unexpectedly dovish pivot prompted a steep fall in the 10-year yield as investors increased bets on a quicker loosening of monetary policy. Economic data releases today will include a 3rd-qtr US current account reading, followed by Nov's existing home sales figures & Dec consumer confidence data.
10-year Treasury yield falls below 3.9% to lowest since July
FedEx (FDX) shares fell after the package delivery giant cut its revenue forecast as weaker demand hit sales. The
expects a low-single-digit decline in revenue for the
fiscal year, down from a previous forecast for flat sales year over
year. The forecast expected a revenue drop of less than 1% in the
current fiscal year. It's the 2nd consecutive qtr FDX has lowered its revenue outlook. Its Express unit, its largest, was especially challenged in the
qtr with lower demand, surcharges & customers shifting to cheaper
services. “In the remainder of [fiscal] 2024, we
expect revenue will continue to be pressured by volatile macroeconomic
conditions, negatively affecting customer demand for our services across
our transportation companies,” FedEx added. Its fiscal year
ends May 31. The company said, however, that operating income would improve thanks to its cost-cutting plan. For the 3-month period ending Nov 30, EPS was $3.55 versus $3.07 a year earlier. Adjusting for certain items, the company posted EPS or $3.99, up more than 25% from a
year earlier but below analyst forecasts. The company credited cost-cutting initiatives for its higher profit. Revenue fell 3% to $22.2B from a year earlier versus $22.4B expected. “When
you step back and review how our business has performed in environments
with suppressed demand, we are delivering much better profitability
today than we have historically,” FedEx CEO Raj Subramaniam said. The stock tumbled 10.73 (11%).
Dow began trading higher but lost its strength after notching 5 straight record closes. FDX earnings above signals all is not well for the economy.
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