Friday, February 9, 2024

Markets waver after encouraging inflation news

Dow fell 77, advancers slightly ahead of decliners & NAZ went up 143.  The MLP index remained in the 259s & the REIT index slid back 2+ to the 375s.  Junk bond funds inched higher & Treasuries were about even & yields were flattish (more below).  Oil rose in the 76s & gold was off 9 to 2038.

AMJ (Alerian MLP Index tracking fund)

The prices consumers pay in the marketplace rose at an even slower pace than originally reported, according to closely watched revisions the gov.  Updates to the consumer price index showed that the broad basket of goods & services measured increased 0.2% on the month, less than the originally reported 0.3%, the Labor Dept’s Bureau of Labor Statistics (BLS) said.  While the change is only modest, it helped confirm that inflation was moderating as 2023 ended, giving more leeway to the Federal Reserve to start cutting interest rates later this year.  The revisions are done as a matter of course for the BLS, but garnered extra attention this year after the market reacted sharply to last year's changes.  Indications that inflation in 2022 rose more than anticipated drove Treasury yields higher & sparked worry from investors that the Fed might keep monetary policy more restrictive.  Fed Governor Christopher Waller, in particular, had called attention to the 2022 revisions, sparking market attention for the latest round.  Excluding food & energy, core CPI increased 0.3% for the month, the same as originally reported.  Fed policymakers tend to focus more on core measures as they provide a better indication of long-run movements in inflation.  Also, the headline Nov reading was revised higher, up 0.2% versus the initial 0.1% estimate.  In aggregate, the revisions indicate that headline CPI accelerated at a 2.7% annualized rate in the 4th qtr, down 0.1 percentage point from the initially stated figures.  Traders still largely expect the Fed to hold its benchmark overnight borrowing rate steady when it meets in Mar, then cut in May, to be followed by 4 more qtr percentage point reductions by the end of the year, according to CME Group projections.

Inflation in December was even lower than first reported, the government says

Treasury yields were little changed as investors weighed encouraging consumer price index revisions that showed inflation rising at a slower pace than previously reported for Dec.  The 10-year Treasury yield was flat at 4.17% & the yield on the 2-year Treasury was a basis point higher at 4.469%.  Yields & prices move in opposite directions & 1 basis point equals 0.01%.  The Labor Dept's Bureau of Labor Statistics revisions to the consumer price index showed the inflation gauge rose 0.2% in Dec, less than previously reported.  Treasury yields briefly traded lower after the report.  Recent data releases have shown signs of ongoing resilience in the economy & labor market, with initial weekly jobless claims data yesterday coming in at 218K, less than the 220K expected.  The figures added to expectations that the Fed will likely take some time before cutting interest rates & comes as speculation mounts over the timeline for reductions.  Commentary from Fed officials in recent weeks suggests a more cautious stance toward cuts, dashing investor hopes for one as soon as Mar.  Remarks from policymakers have also added to concerns that there could be fewer rate cuts than expected this year, with Minneapolis Fed Pres Neel Kashkari sayingthat he anticipates 2 or 3 rate cuts in 2024.

Treasury yields are flat after Labor Department revises December inflation data lower

Mortgage rates ticked slightly higher this week, with the 30-year fixed rate note continuing to hover in the mid-6% range.  The stalled housing market signals consumers still want to hold off on making a move until rates come down & data indicates homebuyer sentiment is overwhelmingly pessimistic right now.   Freddie Mac's latest Primary Mortgage Market Surveyshowed that the average rate for the benchmark 30-year fixed mortgage increased to 6.64% this week, up from 6.63% last week.  The 30-year average rate was 6.12% a year ago.  At the same time, the rate on the 15-year fixed mortgage edged lower, averaging 5.9% after coming in last week at 5.94%.  One year ago, the rate on the 15-year fixed note averaged 5.25%.  "The economy and labor market remain strong with wage growth outpacing inflation, which is keeping consumer spending robust," said Sam Khater, Freddie Mac's chief economist, noting that rates "remain stagnant."  "Meanwhile, affordability in the housing market is an ongoing issue due to continued high home prices, elevated mortgage rates & low supply of homes on the market, particularly for first-time & low-income homebuyer," he added.  Many would-be buyers & sellers are waiting on the sidelines for rates to come down & the latest Fannie Mae national housing survey released yesterday showed a record-high 36% of respondents expect rates to come down in the next 12 months.  But the data also found an overwhelming majority believe it is best to hold off on making a move until that happens, with only 17% saying in Jan it was a good time to buy a home, near a historic low.  Although the housing market typically picks up leading into spring, demand actually fell last week.

Mortgage rates rise slightly as homebuyer sentiment tanks

Well-received quarterly earnings has buoyed stocks in a week thin on economic updates, which have been driving shifts in the stock market.  Fed officials have continued to stress they're taking their time to check price pressures really are cooling before making any interest rate cuts.  Dow is still higher, up an impressive 955 YTD, but Treasury yields have been rising recently.

Dow Jones Industrials 

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