Dow retreated 377 (near session lows), decliners over advancers better than 3-2 & NAZ was off 144. The MLP index remained in the 297s & the REIT index was steady at 400. Junk bond funds dipped lower & Treasuries continued to see selling which raised yields. Oil dropped 2+ to about 80 & gold plunged 56 to 2399 (more on both below).
Dow Jones Industrials
A massive IT outage that is causing unprecedented global disruptions isn't holding up business as usual in most parts of the financial markets, though 1 index provider did experience complications. Officials at both the NYSE & NAZ said they are up & running, despite the CrowdStrike (CRWD) problems that have hit everything from airlines to banks to a slew of other businesses around the world. “NYSE markets are fully operational and we expect a normal open this morning,” a spokesperson for the exchange said. Similarly, NAZ, which is the favorite trading spot for high-flying tech stocks, said it has managed to make it through the issues caused by an update that CRWD, a global cybersecurity firm, implemented. “Our European markets and US pre-market are operating normally. We expect our US markets to open normally,” the NAZ said. There were other issues, though: Russell US Indices, which include the closely watched Russell 2000 small-cap gauge, were not calculating after the market open. The snafu appeared to be resolved later in the morning. “Due to a third party technical issue, we are currently experiencing an impact to our real-time platforms, which is preventing clients from accessing and receiving data,” FTSE Russell said. “This disruption is affecting FTSE Russell real-time indices. Our dedicated teams are actively investigating the matter to resolve as soon as possible.” “The failure that occurred is not unique. The scale and the cascading consequences of the failure are what makes this notable,” said Cornell University cybersecurity expert Gregory Falco. “Today is certainly a nightmare of a day for not only all the companies impacted, but global insurance providers who underwrite business continuity.”
U.S. stock exchanges say markets are not impacted by CrowdStrike outage
With inflation decelerating, interest rate cuts are widely expected later this year. Traders are predicting a Sep cut with near 100% certainty, according to the CME FedWatch Tool, which uses market data to predict Federal Reserve interest rate decisions. That's potentially good news for homebuyers, since interest rate cuts would likely make monthly mortgage payments a bit more affordable. While mortgage rates are most closely linked to 10-year Treasury bonds, they tend to move in tandem with the Federal Reserve's benchmark interest rate. Consequently, a rate cut is likely to lower mortgage rates later this year. Most major housing organizations expect mortgage rates to drop by the end of the year. They've already gone down from 7% to 6.87% in the past week, according to the Mortgage Bankers Association (MBA). Mortgage rate forecasts for the end of 2024 differ slightly. Realtor.com expects average rates to fall to 6.5%, while Fannie Mae predicts 6.7%. There might be more breathing room in 2025, too, as major forecasts expect rates to continue to slide. Wells Fargo forecasts APRs to average 6% in the first 3 months of 2025, while the MBA expects a rate of 5.9%.
Mortgage interest rates are expected to drop
The number of Americans filing new applications for unemployment benefits increased more than expected last week, but that did not signal a material shift in the labor market amid temporary automobile plant closures & disruptions from Hurricane Beryl. The weekly jobless claims report from the Labor Dept, however, suggested that it was getting harder for the unemployed to land new jobs relative to last year. Unemployment rolls swelled to the highest level in more than 2½ years in the first week of Jul, in line with a recent increase in the jobless rate. A loosening labor market & ebbing inflation position the Federal Reserve to cut interest rates in Sep, with financial markets anticipating additional cuts in Nov & Dec. Initial claims for state unemployment benefits increased 20K to a seasonally adjusted 243K last week, the Labor Dept. The forecast called for 230K claims for the latest week. The rise pushed claims back to a 10-month high touched in early Jun & right to the upper end of the 194-243K range for the year. It wiped out the drop in the prior week, which was attributed to difficulties adjusting the data around holidays, like the Independence Day. In addition, auto makers typically shut down assembly plants starting the Jul 4 week to retool for new models. But the shutdown schedules are different for every manufacturer, which can throw off the model that the gov uses to smooth out the data for seasonal fluctuations. Plant shutdowns were also more concentrated this year relative to prior years. Claims rose in Jul last year thru the first ½ of Aug, before fully reversing course by early Sep.
US weekly jobless claims increase more than expected
Gold prices dipped more than 2%, as the $ gained & profit taking kicked in following bullion's all-time peak hit earlier this week, which was fueled by rising expectations of US interest rate cuts in Sep. Spot gold was down 1.9% at $2399 per ounce. Bullion hit an all-time high of $2483 on Wed. US gold futures settled 2.3% lower to $2399. The $ rose about 0.2% against its rivals, while benchmark 10-year Treasury yields also rose, putting pressure on bullion. Besides profit taking, the market is down on this narrative of a soft landing; it could put pressure on the price of gold, as investors will shift money from a safe to more riskier investment. Federal Reserve Chair Jerome Powell said earlier this week that recent inflation readings "add somewhat to confidence" that the pace of price increases is returning to the central bank's target in a sustainable fashion.
Gold Slips From All-Time Peak on Profit Taking, Firmer Dollar
West Texas Intermediate (WTI) crude oil fell to the lowest in a month as a weak outlook for Chinese demand & a rebounding $ offset falling US oil inventories. WTI crude oil for Aug closed down $2.69 to settle at $80.13 per barrel, the lowest since Jun 17. Sep Brent crude, the intl benchmark, was last seen down $2.27 to $82.84. The drop comes as concerns over Chinese demand continue after the #1 oil importer's ruling Communist Party ended a Third Plenum without the solutions to the country's economic malaise, with growth slowing & its real-estate sector mired in a debt crisis. Instead, the party offered vague promises to focus on modernization. A rebounding $ is also pressing on oil prices, with the ICE dollar index last seen up 0.2 points to 104.38 after falling to a 4-month low of 103.75 on Wed. Still, US demand is offering support amid the summer driving season. The Energy Information Administration on Wed reported US oil inventories fell for the 3rd-straight week, with the 4.87M barrels draw bringing the drop in stocks to 20.5M barrels over the period.
WTI Crude Oil Drops to a Month Low on Concerns Over China Demand and a Rising Dollar
The macro IT problem early today shook the markets. But they recovered although that probably brought extra trades which would not have happened without additional excitement. Dow was up 287 this week which included falling 911 in just the last 2 days. Investors need to watch what presidential contender Donald Trump has to say. Last night he used his nomination speech to say he would "end the electric vehicle mandate on day one." These comments will move markets if he wins the election.
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