Dow retreated 177 decliners over advancers about 2-1 & NAZ was off 299. The MLP index added 1 to the 281s & the REIT index was up 1+ to the 416s. Junk bond funds continued mixed & Treasuries had more selling in the PM which raised yields. Oil was up about 1 to the high 72s & gold sank 28 to 2518 (more on both below).
Dow Jones Industrials
Philadelphia Federal Reserve Pres Patrick Harker provided a strong endorsement to an interest rate cut on the way Sep. Harker gave the most direct statement yet from a central bank official that monetary policy easing is almost a certainty when officials meeting again in less than a month. The position comes a day after minutes from the last Fed policy meeting gave a solid indication of a cut ahead, as officials gain more confidence in where inflation is headed & look to head off any potential weakness in the labor market. “I think it means this September we need to start a process of moving rates down,” Harker said. Harker added that the Fed should ease “methodically and signal well in advance.” With markets pricing in a 100% certainty of a qtr percentage point, or 25 basis point, cut, & about a 1-in-4 chance of a 50 basis point reduction, Harker said it's still a toss-up in his mind. “Right now, I’m not in the camp of 25 or 50. I need to see a couple more weeks of data,” he noted. The Fed has held its benchmark overnight borrowing rateat 5.25-5.50% since Jul 2023 as it tackles a lingering inflation problem. Markets briefly rebelled after the Jul Fed meeting when officials signaled they still had not seen enough evidence to start bringing down rates. However, since then policymakers have acknowledged that it soon will be appropriate to ease. Harker said policy will be made independently of political concerns as the presidential election looms in the background. “I am very proud of being at the Fed, where we are proud technocrats,” he said. “That’s our job. Our job is to look at the data and respond appropriately. When I look at the data as a proud technocrat, it’s time to start bringing rates down.” Harker does not get a vote this year on the rate-setting Federal Open Market Committee but still has input at meetings. Another nonvoter, Kansas City Fed Pres Jeffrey Schmid offered a less direct take on the future of policy. Still, he leaned toward a cut ahead. Schmid said the rising unemployment rate as a factor in where things are going. A severe supply-demand mismatch in the labor market had helped fuel the run in inflation, pushing wages up & driving inflation expectations. In recent months, though, jobs indicators have cooled & the unemployment rate has climbed slowly but steadily. “Having the labor market cool some is helping, but there’s work to do,” Schmid added. “I really do believe you’ve got to start looking at it a little bit harder relative to where this 3.5% [unemployment] number was and where it is today in the low 4s.” However, Schmid said he believes banks have held up well under the high-rate environment & added that he does not believe monetary policy is “over-restrictive.”
Philadelphia Fed President Harker advocates for interest rate cut in September
Mortgage rates dipped a bit this week, still holding steady around the mid-6% range while demand remains weak in the housing market. Freddie Mac's latest Primary Mortgage Market Survey showed that the average rate on the benchmark 30-year fixed mortgage ticked down to 6.46% this week from 6.49% last week & the average rate on a 30-year loan was 7.23% a year ago. "Although mortgage rates have stayed relatively flat over the past couple of weeks, softer incoming economic data suggest rates will gently slope downward through the end of the year," said Sam Khater, Freddie Mac's chief economist. "Earlier this month, rates plunged and are now lingering just under 6.5 percent, which has not been enough to motivate potential homebuyers. We expect rates likely will need to decline another percentage point to generate buyer demand." The average rate on the 15-year fixed mortgage declined to 5.62% from 5.66% last week & 1 year ago, the rate on the 15-year fixed note averaged 6.55%.
Mortgage rates edge lower
The Food & Drug Administration (FDA) approved updated Covid vaccines from Pfizer (PFE) & Moderna (MRNA), putting the new shots on track to reach most Americans in the coming days amid a summer surge of the virus. The
jabs target a strain called KP.2, a descendant of the highly contagious
omicron subvariant JN.1 that began circulating widely in the US
earlier this year. KP.2 was the dominant Covid strain in May, but now
only accounts for roughly 3% of all US cases as of Sat, according to the latest Centers for Disease Control & Prevention (CDC) data. Still,
PFE & MRNA have said their KP.2 vaccines can produce stronger
immune responses against other circulating subvariants of JN.1, such as
KP.3 & LB.1, than last year's round of shots targeting the omicron strain XBB.1.5 can. “Given
waning immunity of the population from previous exposure to the virus
and from prior vaccination, we strongly encourage those who are eligible
to consider receiving an updated COVID-19 vaccine to provide better
protection against currently circulating variants,” Dr Peter Marks,
director of the FDA's Center for Biologics Evaluation & Research, said. PFE will begin shipping its new shot immediately & expects it to be
available in pharmacies, hospitals & clinics across the US
“beginning in the coming days,” the company said & MRNA
expects its shot to be available in the coming days. The earlier arrival of updated vaccines could offer some reassurance to
Americans as the nation sees a relatively large spike in the virus this
summer. A “high” or “very high” level of Covid is being detected in
wastewater in almost every state, according to CDC data. Wastewater monitoring provides a glimpse of how widespread the virus is in the US as other forms of testing have fallen off. PFE stock fell 24¢ & MRNA stock fell 5.61.
Gold settled lower, with strength in the $ & Treasury yields contributing to the precious metal's largest 1-day decline in a month, just 2 days after prices marked a fresh record high. The decline in gold prices comes ahead of tomorrow's highly anticipated speech by Federal Reserve Chair Jerome Powell at the Jackson Hole Economic Symposium in Wyoming. Past years have seen central-bank officials make markets-moving pronouncements at the confab. Powell's speech may offer some guidance on the size of an expected US interest-rate cut in Sep. Today, Dec gold declined by $30 (1.2%) to settle at $2516 an ounce after trading as low as $2506. Prices based on the most active contract, settled at their lowest since Aug 15 & marked their biggest 1-day percentage loss since Jul 25.
Gold Suffers Biggest Daily Drop of Month as Traders Brace for Powell Speech at Jackson Hole
West Texas Intermediate (WTI) crude oil closed higher, rising off the lowest since Jan following 4 losing sessions that came on weak Chinese demand & concerns over the health of the US economy. WTI crude for Oct closed up $1.08 to settle at $73.01 per barrel after falling yesterday to the lowest since Jan 8, while Oct Brent crude, the global benchmark, was last seen up $1.43 to $77.48. Oil prices have dropped 8.4% over the past month on weak demand from China & low interest from institutional investors. While a 4.6M barrel drop in US inventories reported yesterday by the Energy Information Administration showed US demand remains healthy, traders focused instead on a sizable downward revision to US employment growth, showing 818K fewer jobs than expected were added in the year ending on Mar 31.
WTI Crude Oil Rises Off the Lowest Since January as Weak Demand Remains in Focus
The Fed's Jackson Hole symposium kicked off today with the market on high alert for any shift in tone from the policymakers when Powell speaks at the event tomorrow. Minutes from the Fed's last meeting showed several officials were open to a Jul rate cut, signaling a pivot is likely in next month's policy decision. Mounting hopes for lower rates have already helped markets recoup losses from an early Aug rout. Stocks were sliding lower for the entire session. In the past, Powell's speeches tend to get a good reception unless there is a negative tone which brings on selling. Hope for the best.
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