Dow fell 52, advancers over decliners 5-2 & NAZ gained 34. The MLP index crawled up 1+ to 230 & the REIT index was off 1 to the 374s. Junk bond funds drifted lower & Treasuries saw limited buying, reducing yields (more below). Oil rose 1+ to 73 & gold jumped 24 to 1939 following recent weakness.
AMJ (Alerian MLP Index tracking fund)
US employers added 209K jobs in Jun, the lowest number since 2020, but still a sign that the Federal Reserve will continue on its rate tightening cycle this year & perhaps into early 2024. The unemployment rate held steady at 3.6%. Growth in Apr & May were revised marginally lower to 217K & 306K, respectively. Still it may present a problem for policymakers who continue to wrestle with consumer inflation of 4%, twice the Fed's preferred level. 92% of market participants still anticipate a 25 basis point rate hike this month, according to the CME Group's FedWatch tool. That compares to just 7.6% of traders who expect the Fed to hold rates steady at 5.00-5.25% & policymakers will meet on Jul 26. The minutes from the last meeting showed nearly all Fed officials supported additional interest rate hikes amid signs of sticky core inflation. Fed Chair Jerome Powell, speaking last week, echoed the same sentiment. "We expect the moderate pace of interest rate decisions to continue," he said following the pause in tightening instituted in May. A separate report released yesterday showed that job openings dipped to 9.8M at the end of May. While that marks a decline from the previous month, it remains abnormally high. Before the COVID-19 pandemic began in early 2020, the highest on record was 7.6M. There are still roughly 1.6 jobs per unemployed American.
US economy adds 209,000 jobs in June, lighter than estimates
Treasury yields largely rose, continuing the trend this week, as a slightly weaker-than-expected payrolls increase in Jun failed to dissuade traders from betting on more Federal Reserve rate hikes. Other parts of the Jun jobs report showed inflationary signs. The yield on the 10-year Treasury was up by more than 3 basis points at 4.074% & the 2-year Treasury was last trading down by more than 2 basis points at 4.984%. Yesterday, it had briefly reached a 16-year high of 5.120%. Yields & prices have an inverted relationship & 1 basis point equals 0.01%. The Labor Dept reported that nonfarm payrolls rose by 209K in Jun & the unemployment rate was 3.6%. This came below the estimates for an increase of 240K. Payrolls rose by 306K in May, after revisions. However, there were parts of the jobs report that could give the Federal Reserve to resume hiking. Wages increased by 4.4% on an annual basis, coming in slightly above estimates. The unemployment rate also declined to 3.6% from 3.7% in May. Following the data, traders kept their bets that the Fed would resume hiking later this month. Fed futures point to a 92% chance that the central bank will raise by a ¼ point on Jul 26, about the same odds as one day ago. The Fed has 4 more policy meetings at which it could change interest rates left this year, with the next one coming up later in Jul. Markets are widely expecting a rate increase to be announced then, but the picture is less clear for the remainder of the year. Fed Chair Jerome Powell suggested last week that a strong labor market was a key driver behind the central bank's restrictive policy approach.
10-year Treasury yield rises despite weaker-than-expected June payrolls growth
For the first time in nearly a year, the average US home is selling for more than its asking price due to a lack of inventory. According
to the latest data from real estate firm Redfin, the sale-to-list ratio
hit 100.1% on average during the 4 weeks ending Jul 2. The average
sale-to-list price ratio hasn't surpassed 100% since last Aug. This comes at a time when prices are still elevated. The median home-sale price only fell 0.3% from a year ago, when prices were near record highs. "Sellers
that do list have a bit more pricing power and are increasing asking
prices," Redfin deputy chief economist Taylor Marr said,
adding that new listings per square foot have been rebounding, rising
nearly 3% from last year for the latest 4 weeks. "However,
some of these homes may end up having to drop their price if they list
too aggressively while mortgage rates are over 7%," Marr cautioned. The
lack of active inventory is what's prompting buyers to bid over asking,
the company reported. For instance, the number of new listings of
homes for sale fell 24.7% year over year, marking one of the biggest
declines since May 2020. Overall, the number of homes for sale dropped 11.6% from a year earlier
as homeowners stay out of the market in fear of losing out on a
relatively lower mortgage rate. This decline was the biggest drop since
Apr 2022. The number of active listings was flat on a monthly basis, which isn't
typical for this time of year. Normally, there is a month-over-month
increases in active listings. Even with low inventory and higher prices, Redfin reported that "early-stage homebuyer demand is picking up." The
real estate brokerage's Homebuyer Demand Index, which measures the
number of requests for home tours & other buying services from Redfin
agents, is up 4% from a month earlier. It's also sitting around its
highest level in over a year.
US homes selling above asking price as inventory remains limited
On the one hand, strength in the economy is generally cheered by investors. However currently it signals that the Fed needs to be hawkish on raising rates to get high inflation under control. Making matters more uncertain is that data on the economy keeps coming in mixed. There will be a lot to think about over the weekend.
Dow Jones Industrials
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