Markets climb as progress on trade deal persists, reigniting hopes

Dow rose 91, advancers over decliners 2-1 & NAZ went up 25.  The MLP index went up a fraction to the 253s & the REIT index fell 1+ to the 377s.  Junk bond funds fluctuated & Treasuries declined slightly in price, but yields remain near recent lows.  Oil was off pennies in the 58s & gold sank 20 to 1290 (more on both below).

AMJ (Alerian MLP Index tracking fund)

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US mortgage rates posted their biggest weekly drop in more than a decade amid concerns about a slowing economy, according to Freddie Mac's Primary Mortgage Market Survey.  The average 30-year fixed-rate mortgage dropped by 22 basis points, down to 4.06% with an average 0.5 point from 4.28%, for the latest week, according to survey results.  The average 15-year fixed-rate mortgage dropped to 3.57% from 3.71%.  “The Federal Reserve’s concern about the prospects for slowing economic growth caused investor jitters to drive down mortgage rates by the largest amount in over ten years,” Freddie Mac chief economist Sam Khater said.  “Despite negative outlooks by some, the economy continues to churn out jobs, which is great for housing demand. We have recently seen home sales start to recover and with this week’s rate drop we expect a continued rise in purchase demand.”  The average 5-year Treasury indexed hybrid adjustable-rate mortgage was 3.75% with an average 0.3 point, down from an average of 3.84% one week ago.  The Federal Reserve said last month it would be “patient” about interest rate hikes in 2019 amid signs of a slowing US economy.

US mortgage rates post biggest weekly drop in decade

Pres Trump called on OPEC to increase the flow of oil in a bid to curb rising prices.  West Texas Intermediate crude prices fell more than $1 to about $58.39 per barrel today & Brent crude prices fell about $1.14 to $66.69 per barrel.  Brent crude prices hit their 2019 high earlier this month and have risen more than 25% so far this year.  Crude oil accounts for more than ½ of the retail price of regular gasoline, meaning consumers are starting to pay more at the pump.  However, even if Trump gets his wish, gas prices are still likely to rise this spring.  There are a number of seasonal factors that are contributing to the increase – while massive flooding across parts of the Midwest was expected to contribute to short-term pain at the pump for some people on the coastal regions.  As today, gas prices were hovering near $2.68, up more than 20¢ when compared with last month & about 4¢ when compared with last year.  OPEC is no stranger to criticism from the US pres.  Last month he told the organization to “please relax and take it easy,” saying oil prices were getting “too high.”  At their Dec meeting, OPEC members agreed to curb output by 1.2M barrels per day for H1, an effort aimed at boosting prices.  Production among the group has been on the decline amid US sanctions on both Iran & Venezuela.  While Trump has hit out at OPEC for rising oil prices, he took credit when gas prices began to decline at the end of last year: The highest prices consumers have paid while Trump has been in office was in May, when the average price hit $2.97 per gallon.  The lowest prices were seen earlier this year, when they clocked in at $2.23 per gallon on Jan 9.

Trump calls on OPEC to hike output as US gas prices poised to rise

The number of people who applied for unemployment benefits in late Mar fell for the 2nd week in a row to match the lowest level of 2019, a sign the sturdy labor market remains a source of strength for a US economy struggling to gain traction.  Jobless claims, a rough measure of layoffs, declined to 211K from a revised 216K in the prior week, the gov said.  The forecast called for a 222K reading last week.  The 4-week average of new jobless claims, meanwhile, slipped by 3K to 217K.  The monthly average is viewed as more stable since it smooths out weekly gyrations.  The number of people already collecting unemployment benefits, known as continuing claims, rose by 13K to 1.76M.  The number of Americans losing their jobs fell last year to the lowest levels since the late 1960s, when the working population was much smaller.  Jobless claims have bounced up & down since last fall, but they remain extremely low.  Hiring appeared to slow dramatically in Feb after big gains in Jan & Dec, but it's hard to know if it’s merely a blip or the start of a long-predicted slowdown in hiring.  Investors anxiously awaits the employment report for Mar, due next week, for more clues.  A raft of evidence suggests the US economy has weakened, but the labor market has been one of the bright spots.

Jobless claims fall to 211,000 in late March to match 2019 low

Gold prices suffered the largest single-session percentage decline since Aug, to settle below the key $1300 mark for the first time in 2 weeks.  A firmer $ helped to undercut demand.  Apr gold shed $20.60 (1.6%) to end at $1289 an ounce.  Jun, which is now the most active contract, lost $21.60 (1.6%) to end at $1295 an ounce.  Negative sentiment sparked by worry about sluggish growth has weighed on global stocks this week & pushed bond yields lower across the globe; however, that dynamic also has propelled demand for $s.  A stronger buck weighs on commodities priced in the monetary unit, making them comparatively more expensive for buyers using other currencies.  Meanwhile, the 10-year Treasury note yield was up at 2.378%, but holding near a 15-month low.  Yields move inversely to prices.  Demand for gov debt amid mounting concerns about growth internationally has helped to check losses for precious metals.

Gold’s biggest percentage decline since August leaves it firmly below key $1,300

Hopes are riding high on trade talks which have completed their first day.  Today the Dow began trading sharply higher, dropped into the red at midday & bounced back, finishing near session highs.  Current market gyrations on perceptions of their progress demonstrate there is a lot riding on their success.  Until there is an announcement, all investors can do is keep their fingers crossed.  Today's market advance may have more to do with gold investors switching to stocks.

Dow Jones Industrials

Markets rise as US-China trade talks resume

Dow went up 73, advancers over decliners better than 2-1 & NAZ added 38.  The MLP index was fractionally higher to the 253s (extending its sideways trend shown below) & the REIT index slid back 1 to the 377s.  Junk bond funds were off a tad & Treasuries slid lower in profit taking.  Oil pulled back to the high 58s & gold tumbled 18 to 1298.

AMJ (Alerian MLP Index tracking fund)

CL=F

Crude Oil

58.87

-0.54

-0.9%

GC=F

Gold

1,290.70

-19.70

-1.5%

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The US economy grew slightly slower in Q4 than previously reported, with the GDP lowering to 2.2% in a 2nd reading.  That's marked down from the initial reading of 2.6%, according to data released by Bureau of Economic Analysis (BEA), largely because of a slowdown in consumer spending (which lowered to 2.5% from 2.8%).  Despite the downward revision, however, GDP for the entirety of 2018 remained at 2.9% (compared to 2.2% in 2017), narrowly missing the the administration's goal of 3% growth for the year.  That's essentially the same annual growth as in 2015, which was the fastest pace since 2005.  The BEA generally provides 3 estimates of the GDP for each qtr; however, they will only provide 2 readings this qtr.  In the Jul-Sep period, the economy grew at a 3.4% rate.

GDP revised lower to 2.2% in fourth quarter

Homebuyers signed 1% fewer contracts to buy existing homes in Feb compared with Jan, according to the National Association of Realtors' (NAR) pending home sales index.  These contracts are a future indicator of closed sales 1-2 months later.  Pending contracts were 4.9% lower compared with Feb 2018.  “In January, pending contracts were up close to 5 percent, so this month’s 1 percent drop is not a significant concern,” said Lawrence Yun, chief economist for the Realtors.  “As a whole, these numbers indicate that a cyclical low in sales is in the past, but activity is not matching the frenzied pace of last spring.”  Yun pointed to some sales growth in the West, although the region's current sales are well below the sales activity from 2018.  “There is a lack of inventory in the West and prices have risen too fast. Job creation in the West is solid, but there is still a desperate need for more home construction,” he added.  The drop came despite buyers having the benefit of lower mortgage rates.  The average rate on the 30-year fixed was just over 5% in Nov but began falling in Dec.  They started Jan just above 4.6% but fell at the start of Feb to around 4.5%, according to Mortgage News Daily.  Rates then sat there throughout the month, when these sales contracts would have been signed.  Closed sales of existing homes jumped nearly 12% month-to-month in Feb, also a reaction to the drop in mortgage rates at the end of the year.  It may also have been simply due to more supply on the market & a cooling in home prices.  Closed sales were still lower compared with a year ago.  Regionally, pending sales in the Northeast declined 0.8% month to month & were 2.6% below a year ago.  In the Midwest, sales fell 7.2%  monthly & 6.1% annually.  Sales in the South were up 1.7% monthly & down 2.9% annually, & in the West sales increased 0.5% monthly & were 9.6% below a year ago.  The supply of homes for sale has been rising steadily, up just over 3% in Feb compared with a year ago.  Home prices are still rising, but the gains have been shrinking each month for nearly a year.

Pending home sales drop 1% in February, despite lower mortgage rates

Kansas City Fed Pres Esther George said she’s not worried about the inflation outlook & doesn't see the need to overhaul the central bank's policy of aiming for a 2% annual inflation target.  “The current outlook for inflation appears to be benign, and I consider the recent behavior of inflation to be broadly consistent with our price stability mandate,”  George said in a speech.  George is a voting member of the Fed's interest-rate-setting committee this year & is one of the more hawkish memebrs of the Fed.  Her views contrast with doves such as San Francisco Fed Pres Mary Daly, who said yesterday that she's worried about the Fed losing credibility on delivering 2% inflation if inflation expectations drift down.  “I have not viewed this as a major concern given than, aside from the effects of wide fluctuations in energy prices, inflation has remained low and relatively stable,” she said.  Since 2012, core inflation as measured by the Fed's preferred personal consumption expenditure price index has fluctuated in a range of roughly 1.5-2%, except during 2015 when a strong $ pushed core inflation somewhat below 1.5%.  “Should we be concerned about this low level of inflation?” George was asked.  No, she answered.  “It would seem reasonable that even somewhat persistent deviations from the objective, if they are limited to, say 50 basis points above or below the objective, may be acceptable, depending on broader economic conditions,” she added.  “I hear few complaints about inflation being too low,” she said.  “In fact, I am more likely to hear disbelief when I mention inflation is as low as measured in a number of key sectors.”  She noted that former Fed Chairmen Alan Greenspan & Paul Volcker defined price stability as an inflation rate that was low & stable & not considered a key factor in the decisions of businesses & households.  “In current circumstances, with an unemployment rate well below its projected longer-run level, I see little reason to be worried about inflation running a bit below its longer-run target,” she added.  George said that she supported the Fed's yearlong process to evaluate alternative policy strategies, but didn't seem enthusiastic about the leading idea: an inflation target that is achieved on average over a fixed period of time.  “What works in elegant economic models can have limitations and unintended consequences when put into practice,” she warned.  She said she wasn’t sure that a new policy strategy would be any more effective than the current 2% inflation target.  “And deliberately pushing inflation above 2% at a time when the unemployment rate is well below its presumed longer-run level could be costly,” she said.  While the yield on the 10-year Treasury bond has steadily slipped since the Fed meeting, in part due to investor worries about the economy, George was upbeat about the economic outlook.  While the first-qtr tracking estimates were “weak,” job gains & wage increases should support consumer spending, she said.  Real personal disposable income increased almost 4% last year on a 12-month basis, she noted.  “Right now the data are noisy, and we need more time and evidence to separate the signal from the noise,” George said.  With high employment and low inflation, the Fed can be patient, she added.

Fed’s George says inflation is fine where it is

Stocks are resting & buyers were looking for good buying opportunities today.  The trade negotiations are resuming & there is a lot riding on their outcome while the stock market has been going sideways for weeks.

Dow Jones Industrials