Markets drop again on Fed inspired weakness

Dow dropped 254, decliners over advancers about 4-1 & NAZ fell 141,  The  MLP index was off 4+ to 221 & the REIT index slid back 1+ to 421.  Junk bond funds drifted lower & Treasuries were sold again, raising yields (more below).  Oil retreated 4+ to the 92s after yesterday's big rise & gold sank 13 to 1736.

AMJ (Alerian MLP index tracking fund)

 

 

 

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Home buyers are regaining some buying power as the market shifts from "predominantly" favoring sellers over the past 2 years, according to an industry expert.  In a recent survey conducted by Realtor.com, 92% of homeowners who sold their home within the past year said they "accepted some buyer-friendly terms."  About 41% accepted some contract contingencies relating to appraisals, home inspections, home sales & financing.  This data suggests that "negotiation is back on the table" for housing prices and contract terms.  Homes that were sold at or above asking price peaked in Feb & Mar at 82% when mortgage rates hovered at 4%.  Last month, 69% of homes were sold at or above asking as mortgage rates sat near 6%.  The 30-year fixed rate was 5.55% last week, according to mortgage buyer Freddie Mac.  Meanwhile, homeowners who sold below asking rose from 18% at the beginning of the year to 31% last month, according to the real estate listings website.  Buyers are getting more picky.  Nearly every surveyed homeowner, 95%, who sold their home within the past month said the buyer requested an inspection.  That's up from 82% of sellers who sold 6-12 months ago.  The number of buyers that asked for a home repair following a home inspection more than doubled last month 6-12 months ago.  By contrast, the number of sellers who refused to pay for any repairs fell from 8% to zero 6-12 months ago.  "The overheated housing market of the past two years, which predominantly favored sellers, is beginning to regain a sense of normalcy, which is welcome news for home buyers," George Ratiu, manager of economic research for Realtor.com, said

Homebuyers are taking back their bargaining power, survey shows

There were nearly 1M more job openings than expected in Jul, an inflationary sign that the labor market is still extremely tight, the Bureau of Labor Statistics reported.  Available positions totaled 11.2M for the month, well in excess of the 10.3M estimate, according to the Job Openings & Labor Turnover Survey (JOLTS).  The total was about 200K higher than the 11.0M in Jun, up from the initially reported 10.7M.  Federal Reserve officials watch the JOLTS numbers closely for signs of slack in hiring.  The Jul numbers reinforced that there is still a considerable shortage of workers for available positions, with openings outnumbering available workers by just shy of a 2-to-1 margin.  That, in turn, is inflationary as employers are forced to offer higher compensation to lure workers at a time when prices are rising near their fastest pace in more than 40 years.  Hiring declined during the month, falling to 6.4M.  Quits, a closely watched metric for worker confidence, also declined, down to 4.2M as those leaving their jobs as a percentage of the workforce declined one-tenth of a percentage point to 2.7%, still relatively high by historical standards.  Changing jobs has proven lucrative during the Covid era, with job switchers seeing an average 6.7% annual wage growth rate, well ahead of the 4.9% rate of those who have stayed in their positions, according to the Atlanta Fed.  Total separations declined slightly in Jul to 5.9M, as the rate edged lower to 3.9%.  Layoffs & discharges were little changed at just under 1.4M.  Total separations declined slightly in Jul to 5.9M, as the rate edged lower to 3.9%.  Layoffs & discharges were little changed at just under 1.4M.

Job openings top 11.2 million in July, well above estimate and nearly double the available workers

Treasury yields rose after the 2-year rate hit its highest level since 2007 in the previous session.  The yield on the short-term 2-year Treasury note last rose about 5 basis points to 3.487% — close to its highest level in nearly 15 years.  The yield on the benchmark 10-year Treasury note rose 3 basis points to 3.142% & the yield on the 30-year Treasury bond rose 1 basis point to 3.259%.   Yields move inversely to prices & a basis point is equal to 0.01%.  Today ECB policymaker & Estonian central bank Governor Madis Muller said the central bank should discuss a 75-basis-point rate hike in Sep given exceptionally high inflation.  Markets are still processing a Fri speech by Federal Reserve Chair Jerome Powell, in which he said the central bank would continue raising interest rates at a level that may cause “some pain” to the economy.  Powell's comments led to 2 days of declines for the major US stock market averages.

10-year Treasury yield rises as traders assess Fed's next move

After better times, the housing market is in a slump as interest rates are on the rise.  Traditionally, the week before Labor Day is a quiet time for stocks with many traders away on holiday.  Not this year.  The bears are more active.

Dow Jones Industrials

 

Markets pare losses, but Friday's loss was extended

Dow finished down 184, decliners over advancers 3-2 & NAZ fell 124.  The MLP index stayed in the 224s & the REIT index was off 1+ to the 424s.  Junk bond funds continued weak & Treasuries were sold, bringing higher yields.  Oil rose almost 4  to 97 & gold remained steady at 1749 (more on both below).

AMJ (Alerian MLP Index tracking fund)

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A new study argues that central banks will fail to temper inflation & possibly push price growth even higher unless govs implement more sensible budget policies.  The study was presented to policymakers at the Kansas City Federal Reserve's Jackson Hole Economic Symposium.  Francesco Bianchi of Johns Hopkins University & Leonardo Melosi of the Chicago Fed argued that if monetary tightening was not supported by appropriate fiscal adjustments, then "the deterioration of fiscal imbalances (will lead) to even higher inflationary pressure."  "As a result, a vicious circle of rising nominal interest rates, rising inflation, economic stagnation, and increasing debt would arise," the paper argued.  "In this pathological situation, monetary tightening would actually spur higher inflation and would spark a pernicious fiscal stagflation."  The study concluded that US fiscal policy was one of the factors behind the recent surge in US inflation & that even if central banks had raised interest rates earlier, it likely wouldn't have made much of a difference.  "More hawkish (Fed) policy would have lowered inflation by only one percentage point at the cost of reducing output by around 3.4 percentage points," the authors added.  "This is quite a large sacrifice ratio."  The central bank, as it is doing now, raises its benchmark short-term rate when it wants to lower inflation & reduces it when it wants to accelerate hiring.  Such moves, in turn, affect borrowing costs throughout the economy — for mortgages, auto loans & business loans, among others.  On Fri, in his speech to the Jackson Hole symposium, Chair Jerome Powell stressed that the Fed plans further rate hikes & expects to keep its benchmark rate high until the worst inflation bout in 4 decades eases considerably — even if doing so causes job losses & financial pain for households & businesses.

Central banks can’t tackle inflation without sensible fiscal policy: study

Consumers who have been squeezed by higher prices may be experiencing a little relief.  Fewer adults now say they are living paycheck to paycheck, according to a new LendingClub report.  As of Jul, 59% of Americans said they lived paycheck to paycheck, down from 61% in Jun but still higher than a year ago, when the number of adults who felt stretched too thin was 54%.  Lower-income workers have been the hardest hit by price spikes this year, particularly for food & other staples, since those expenses account for a bigger share of the budget, studies show.  Roughly ¾ of consumers annually earning less than $50K & 63% of those earning $50-100K were living paycheck to paycheck in Jul, based on LendingClub’s numbers.  Consumers who have been squeezed by higher prices may be experiencing a little relief.  Fewer adults now say they are living paycheck to paycheck.  Even though top earners have also been struggling to make ends meet, wealthier Americans feel less financially strained, the report found.  Of those earning $200K or more, roughly 30% reported living paycheck to paycheck, down from 36% the previous month.  Recent signs that inflation has passed its peak & may be cooling off is welcome news for cash-strapped Americans.  The Jul consumer price index report finally showed that the prices consumers pay for a variety of goods & services started to ease after average gas prices fell below $4 for the first time since Mar & are now down to $3.85.  As a result, real inflation-adjusted average hourly earnings for the month rose 0.5%, according to the Bureau of Labor Statistics.

Fewer Americans say they are living paycheck to paycheck as inflation begins to ease

While Walt Disney (DIS), a Dow stock, theme parks in Florida & California have had fewer guests in the wake of the pandemic, the parks have still managed to generate record sales & profits thanks to price hikes & other changes that have increased the cost of visits, according to a report.  The business unit that includes the theme parks recorded record revenue of $5.4B & a record operating income of $1.6B in the qtr ending on Jul 2.  One change that has helped the company increase profits is its Genie+ phone app, which costs $15 per person a day on top of admission & allows guests to skip lines for some attractions.  However, the app cost doesn't cover all attractions & parkgoers will have to pay an additional $10-17 to skip standby lines to experience some rides including Star Wars- & Guardians of the Galaxy-themed rides.  Other benefits that used to be free have since been eliminated or slapped with a new price tag.  Prices for certain tickets, food items, hotels & souvenirs like the famous Mickey Mouse ears headbands have also climbed, outpacing inflation over the past decade.  A DIS spokeswoman said that its theme-park pricing is determined by "pure supply and demand" & is "no different than airplanes, hotels or cruise ships."  The stock went up 52¢.
If you would like to learn more about DIS, click on this link:
club.ino.com/trend/analysis/stock/DIS?a_aid=CD3289&a_bid=6ae5b6f7 

Disney’s theme park price hike nets more profit from fewer visitors

Oil futures rallied, with US prices up more than 4% to settle at their highest in a month.  Prices got a boost given rising risks of a potential civil war that could put Libyan output at risk & growing expectations that OPEC+ is positioning themselves to cut production.  Oct WTI rose $3.95 (4.2%) to settle at $97.01 a barrel.  Front-month prices marked their highest finish since Jul 29.

Oil futures rally to mark highest settlement in a month

Gold prices finished with a modest loss, pressured by strength in Treasury yields.  Gold futures for Dec fell pennies to settle at $1749 ounce after tapping an intraday high of $1757.  Gold futures fell with modest weakness in the $ helping to limit losses for $-denominated prices of the precious metal.  The $, as measured by the ICE US Dollar index, was down 0.1%, but traded 2.6% higher month to date.  10-year Treasury yields climbed 7 basis points to 3.108% today.

Gold futures finish slightly lower; silver prices mark lowest finish in a month

After more selling in the AM, bargain hunters returned & brought the Dow to  breakeven at midday before selling into the close.  Thoughts about rising interest rates & a possible recession in the near future, scare investors.  The latest gov spending bill has not improved the outlook for the US economy.  The chart below looks gloomy.

Dow Jones Industrials 

Markets fall again after Powell's interest rate warning

Dow dropped 285, decliners over advancers 3-1 & NAZ was off 150.  The MLP index was steady in the 224s & the REIT index fell 2+ to the 423s.  Junk bond funds drifted lower & Treasuries saw more selling, bringing higher yields.  Oil rose 2+ to the 95s on prospects for OPEC oil supply cuts & gold inched up 1 to 1750.

AMJ (Alerian MLP index tracking fund)

 

 

 

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Treasury yields were higher as investors digested comments from Federal Reserve Chair Jerome Powell.  The yield on the benchmark 10-year Treasury note rose more than 6 basis points to 3.101%, while the yield on the 30-year Treasury bond gained roughly 4 basis points to 3.245%.  The yield on the short-term 2-year Treasury note was about 3 basis points higher, trading at 3.429%.  Yields move inversely to prices & a basis point is equal to 0.01%.  It comes shortly after the Fed's Powell delivered his annual policy speech at Jackson Hole, Wyoming, on Fri.  Powell said that the central bank will “use our tools forcefully” to attack inflation that is still running near its highest level in more than 40 years.  He acknowledged that rising interest rates will cause “some pain” to households & businesses.

U.S. Treasury yields rise after Powell signals further interest rate hikes

New data indicates a staggering number of American households are currently behind on making utility payments due mainly to soaring energy costs, sparking fears that mass power shutoffs are on the horizon.  The National Energy Assistance Directors Association (NEADA) says more than 20M US families are behind on their utility bills, numbers exec director Mark Wolfe believes are "historic."  The NEADA chief said what is even more alarming is the surge in the collective amount owed, which sat at roughly $8.1B at the end of 2019 & has now skyrocketed to around $16B.  The average delinquent bill climbed from $403 to $792.  A primary driver behind the utility debt is a surge in energy prices.  The cost of natural gas – used to power homes so folks can keep cool in the summer & warm in the winter – was up 30.5% year-over-year in Jul, according to the Labor Dept.  While energy is in high demand in the summer, experts say heating bills this winter will bring more pain.  Andrew Lipow, pres of energy consulting firm Lipow Oil Associates wrote this week that "the consumer is going to pay more for their heating bills this winter," adding that "whether they use natural gas or home heating oil, most will have sticker shock."  He went on to note that "natural gas futures prices are now more than double what they were a year ago."

More than 20 million households are behind on utility bills

The UN's nuclear watchdog, the International Atomic Energy Agency, is set to visit Ukraine's Zaporizhzhia nuclear power plant this week after months of growing intl alarm over the fighting surrounding the facility, which has been occupied by Russian forces since Mar.  Ukrainian forces have begun a southern counter-offensive to retake the Russian-occupied territory of Kherson, Ukraine's southern military command announced.  Ukrainians may face their harshest winter in decades as the country's centralized heating network keeps indoor temperatures far colder than normal & plans to switch the heaters on later.  Meanwhile, Russian forces continued to shell military & civilian infrastructure in the eastern Donetsk region, killing civilians overnight, the regional governor said.  Ukrainian troops are beginning their long-awaited counter-offensive to recapture the southern region of Kherson from Russian forces, Ukraine's military command announced.  “Today we started offensive actions in various directions, including in the Kherson region,” the spokesperson for Ukraine’s southern command, Natalia Humenyuk, was quoted as saying.  Ukraine's strikes on some of Russia's vital supply routes & bridges in the south, as well as several ammunition depots, had “unquestionably weakened the enemy,” she added, without further elaborating on the details of the counter-offensive.

UN nuclear inspection team headed to Zaporizhzhia plant; Ukraine begins counter-offensive in south

Treasury yields jumped as investors face a hawkish Fed.  The gloom is global as investors adjust to rising interest rates.  The story above about higher energy bills is a reminder that the Fed is going to be very busy trying to reduce inflation.  The inverted yield curve remains, forecasting a recession.

Dow Jones Industrials