Stocks are higher and Mortgage Bonds are slightly lower so far this morning. Oil prices, as measured by WTI, are a bit lower this morning around $72.70/barrel…despite more US strikes in Iran last night and the Strait of Hormuz remaining essentially closed.
The US military launched a second night of strikes against Iranian targets yesterday evening, hitting 90 targets inside Iran, including missile and drone storage sites and air defense systems. Iran retaliated with targeted attacks on US bases in Bahrain, Kuwait and Qatar.
Ukraine has been ramping up attacks on Russia’s oil refineries. Last week, they stuck Russia’s fourth largest refinery and just yesterday were able to strike their largest in Omsk. As a result, Russia announced a short-term ban on diesel because they are no longer able to refine the crude oil…but this is leading to more exports of Russian crude oil, which can help supply.
Later this afternoon there will be a 30-year Auction, following a pretty strong 10-year Auction yesterday that did help yields improve a bit.
Fed Minutes
The minutes from the June 17 Fed meeting were released yesterday afternoon. Warsh did not shorten the minutes, but they did show a divided Fed.
Eight members foresee no rate changes this year, one predicts a cut, and nine are expecting at least one hike. Clearly, there is a lot of division within the Fed, although they all voted with Warsh to leave rates unchanged at the meeting.
Most Fed members felt that inflation would be coming down due to lower oil prices and diminishing tariff impacts, but overall, still felt there was an upside risk to inflation. This was before oil prices dipped further and some of the latest geopolitical events.
They felt the risks to a weaker labor market moderated, although this was before the latest BLS Jobs Report, which was weak and only showed 57,000 jobs created in June and big downside revisions to the previous two months.
While the markets viewed this Fed meeting as hawkish and are pricing in at least one hike this year, we believe Warsh may do nothing.
Existing Home Sales
Existing Home Sales were released this morning, showing that closings on existing homes in June fell by 2.4% to an annualized pace of 4.09M units, which was weaker than estimates looking for a 0.7% rise. The May report was revised higher by 0.5%, which makes today’s miss look worse. From the originally reported figure, sales fell 1.9%. On a year-over-year basis, sales are still up 2.8%.
Sales in the Northeast rose, while the South, West, and Midwest saw declines. Because homes in the Northeast are higher priced comparatively, the median home price rose to a record high.
Remember, median home price measures the middle-priced home that sold during the month, not appreciation, so the mix of homes that sold has a big influence. Median home prices rose 2.2% to $440,600, which is up 1.8% year over year.
Existing inventory fell 0.6% to 1.56M units, which is up 1.3% year over year. This does include homes under contract, which is not real available inventory. Active listings are only 1.1M, which is tight.
The internals, including days on market, sold above list, investors, and cash buyers were all relatively stable month over month and year over year. However, first-time homebuyers made up 33% of home sales, which is strong and follows 35% in May…which was the highest level in six years. Although this is only the last two months, it’s encouraging to see a higher share of first-time homebuyers.
Jobless Claims
Initial Jobless Claims, which measures individuals filing for unemployment benefits for the first time, remained stable at 215,000.
Continuing claims, or those who continue to stay on benefits after their initial claim, rose 8,000 to 1.814M.
Technical Analysis
Mortgage Bonds have found interim support at 99.75, which is the low from June 8, and are now rebounding higher. Bonds have some room to the upside until reaching the next ceiling at 99.99.
The 10-year tested overhead resistance at 4.58% yesterday, which held. Yields opened up almost dead on this level and are moving lower from it. Yields have room to continue lower until reaching 4.50%.
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