Middle East War Worries and Receding Near-term Rate-cut Hopes Keep U.S. Major Averages Down

Barry Adams
17 Jan, 2024
New York City

U.S. stock extended yesterday's losses in pre-market trading, and investors confront multiple headwinds.

The S&P 500 index and the Nasdaq Composite futures declined 0.4%, and investors reassessed their rate-cut outlook after policymakers in the U.S. and Europe pushed back against expectations.

Moreover, the prospect of a wider war in the Middle East also sapped market enthusiasm after Iran launched missile attacks in Syria, Iraq, and Pakistan.

Houthi rebels backed by Iran also continued their attacks on merchant ships traveling through the Red Sea, forcing most shipping companies to divert shipments along the coast of Africa, increasing costs and shipment times.

China reported the slowest economic growth in nearly three years, and GDP expanded at a slower-than-expected 5.2% in 2023, following the growth of 3.0% in 2022.

China's retail sales growth of 7.0% fell short of market expectations, but industrial output accelerated to 6.8%, reaching a 22-month high in December.

China-exposed stocks traded down after the release of economic updates, and the Hang Seng index plunged 3.5% in Wednesday's trading.

Tesla declined 1.5% after the company lowered the price of its model Y in Germany, and Alibaba fell 3%.

 

U.S. Retail Sales Advanced In December 

Retail sales, adjusted for seasonal and calendar factors but not price changes, increased 5.6% from a year ago in December, the U.S. Census Bureau reported Wednesday.

Retail sales rose the most in eleven months, following a downwardly revised 4% rise in November.

Retail sales, unadjusted for price changes or inflation, increased 3.2% in the full year 2023.

 

U.S. Mortgage Applications Rebound  

Mortgage applications surged 10.4% in the week ending January 12, faster than 9.9% in the previous week, the Mortgage Bankers Association reported Wednesday.

Mortgage applications to purchase a new home jumped 9% from the 6% increase the previous week, and applications to refinance a home loan advanced by 11% as lower rates lured home buyers back to the market.

The average contract rate for 30-year fixed-rate mortgages with loan balances of less than $726,200 decreased to 6.75% from 6.81% with a down payment of 20% and points rising to 0.62 from 0.61.

 

Commercial Property Mortgage Delinquency Rate Advanced

The delinquency rate for mortgages backed by commercial properties rose in the fourth quarter of 2023, MBA reported in a separate report released on Wednesday.

Delinquency rates jumped to 6.5% of balances for loans backed by office properties and to 6.1% for lodging-backed loans.

Delinquencies for loans backed by retail properties remain elevated at 5.0%, matching the rate from the previous quarter and staying elevated since the onset of the pandemic.

About 96.8% of outstanding loan balances were current or less than 30 days late at the end of the third quarter, down from 97.3% at the end of the third quarter of 2023.

 

U.S. Indexes and Yields

The S&P 500 index decreased 0.4% to 4,773.12, and the Nasdaq Composite fell 0.7% to 14,843.08.

The yield on 2-year Treasury notes increased to 4.29%. 10-year Treasury notes advanced to 4.07%, and 30-year Treasury bonds edged up to 4.29%.

WTI crude oil decreased $1.40 to $71.03 a barrel, and natural gas prices decreased 11 cents to $2.78 a thermal unit.

Gold increased by $0.02 to $2,027.65 an ounce, and investors debated the future interest rate path.

The dollar index, which weighs the U.S. dollar against a basket of foreign currencies, edged lower to 103.40.

 

U.S. Stock Movers

Charles Schwab decreased 1.3% to $63.51 after the financial services provider reported better-than-expected earnings but revenue fell short of market expectations.

U.S. Bancorp gained 0.3% to $41.49 after the regional bank reported lower-than-expected quarterly earnings.

China-linked stocks continued to drift lower for the second week this year after economic growth in the fourth quarter was below expectations.

JD.com, PDD Holdings, Alibaba Group Holdings, and Tencent Holdings declined between 4% and 6%.