February 28 - Stocks are holding in the red at mid-day, though the VIX has cooled through the morning to hover near 13.5 at the time of writing. The U.S. dollar is well off its overnight highs, though still in the green on the day as it trades below the 103.9 level. Treasury yields are softer on the day, with 10-year yields trading near 4.29% and 2-year yields at 4.66%. Crude oil has reversed course from its morning gains to trade in the red, while the ags are largely mixed as corn and soybean futures cling to small gains while the wheat complex pushes lower.
Attention is back on the Fed as the market awaits tomorrow's January PCE reading, the Fed's preferred inflation measure. Although their next meeting isn't until March 19-20, we're hearing plenty from individual Fed members this week, with Kansas City Fed President Schmid and Fed Governor Bowman both giving speeches earlier this week and three more members scheduled to speak today. Traders will continue to parse through their comments, though they continue to lean more hawkish than the trade would like, as has been the case for some time now. It does seem as though the trade's rate cut expectations are finally working their way towards aligning with what the Fed has actually been saying, with Fed fund futures showing odds for the first rate cut at the June meeting now. This morning's data showed contrasting indications, with slightly slower than expected GDP growth favoring the doves but slightly higher than expected personal consumption spending in Q4 keeping the inflation jitters present enough to avoid any major shift in the Fed's caution. The mixed picture today adds more suspense for tomorrow's PCE reading.
Mortgage applications in the U.S. fell 5.6% on the week ending last Friday, marking the third consecutive weekly drop as applications hit their lowest level since November. This shouldn't be a huge surprise, as 30-year average mortgage rates holding above 7% for the second week in a row keeps large portions of buyers on the sidelines. Additionally, mortgage refinance applications fell by 7.3% week-on-week amid the high interest rate environment. The U.S. housing market showed continued strength to start 2024, with new home sales rising again in January after a big jump in December, but may be taking a step back as the uptick in demand helped push rates higher yet again. We'll get January's pending home sales tomorrow, where it will be interesting to see if the surprise strength in the month prior carries on, but signs are pointing to a potential step back in demand in the near future as mortgage rates rise and consumer sentiment softens.
Crude oil markets are reversing course after early week gains, falling from this morning's highs to trade in the red in large part due to the larger than expected 4.2 million barrel build in U.S. crude stocks on this morning's report. Gasoline and propane saw larger than expected stock draws, while diesel stocks also saw a draw, though by less than expected. Global energy markets started the week off on a strong note following reports of OPEC+ extending voluntary production cuts into the second quarter, as well as Russia's announcement yesterday of a six-month ban on gasoline exports starting March 1. This serves as another highlight of the impact geopolitical escalations have had on the energy markets in recent weeks, with Russian production still attempting to rebound from outages following Ukrainian attacks on a number of refineries and port facilities. Coupled with the ongoing tensions in the Middle East, geopolitical risks are still providing support despite the continued hawkish tilt from Fed members this week that adds to commodity disinflation sentiment.
