Dow went up 65, decliners a little higher than advancers & NAZ gained 49.  The MLP index slid back fractionally to under 241 & the REIT index fell 1 to the 361s.  Junk bond funds crawled higher & Treasuries had modest selling, bringing higher yields.  Oil is now above 89 & gold was flattish at 1935.

AMJ (Alerian MLP Index tracking fund)

Consumers hit as gas prices spark biggest inflation jump in six months

The era of easy money is finally coming to an end, & the US economy faces a "reckoning" as businesses grapple with rising loan costs, according to a new survey from RSM.  The findings indicate that rising interest rates pushed up the cost of commercial & industrial loans, making it more difficult for middle-market firms to meet payrolls & finance any expansion.  77% of senior execs at firms expect interest rates to increase in the coming months.  A stunning 82% of respondents in the RSM Middle Market Business Index survey said that rising rates carried a negative risk to their operations.  "The result is a risk to economic growth across the real economy and, potentially, a recession," said RSM chief economist Joe Brusuelas from a post about the survey.  The astronomical rise in rates is hitting smaller businesses the hardest.  Small & mid-sized firms already pay 10.9-15.5% for financing, the survey found, far higher than in the past 2 decades.  Those rates are raising the risk premium on lending close to double-digits, a "dynamic that was hard to imagine even two years ago."  For many firms, higher rates have yet to take effect.  About 1/3 of smaller middle-market firms have loans paying below 5%, while about 24% have loans with 5-7%.  Those loans will ultimately need to be rolled over at higher rates, further threatening cash flow.  Brusuelas pointed to recent research that indicates after a tightening shock of 100 basis points, research & development spending declines of 1-3%, while venture capital spending plummets by about 25% in the following 1-3 years.  Federal Reserve policymakers have raised interest rates sharply over the past year, approving 11 rate hikes in hopes of crushing inflation.  In the span of just one year, interest rates surged from near zero to above 5%, the fastest pace of tightening since the 1980s.  Officials have signaled that additional rate hikes are on the table this year until there is more substantial evidence that high inflation has retreated for good.  The Fed next meets Sep 19-20  is & widely expected to hold rates steady at the current 22-year high.  Given the rapid rise in interest rates, the impact on lending conditions across the economy is "nontrivial."  Manufacturing, housing, technology, life sciences firms & private equity will face "significant adjustment" periods during the new age of high interest rates.

The US economy faces a new threat: Rising loan costs

Consumer Credit increased by nearly $5 trillion

Higher mortgage rates continue to take their toll on mortgage demand, especially for refinancing.  Total mortgage application volume dropped 0.8% last week compared to the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726K or less) increased to 7.27% from 7.21%, with points increasing to 0.72 from 0.69, including the origination fee, for loans with a 20% down payment.  Demand for refinances dropped 5% for the week & was 31% lower than the same week one year ago.  The refinance share of mortgage activity decreased to 29.1% of total applications from 30.0% the previous week.  As a comparison, at this time of year in 2020, when pandemic monetary policy had interest rates around 3%, the refinance share of mortgage applications was 63%.  Applications for mortgages to purchase a home rose 1% week to week but were 27% lower than the same week one year ago.  The adjustable-rate mortgage share of total applications rose, signaling that potential buyers are using all the tools they can to lower their monthly payments.  ARMs offer lower interest rates but are deemed riskier because their rates are fixed for a shorter term.  “Mortgage applications decreased for the seventh time in eight weeks, reaching the lowest level since 1996,” said Joel Kan, a Mortgage Bankers Association economist.  “Given how high rates are right now, there continues to be minimal refinance activity and a reduced incentive for homeowners to sell and buy a new home at a higher rate.”  Mortgage rates remained high to start this week, according to a separate survey from Mortgage News Daily.

Even though inflation has shown improvement over the last year, it continues to be at troubling levels.  The future for interest rate hikes remains cloudy.

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