June 10th, 2021 10:45 AM by Richard Sardella MLO.100007700/NMLS 233568
Based on the May CPI data released at 8:30 am ET this morning, inflation is heating up. The consumer prices were expected +0.4%, as reported +0.6%; yr./yr. expected +4.6% increased to 5.0%. Excluding food and energy the core expected +0.4% increased 0.7%, yr./yr. expected at +3.4% increased to 3.8%. Markets were putting a lot of emphasis on the report looking for potential increases in inflation. Consumer prices have finally begun to increase after producer prices have been increasing for the last three months. The gains were fairly broad and driven by steady growth in the costs of used vehicles, household furnishings, airfares, and apparel. It's the same question markets have been wrestling with for months, are the increases we are seeing temporary as the Fed continues to espouse, or whether they will become more ingrained against a backdrop of massive fiscal and monetary policy support.
Wages are increasing, and the general belief has been wages won't increase much. That assumption, as we have noted previously, may be the biggest miss in years. The government is forcing wages higher with excessive stimuli; the additional $300.00 per week keeping people from returning to work is scheduled to end soon. Meanwhile, businesses have had to increase wages to attract workers, signing bonuses and other incentives along with wages increasing. Here is the thing, increasing pay to attract workers back can't be undone later; once a business establishes wages, they can't be lowered in the future, so wherever wages are, they are here to stay.
Weekly unemployment claims, also released at 8:30 am ET, were expected at 369K, as released 376K, down 9K from the prior week. The 4-week average continues to decline, 402.50K down from 428K the prior week. Continuing claims for ongoing state benefits fell by 258,000 the week ending May 29th, the biggest drop since mid-March, to 3.5 million.
The 10 yr. note in the past two sessions fell 10 bps as demand increased. Yesterday's 10 yr. note auction saw the strongest demand in two years. Foreign governments continue to increase buying US treasuries as the dollar falls, a hedge from their own negative rates. The news this morning took some of that enthusiasm away for now. Traders and investors are putting unusual emphasis on CPI data this morning as a measure of inflation expectations, a reaction to the recent declines in rates over the past few sessions. The Fed takes note but mostly relies on the personal consumption expenditures released with monthly personal income and spending, that data won't be reported until June 25th.
At 9:30 am ET, the DJIA opened +192, NASDAQ +25, S&P +17. 10 yr. at 9:30 am 1.52% +3 bp.(at 10:00 am unch). FNMA 2.5 30 yr. coupon at 9:30 am-14 bps from yesterday's close and -12 bp from 9:30 am yesterday.
At 1:00 pm ET, Treasury will sell $24B of 30s; yesterday's 10 yr. couldn't have been much stronger, demand at record highs.
At 2:00 pm ET, Treasury will report the May budget, another monthly deficit of $230B expected.
President Biden is in Europe for the G-7 meeting in England. Inflation discussions will be interesting. Bank of England chief economist Haldane warned that monetary policy is in its most dangerous place since 1992 and that resurgence in demand coupled with shrinking or static supply would invite persistent inflationary pressures. The European Central Bank said it would keep its aggressive monetary stimulus in place despite mounting evidence of a vigorous economic recovery and rising inflation in the Eurozone as the Covid-19 pandemic recedes.
PRICES @ 10:00 AM ET
10 yr. note: 1.49% unch
5 yr. note: 0.75% unch
2 Yr. note: 0.15% unch
30 yr. bond: 2.1`7% unch
Libor Rates: 1 mo. 0.074%; 3 mo. 0.124%; 6 mo. 0.156%; 1 yr. 0.240% (6/9/21)
30 yr. FNMA 2.0: @ 9:30 101.17 -20 bp (-16 bp from 9:30 yesterday)
30 yr. FNMA 2.5: @ 9:30 103.61 -14 bp (-12 bp from 9:30 yesterday)
30 yr. GNMA 2.5: @ 9:30 103.02 -41 bp (-29 bp from 9:30 yesterday)
Dollar/Yuan: $6.3939 +$0.0062
Dollar/Yen: 109.60 -0.04 yen
Dollar/Euro: $1.2184 +$0.0004
Dollar Index: 90.29 +0.17
Gold: $1895 -$1.00
Bitcoin: 38,125 +1719
Crude Oil: $70.49 +$0.53
DJIA: 34,685 +237
NASDAQ: 14,027 +114
S&P 500: 4248 +29
Richard Sardella has been actively managing and providing services in the mortgage industry for over 27 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.
All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.
MLO of record MLO.100007700 / NMLS#233568 / CHM NMLS#127716.