August 10th, 2022 9:26 AM by Richard Sardella MLO.100007700/NMLS 233568
July CPI even better than forecasts. July CPI 0.0% against +0.2% forecasts and down from +1.3% in June; yr./yr. +8.5% against expectations of +8.7% and down from June’s +9.1%. Core CPI (ex food and energy) expected +0.5% from +0.7% in June increased just 0.3% m/m; yr./yr. +5.9% unchanged from June and better than +6.1% expected. The estimates that inflation was moderating were low, the reality even lower. Inflation still high but as was expected it is slowing.
The softer than expected data continues the debate over what the FOMC will do in Sept. Swaps showed the amount of tightening priced for the Fed’s Sept. 21 decision tumbling to around 59 basis points, suggesting a move of 50 basis points is seen as more likely than a shift of 75 basis points. The anecdotal evidence that inflation was easing has finally showed up in a mainstream inflation report and fuels the outlook for 50 bps in Sept, not 75 bps as was the main stream expectation. That said 8.5% inflation is still at historic levels. Price pressures eased across energy categories, with gasoline down 7.7% in July from the prior month. Grocery prices were up 1.3% in July from the prior month and rose 13.1% in July from a year ago, the fastest annual pace since 1979.
Former Treasury Secretary Larry Summers, an inflation hawk commented last week that he was concerned that a slowing in headline inflation in upcoming data would prompt the Fed to conclude its policies are working -- when much more action is in fact needed. Declining inflation is welcome but at 8.5% is till at 40 yr. high. Core CPI, which excludes often volatile energy and food prices, held steady in July, increasing 5.9% from the same month a year ago, a sign that broad price pressures remain in the economy. On a monthly basis, the CPI was flat in July after rising 1.3% the prior month, the result of falling energy prices such as gasoline. The core-price index climbed 0.3% last month, down sharply from June’s 0.7% gain, but slightly higher than the average monthly gain of 0.2% in the two years before the pandemic.
The stock indexes prior to the 9:30 am ET open rallied, the DJIA up over 400 points, NASDAQ +279, and S&P +66.
At 9:30 am the DJIA opened +451, NASDAQ +295, S&P +71. 10 yr. at 9:30 am 2.74% -5 bp. FNMA 5.0 30 yr. coupon at 9:30 am +42 bps from yesterday’s close and +10 bps from 9:30 am yesterday; the 4.5 coupon +38 bps at 9:30 am and +21 bps from 9:30 am yesterday. Late yesterday afternoon (after 4 pm) MBS prices declined, at 4 pm -11 bps, at 5 pm -22 bps.
At 10 am June preliminary wholesale inventories, expected +1.9%, increased 1.8%.
This afternoon at 1 pm Treasury will auction $35B of new 10 yr. notes.
Tomorrow July PPI (wholesale prices); current estimates +0.3% m/m from +1.1%, yr./yr. +10.3% from 11.3% in June. Core PPI +7.8% from +0.4%, yr./yr. +7.8% from +8.2% in June.
PRICES @ 10:00 AM
10 yr note: 2.72% -7 bp
5 yr note: 2.84% -13 bp
2 Yr note: 3.11% -15 bp
30 yr bond: 2.96% -4 bp
Libor Rates: 1 mo 2.380%; 3 mo 2.921%; 6 mo 3.550%; 1 yr 3.990% (8/9/22)
30 yr FNMA 5.0: @9:30 102.11 +42 bp (+2 bp from 9:03 am yesterday)
30 yr FNMA 4.5: @ 9:30 101.27 +38 bp (+21 bp from 9:03 am yesterday)
30 yr GNMA 4.0: @9:30 100.97 +39 bp (+49 bp from 9:03 am yesterday)
Dollar/Yuan: $6.7336 -$0.0190
Dollar/Yen: 133.00 -2.15 yen
Dollar/Euro: $1.0315 +$0.0102
Dollar Index: 105.28 -1.09
Gold: $1809.10 -$3.20
Bitcoin: 24,066 +919
Crude Oil: $89.76 -$0.74
DJIA: 33,302 +528
NASDAQ: 12,777 +283
S&P 500: 4195 +73
Richard Sardella has been actively managing and providing services in the mortgage industry for over 30 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.