July 11th, 2022 9:21 AM by Richard Sardella MLO.100007700/NMLS 233568
This week is about inflation, the releases of June CPI and PPI on Wednesday and Thursday. CPI expected to be a little stronger than in May; PPI slightly lower based on present forecasts. A month ago, when May CPI was reported at +8.6% it sent interest rates higher, spiking briefly to 3.47% on the 10, since then rates declined 2.74% then increased last week to 3.08% Friday. The estimate for CPI at +8.8% doesn’t bode well if it does increase from May as expected. Not news that the Fed is intent in driving inflation lower even if it pushes the economy into recession, there is still a view that the Fed will slow the increase in the FF rate, expected to be increased by another 75 bp increase in about two weeks (7/27). The estimates are an increase to 8.8% from 8.6% there are floaters out there predicting as high as 9.0%.
If there is a bright spot it’s in the estimates for PPI declining as commodity prices are slowing, led by crude oil. Demand slowing as global recession concerns are increasing. Inflation may be increasing but after the huge increase in June jobs reported Friday and the unemployment rate at a 50 yr. low, the economic outlook remains firm. How firm keeps volatility at high levels day to day in the equity markets. Industrial production and consumer sentiment, as well as the Fed’s Beige Book also coming this week.
Governor Christopher Waller and James Bullard, president of the St. Louis Fed, both stressed the need to get policy into restrictive territory to confront the hottest price pressures in 40 years, even if this meant slowing growth. Both are voting members of the Federal Open Market Committee this year. Both pushing a 75 bp increase then pending incoming data 50 bps at the Sept FOMC meeting. “We need to move to a much more restrictive setting in terms of interest rates and policy, and we need to do that as quickly as possible,” Waller said last Thursday during a webcast hosted by the National Association for Business Economics. Bullard has been the leading hawk on higher rates but there is broad support for 75 bps within the FOMC. Fed projections released at the June meeting see the Fed’s benchmark lending rate reaching 3.4% by December and peaking in a target range of 3.75% to 4% next year, versus a current range of 1.5% to 1.75%. One more jumbo rate hike at the July meeting would lift that range to 2.25% to 2.5%. When May CPI jumped 8.6% it set off strong increases in rates, the Fed though likes the PCE data, according to the PCE accelerated to 6.3% in the 12 months through May.
At 9:30 am the DJIA opened -148, NASDAQ -110, S&P -29. 10 yr. note 3.03% -8 bps. FNMA 4.5 30 yr. coupon at 9:30 am +22 bps from Friday’s close and +21 bps from 9:30 am Friday.
At 1 pm Treasury will sell $43B of 3 yr. notes, tomorrow $33B of 10s.
This week begins earnings season.
The world can’t get enough US dollars as global concerns escalate. This morning the dollar index at another new all-time high; the euro currency now at parity with the dollar (almost).
PRICES @ 10:00 AM
10 yr note: 3.00% -10 bp
5 yr note: 3.05% -8 bp
2 Yr note: 3..06% -6 bp
30 yr bond: 3.18% -9 bp
Libor Rates: 1 mo 1.899%; 3 mo 2.423%; 6 mo 3.048%; 1 yr 3.644% (7/8/22)
30 yr FNMA 5.0: 101.66 +14 bp (+19 bp from 9:30 am Friday)
30 yr FNMA 4.5: 100.19 +22 bp (+21 bp from 9:30 am Friday)
30 yr GNMA 4.0: 99.55 +25 bp (+25 bp from 9:30 am Friday)
Dollar/Yuan: $6.7188 +$0.0236
Dollar/Yen: 137.37 +1.28 yen (big move)
Dollar/Euro: $1.0063 -$0.0125 (big move)
Dollar Index: 108.14 +1.14 (big move)
Gold: $1736.10 -$6.20
Bitcoin: 20,361 -599
Crude Oil: $102.09 -$2.70
DJIA: 31,204 -135
NASDAQ: 11,363 -273
S&P 500: 3854 -45
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.