July 13th, 2021 8:33 AM by Richard Sardella MLO.100007700/NMLS 233568
June consumer prices at 8:30 m ET were hotter than forecasts; CPI expected +0.5% increased 0.9%; yr./yr. expected +5.0% increased 5.4%. The core (ex-food and energy) was thought to be +0.5%, increased 0.9%; yr./yr. forecasts +4.0% increased 4.5%. The initial reaction was minor, the 10 yr. note at 1.36% down 1 bp, MBS price -3 bps from yesterday’s close. Prices increased the most in a month since June 2008. BLS said one-third of the increase was due to the increase in used cars and in categories associated with a broader reopening of the economy, including hotel stays, car rentals, apparel, and airfares. Supply chain bottlenecks also contribute to the increases; constraints in the production pipeline raise the risk of accelerating consumer inflation. “Bottlenecks, hiring difficulties and other constraints could continue to limit how quickly supply can adjust, raising the possibility that inflation could turn out to be higher and more persistent than we expect,” Powell said after the June Federal Open Market Committee meeting.
Earlier this morning, before the CPI data, the National Federation of Independent Businesses reported its small business optimism index at 102.5 against estimates of 99.2. 47% of respondents are currently planning to raise prices. That’s the highest such number since 1981. Overall optimism continues to rise nicely and is now back at its highest level since November. Small business optimism is gaining; the report showed more hiring and higher wages driving the optimism.
Later today, Treasury will release its budget balance for June. The forecasts are a deficit of $206B for the month. The pandemic pushed global government debt to the highest level since World War II, surpassing the world’s annual economic output. For fiscal 2021 that ends at the end of September, the deficit looks like it will be $3T for the second year in a row. New thinking about debt is encouraging borrowing. Fiscal caution is out the window compared to the philosophy back in the 80s and 90s. Critics say the U.S. spending plans are excessively big, risking an overheated economy and a lasting rise in inflation and interest rates.
At 1:00 pm ET, Treasury will auction $24B of 30s, reopening the issue from May.
At 9:30 am ET, the DJIA opened -14, NASDAQ -17, S&P -6. 10 yr. at 9:30 am 1.34% -2 bp. FNMA 2.5 30 yr. coupon at 9:30 am -3 bps from yesterday’s close, and -20 bps from 9:30 am yesterday. Late yesterday afternoon after 4:00 pm, MBS prices declined from 103.70 to 103.53.
Fires in California and Oregon are expanding in the drought that is drying out forests and, most importantly, farmland. Droughts are part of a natural cycle of water. But the drought currently gripping the Western U.S. has climate scientists concerned that the cycle may be shifting. So far, there aren’t any big worries about the potential disruption of the food chain, but major water sources in the west are drying up.
Some volatility in the rate markets on the initial reaction to CPI, the 10 yr. increased to 1.39% +2 bps, but quickly backed down to stabilize at 1.35% -2 bps. The bump-up tested the 20-day moving average. Our tech models still hold minor bullish indications. Tomorrow, June PPI will provide another look at prices, this time at the wholesale level.
PRICES @ 10:00 AM ET
10 yr. note: 1.34% -2 bp
5 yr. note: 0.82% +2 bp
2 Yr. note: 0.25% +2 bp
30 yr. bond: 1.96% -4 bp
Libor Rates: 1 mo. 0.095%; 3 mo. 0.128%; 6 mo. 0.154%; 1 yr. 0.244% (7/12/21)
30 yr. FNMA 2.0: @9:30 101.30 +5 bp (-18 bp from 9:30 yesterday)
30 yr. FNMA 2.5: @9:30 103.50 -3 bp (-20 bp from 9:30 yesterday)
30 yr. GNMA 2.5: @9:30 103.27 -3 bp (-3 bp from 9:30 yesterday)
Dollar/Yuan: $6.4711 -$0.0045
Dollar/Yen: 110.42 +0.04 yen
Dollar/Euro: $1.1823 -$0.0040
Dollar Index: 92.63 +0.37
Gold: $1810.60 +$4.70
Bitcoin: 32,511 -406
Crude Oil: $74.34 +$0.24
DJIA: 34,888 -108
NASDAQ: 14,761 +28
S&P 500: 4382 -3
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.