CHM Blog

June CPI reported lower than the forecasts. Year/year core CPI was expected at 5.0% from 5.3% in May, it dropped to 4.8%, year/year CPI at 3.0% down from 4.0% in May. At 3%, consumer-price inflation is now just one-third of the level it reached a year ago, which was the highest in four decades. The Fed still likely to increase the FF rate in two weeks at the FOMC meeting but markets now believe there won’t be another increase. The pause at the last FOMC meeting provided the Fed the ability to judge the impact of its rapid increases, with yesterday’s data it appears the lagging effect is producing fruit. The comparison of the consumer price index to June 2022 — when Russia’s invasion of Ukraine had just driven a rapid run-up in energy prices — made the slowdown look particularly dramatic. In fact, annual price growth could very well edge up slightly in the coming months as comparisons to last year become less favorable. “Inflation is too high. Our target’s 2%,” Richmond Fed’s Barkin said at an event Wednesday after the report. “If you back off too soon, inflation comes back strong, which then requires the Fed to do even more.”

Weekly jobless claims at 8:30 am ET, expected at 249K declined to 237K -12K from the previous week; the 4-week average declined to 246.75K from 253.50K. The employment sector still hotter than what the Fed would like to see. The data indicates most companies are reluctant to fire workers despite a slower economy. Claims have moved up this year from historic lows, but they still aren’t pointing to a big deterioration in the labor market.

June PPI softer than the already low expectations. Month/month expected +0.2% came at +0.1%, year/year thought to be +0.5% reported at 0.1%. Core PPI month/month expected +0.2% increased 0.1%, year/year forecasts at 2.8% increased 2.4%. One driver for PPI is the decline in oil prices although oil has increased in July. PPI can be a precursor for continuing decline in the consumer sector. PPI the lowest read since Sept 2020.

The 10 year note didn’t show any reaction to the two 8:30 am releases, prior to the data the note traded at 3.83% and held there with no improvement or increase. It took an hour before the 10 declined to 3.82% -4 bps from yesterday.

At 9:30 am the DJIA opened +87, NASDAQ +94, S&P +17. 10 year note 3.82% -5 bps. FNMA 6.0 30 year coupon +19 bps and +36 bps from 9:30 am yesterday.

At 1 pm Treasury will auction $18B of 30 year bonds re-opening the bond issue from February.

Last week the 10 year note broke out of its month-long trading range that had held any buying at 3.84%, once the range was violated it jumped to 4.09% in four sessions, now back to 3.82% in four days. The spike higher driven by markets expecting at least two more rate increases. After yesterday and this morning markets still anticipating the Fed will increase one more time when the FOMC meets in two weeks. One concern the Fed continues to face, the strong labor markets that Powell continues to reference.

PRICES @ 10:00 AM

10 year note: 3.81% -6 bp

5 year note: 3.99% -8 bp

2 year note: 4.65% -10 bp

30 year bond: 3.93% -2 bp

30 year FNMA 6.0: @9:30 am 101.11 +19 bp (+36 bp from 9:30 am yesterday)

30 year FNMA 5.5: @9:30 am 99.88 +27 bp (+49 bp from 9:30 am yesterday)

30 year GNMA5.5: @9:30 am 99.81 +23 bp (+53 bp from 9:30 am yesterday)

Dollar/Yuan: $7.1613 -$0.0051

Dollar/Yen: 138.20 -0.31 yen

Dollar/Euro: $1.1194 +$0.0064

Dollar Index: 100.04 -0.48

Gold: $1964.30 +$2.60

Bitcoin: 30,627 +285

Crude Oil: $75.70 -$0.05

DJIA: 34,459 +112

NASDAQ: 14,057 +138

S&P 500: 4496 +24

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.