July 12, 2023 – Economic News

• July 12, 2023
• realestate
• Business & Markets, Fed, Interest Rates, Politics & Economy, Rates, Real Estate, Real Estate Finance, Recession, World News, Your Real Estate Life

MBS OVERVIEW

Our benchmark FNMA MBS 6.00 July Coupon is currently up +57 BPS.

Taking it to the House: Weekly Mortgage Applications eked out a small gain of 0.9% even though mortgage rates shot up during that period. Purchases were up 1.8% and Refinances were down -1.3%.

Inflation Nation: The June headline Consumer Price Index increased by 0.2% vs. est. of 0.3%. YOY, it was up 3.0% vs. est. of 3.1%. Core (ex food and energy) CPI also increased by 0.2% vs. est. of 0.3%. YOY, it was up 4.8% vs. est. of 5.0%. The July Atlanta Fed Business Inflation Expectations for the next 12 months remained at 2.8%.

The Talking Fed: We got the Fed’s Beige Book at 2 pm today. You can read the official release here. Here are a few key highlights:

• Overall economic activity increased slightly since late May. Five Districts reported slight or modest growth, five noted no change, and two reported slight and modest declines.
• Employment increased modestly this period, with most Districts experiencing some job growth. Labor demand remained healthy, though some contacts reported that hiring was getting more targeted and selective. Employers continued to have difficulty finding workers.
• Prices increased at a modest pace overall, and several Districts noted some slowing in the pace of increase. Consumer prices generally increased, though reports differed in the extent to which firms were able to pass along input cost increases.
• Reports on consumer spending were mixed; growth was generally observed in consumer services, but some retailers noted shifts away from discretionary spending.

Treasury Dump: We had a 10 year note auction today at 1 pm. $32B went off at a high yield of 3.857%. The bid-to-cover ratio was healthy at 2.53.

Central Bank Palooza: The Bank of Canada increased their interest rate by 25BPS to 5.00% and said that they might not hit their target inflation rate until late 2025. New Zealand kept their key interest rate at 5.50%.

On Deck for Tomorrow: PPI, and Core PPI, Initial Weekly Jobless Claims, 30Y Treasury Bond auction.

CPI inflation at a two-year low. Inflation is the lowest since early 2021 after peaking at 9.1% in June 2022. The core CPI (less food and energy) expected at 5.0% dropped to 4.8%. The esti9mates prior to the report were expecting to see a decline in inflation, the actual data was even better than forecasts encouraging markets the Fed is closer to the end of tightening than thought yesterday. Given the strong comments from J Powell and most other Fed officials the Fed still expected to increase the FF rate by 25 bps in two weeks, presently with today’s decline traders lowered the outlook that the Fed may be finished rate tightening.

The services data, excluding housing and energy, held generally unchanged from May, year/year is up 4.0%, the smallest gain since 2021, up 0.4% from May, rent increases the lowest since the end of 2021. Airfares fell 8.1%, the second-largest drop since April 2020. Hotel stays fell 2% in June, the second decline this year. Energy prices rose, led by gasoline and electricity. Used cars fell for the first time in three months. Car insurance costs continued to rise. Shelter costs accounted for more than 70% of the overall monthly advance. We continue to expect the Fed will increase rates in two weeks but after that the outlook is clouded, no increase in Sept but looking out to November, the implied likelihood of another increase in November fell to 26.8% from 42.4% yesterday.

Tomorrow June producer price index (PPI), prices at the wholesale level that trickle down to consumer levels going forward. The forecasts even better than the estimates for CPI this morning. PPI month/month +0.2% from -0.3% in May, year/year +0.5% down from 1.1% in May, ex food and energy month/month +0.2% the same as may, year/year +2.8% also the same as May. It reflects the slow increases in wholesale prices.

Weekly jobless claims tomorrow, expected at 249K from 248K the prior week.

The report generated big moves in several markets, stocks, crude oil, the dollar made big moves. The dollar now at a 15-month low.

Treasury sold $32B of 10 year notes, re-opening the note issued in February; re-openings usually don’t generate the demand that comes when a new note is issued. Not as aggressive as recent demand, in the WI market this morning the note traded at 3.847%, at the auction 3.857%. The cover at 2.53 better than the 2.40 average.

The Fed’s Beige Book didn’t add much, discretionary spending slowed, five Fed districts saw slight or modest growth while five saw no change and two reported slight declines.

Six sessions ago the 10 traded at 3.84% that had kept the yield in check since the beginning of June, on Monday the 10 traded at 4.09%, since Monday the note has returned to 3.84% today. The climb to 3.09% driven by the outlook for two more consecutive increases, this month and in September, supported by comments from Powell and most other Fedsters. The current outlook, only one more increase. Today the low yield 3.84% then ending at 3.86%. There is technical reason to assume the rates tomorrow may be a little higher, that the 10 couldn’t crack 3.84% bothers me.