Market Snapshot June 12, 2018

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Good Morning on this fantastic Tuesday,

 

The Fed meeting starts today, stock and bond markets are all flat to improving showing basically no reaction to data or political news. Dow +20, The 10-yr at 2.96% and mortgage bonds +3bps. The economic data:

 

CPI for May

  • Index: Actual 0.2%, Consensus 0.2%, Last 0.2%.
  • Core: Actual 0.2%, Consensus 0.2%, Last 0.1%.

 

Short version is: It is highly likely that the Fed will announce an increase tomorrow, but it’s possible that this could be the last of the year, given the Fed’s recent guidance that they will reduce the amount of bonds they had planned on liquidating. That would be bond-friendly, it is almost worth waiting to see how the Fed statement reads tomorrow, but locking is still a more prudent strategy.

 

Good commentary on the data from Bloomberg, although it is a bit longer and more technical. U.S. inflation accelerated in May to the fastest pace in more than six years, reinforcing the Federal Reserve’s outlook for gradual interest-rate hikes while eroding wage gains that remain tepid despite an 18-year low in unemployment. The consumer price index rose 0.2 percent from the previous month and 2.8 percent from a year earlier, matching estimates, a Labor Department report showed Tuesday. The annual gain was the biggest since February 2012. Excluding food and energy, the core gauge was up 0.2 percent from the prior month and 2.2 percent from May 2017, also matching the median estimates of economists. The pickup in headline inflation partly reflects gains in fuel prices, though the annual gain in the core measure — seen by officials as a better gauge of underlying inflation trends — was the most since February 2017. While the Fed is widely projected to raise borrowing costs this week for the sixth time in 18 months, the path of inflation will figure into policy makers’ thinking on the pace of increases for the second half and in 2019. The Fed’s preferred gauge of inflation — a separate consumption-based figure from the Commerce Department — came in at the central bank’s 2 percent goal during March and April, and the figure tends to run slightly below the Labor Department’s CPI. At the same time, several Fed officials have indicated that a modest overshoot of the inflation goal wouldn’t necessarily warrant faster interest-rate hikes, after years of below-target price gains. A separate Labor Department report on Tuesday illustrated how higher prices are pinching wallets: average hourly wages, adjusted for inflation, were unchanged in May from a year earlier, even as nominal pay accelerated to a 2.7 percent annual gain from 2.6 percent in April. For production and nonsupervisory workers, real average hourly earnings fell 0.1 percent from a year earlier. Seasonally adjusted gasoline prices rose 1.7 percent in May from the previous month, after a 3 percent gain in April. The shelter category, which accounts for about one-third of the CPI, rose 0.3 percent from the previous month, continuing a trend of steady increases.

 

On to the surreal meeting between Mr. Trump and Mr. Kim. The two leaders apparently signed a “promise letter”. We promise not to play war anymore in the backyard as long as they promise to dismantle and shut down their nuclear program. Is this really possible? I hope so, but doubt I am the only skeptic. Markets not reacting much.

 

Interesting stat, nearly 65% of homes on the market are more than 25 years old, according to a new report from Land Gorilla.

 

Make today great!