Good Morning on this best day of the week, Wednesday,
Lots of mid-tier data today.
Most of it shows a weakening or slowing economy which is just what the doctor ordered if we want to see rates improve. As a result of the miss in Retail Sales, PPI, Industrial Production, Capacity Utilization, and PCE (Fed’s favorite inflation metric), bonds are doing much better. The 10-yr is down to 3.43% and mortgage bonds are up 32bps.
It’s a good day.
Add in that the Homebuilder index surprised to the upside, show some signs of life in real estate, and it is better than a good day. The only downer on the day was the Fedspeak which is constantly throwing cold water on us. It has turned the equity markets upside down (Stocks don’t like higher interest rates either). Still some push and pull, if not for the negative Fedspeak, rates would already be another .5 better. We will get there.
Interesting and brief commentary from Bloomberg. Don’t think too much into it. Just food for thought.
- The consumer remains strong. The labor market remains strong. There are signs of freight activity having stabilized. And even housing activity is picking up.
- In fact, here’s a chart of the homebuilder ETF ITB, which is around its highest levels since last spring, having surged since the middle of October.
Of course, this raises another fundamental question, which is: what does this mean for the inflation trajectory? We’re in a moment where people are feeling optimistic. Goods prices have tanked. And a big rollover in official rent price measures should be coming. In a recent WSJ column, Greg Ip even talked about how maybe inflation was transitory after all. So now the big question is, if we do get this upward impulse in general activity, can that coincide with ongoing deceleration in inflation? Or do we start to see the price of various goods and services firm up again, along with robust demand. This is probably the trillion-dollar question for the first quarter or first half of 2023.
Please remain safe and stay healthy, make today great!