Good Monday AM,

Bonds are up a bit in the morning.

The ten-year yield sits at 3.97%. Today the only news released was Empire State Manufacturing, and it was clobbered. We continue to see further economic weakening, which should slowly ease inflation. The good news is that inflation pressure has moved from core goods to the services sector. This is a sign that we are working our way through the snake. This is a light new week, which puts the technical in charge. We are again due for a bounce, but I would still suggest staying locked until we get confirmation that the bottom is in.

The MBA kindly shared:

This week’s Chart of the Week highlights different measures of housing costs, all indexed to 2018. The lowest lines are the CPI measures of shelter costs, including the “’all-in” shelter measure and breakouts for rents and owners’ equivalent rents. The CPI rent measure can be considered “in-place rents” since it mainly captures costs to renters currently in their homes. The purple and yellow lines are two measures of asking rents using data from Zillow and the U.S. Census Bureau, showing what an available apartment commands in today’s market. The gold line is from MBA’s Purchase Applications Payment Index (PAPI), a measure tracking monthly mortgage principal and interest payments for the median person applying for a new loan to purchase a single-family home. As can be seen, increases in interest rates and in asking rents have led to a dispersion of these different measures. While telling very different stories, all measures show the continued pressure housing costs are exerting on overall inflation. The strong job market and rapid wage growth have also been key factors contributing to elevated inflation. There have been early signs of weakening in the job market, as the number of job openings decreased sharply in August to just over 10 million. However, even with a lower level of job openings, there is still significant upward pressure on wages. We expect the Federal Reserve will increase rates by 75 basis points in November and 50 basis points December in an attempt to further cool the economy and bring down inflation. 

The WSJ shared:  

The U.S. is forecast to enter a recession in the coming 12 months as the Federal Reserve battles to bring down persistently high inflation, the economy contracts and employers cut jobs in response, according to The Wall Street Journal’s latest survey of economists. On average, economists put the probability of a recession in the next 12 months at 63%, up from 49% in July’s survey. It is the first time the survey pegged the probability above 50% since July 2020, in the wake of the last short but sharp recession.

The truth is that even if a recession is not declared until next year, we are all feeling and living through it right now. Make no mistake. The silver lining is that by the time the ball is called on the recession, we are likely to be coming out of it.

Please remain safe and stay healthy, make today great!