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Market Snapshot 6.16.23- What A Week

Good Friday AM,

Wow, what a week.

It is thankfully, almost over, and a welcome Monday holiday gives us an extra day to regroup. This week had a ton of data. Most of which was weaker than expected. We had a FOMC rate decision which rocked markets (as it often does) and then a bounce (as we often do). Upon reflection, markets didn’t buy (all of) the Fed’s hawkish rhetoric. We had divergent economic views and actions from Central Banks across the globe. The ECB raised .25% and signaled a pause for next month. Japan held steady as expected, and China unexpectedly cut their rate by .25%.

With the markets being interconnected globally, you can see how the data and policy changes impacts asset prices and pricing which trickles down to impact mortgage rates. Consumer Sentiment was the lone wolf for data today and it came in a bit stronger at 63.9 vs expectations of 60.0 (up from 59.2 last month). Bonds started out under a lot of pressure but have since clawed back much of the loss. I wouldn’t expect much from the bond market or from rate sheets today on a Friday heading into a holiday weekend.

A few pieces from around that are interesting on this Friday…

Look at the chart below. What do you think happens to retail sales when student loan payments kick back in????? The government’s pandemic-era pause on student-debt payments allowed millions of Americans to forget about a big monthly bill for more than three years. Now some Americans face a serious reckoning—and so do the places where they spend their money. The collective monthly impact on households cashflows could be as big as $10 billion.

I know it’s a sour pill, but we do need to swallow it.

According to data from MBA’s May 2023 Mortgage Credit Availability Index (MCAI), we saw the third consecutive month of declining credit availability, as the industry continued to see more consolidation and reduced capacity as a result of the tougher market. These factors brought the MCAI to its lowest level since January 2013 and the index was around 20 percent lower than the same month a year ago. The index accounts for the number of different types of loan programs investors are willing to purchase and the credit criteria of those programs in order to gauge overall credit availability to borrowers.

Lenders pulled back on loan offerings for higher LTV and lower credit score loans, even as loan application activity remains extremely low – home purchase applications are almost 30 percent behind last year’s pace, and refinance activity lags by more than 40 percent. There is typically some expansion of credit when volumes are low, as there is more competition for the limited volume in the market, but that is not the case in the current environment.

Two weeks ago, this newsletter wondered what’s stopping the Federal Reserve from just going ahead with a rate hike this month. Fresh off the first no-move meeting since the Fed’s liftoff last March, that’s still the question being asked. Though policy makers left rates unchanged, Fed chief Jerome Powell sounded pretty concerned about inflation: risks are to the upside, not much progress has been made on core PCE in the last six months and also, the central bank’s forecasts have been wrong over the last two years. That concern seemed out-of-step with the unanimous vote to hold rates at this month’s meeting, especially given that the newly updated dot plot penciled in the possibility of two more hikes before the end of 2023.

“If you’re worried about inflation today, you should hiking rates today. It does seem slightly odd that they took a pause or a skip or whatever they did today.” Former Treasury Secretary Lawrence Summers has a more sinister theory. Given how confusing the messaging was at this week’s meeting — holding rates steady, while adding two increases into the outlook — internal politics at the central bank may have played a role, he said. “This meeting felt like it was driven as much by the internal political dynamics of the Fed as by any consistent and coherent reading of the economic situation,” said Summers on Bloomberg Television’s “Wall Street Week” with David Westin. “And that was a bit disturbing.” 

Maybe I should have led with this snippet as it just seems absurd…

Call it Bey-flation. Sweden’s higher-than-expected inflation in May was due in part to Beyoncé launching her Renaissance World Tour in Stockholm, according to an economist at Danske Bank. Fans flocking to Sweden’s capital city sent hotel prices soaring. Calling it a “Beyoncé blip,” economist Michael Grahn estimates that Beyoncé’s tour contributed about 0.2 percentage point to inflation. Sweden’s government said overall inflation rose 9.7% in May, Joseph Pisani reports.

Please remain safe and stay healthy, enjoy the holiday weekend and first, make today great!