Good Wednesday Afternoon (sorry for the late start, the day has just gotten away from me. This is still the best day of the week),
CPI came out well below market expectations!
The Core level number, which was .07% last month, was projected to be .05% this month but came out at only .03%! The media is underplaying this and quoting the annualized number. The bond market ended mixed, with the ten-year slightly up and the Mortgage Bonds better by 23 basis points. Once again, testing resistance.
I hope that treasuries snap out of it and begin their rally before Mortgage bonds decide to fall. Often, treasuries will lead Mortgage Bonds. Stocks went on a tear. Today’s data did change the futures market on the Fed rate hike to 59bps showing that a hike of 50bps is the more likely scenario. That said and something I will expand on, while the Fed tightens rates in September, it will also reinvest less (half as much)of the proceeds from mortgage and treasury payments/payoffs causing banks to step in. This will further reduce M2 supply and create additional stress in banks that will need to reserve more capital. This will be challenging for the economy.
Tomorrow we will get the PPI numbers, so we are not out of the woods yet.
Following with today’s data, Americans are expecting less inflation in coming years, according to a recent survey by the Federal Reserve Bank of New York. Respondents’ median expectation in July was for an annual inflation rate of 6.2% in one year, down from the 6.8% they expected in June, the regional reserve bank said Monday. They expected inflation in three years to be at 3.2%, down from the 3.6% they expected in June, and inflation in five years to be at 2.3%, down from a previous 2.8%. Lower rates on the horizon.
I am going to continue recommending we buy the dip (temporary dip from prices continuing to rise monthly).
The tea leaves continue to read, buy now.. paraphrasing from an additional report, “Due to decreased competition, says now is a great time to buy. In addition, while rates have increased, says there have been periods where rates have been much higher, around 12 to 18%, compared to the current rates of about 4.5 to 5%. “
To add a little more color on that point, in June, 824,000 single-family homes were under construction in the US, more than at any time since October 2006, according to an NAHB analysis of government data. Unsold inventory has ballooned in part because of supply-chain disruptions and labor constraints that created bottlenecks in the production pipeline. Builders are taking their foot off of the gas and are building less. If you want to have negotiating power, this is the time to exercise that. There wont be an opportunity when inventory dwindles.
Please remain safe and healthy, make today great and buy the dip!