Good Morning on This Terrific Thursday,
My son officially started middle school. Lots of changes, more responsibility. He handled it much better than his dad did. Very proud of him.
Today’s data has PPI elevated and Unemployment claims trickling down a bit (although continuing claims did move up). Markets were anticipating all of it and as such, not much has happened. The waters are pretty flat and calm so far today. Mortgage bonds, which had sold off more quickly and deeply than treasuries over the past two weeks, are seeing some better gains but all in all, I would still call it flat. Pundits continue to write that Covid is still the universal driver of markets with inflation being second. Covid cases and deaths seem to be getting worse but maybe people are just more accepting of it. There doesn’t seem to be much fallout in the markets because of it yet. This time last year, the world was crashing (although the equity markets weren’t, as they were flooded with cheap money and stimulus). As for inflation, more on it below but the bottom line, which I think we will hear in two weeks when the Fed has their symposium in Jackson Hole, is inflation is transitory and they are staying the course with bond purchases and low rates.
If real estate agents like Rocket Mortgage, I am not sure how they will feel about Rocket now becoming a Real Estate company competing with their clients for their clients. That is a tough model. Partnership and referrals are clearly dynamic. The release shared that Rocket is offering a traditional agent service. The company plans to continue their program of recommending agents through the “Rocket Homes Verified Partner Agent Network” program. Rocket also announced Wednesday a “soon to-be-released iBuyer program, facilitated through third-party partner companies.”
Back on inflation, here is a good piece from Bloomberg, also in the camp of it being transitory. Fed Chairman Powell is a smart man.
Yesterday’s July CPI data was largely in line with estimates and moderated from the prior month. Overall it was a win for the transitory camp. As Matt Klein points out in his newsletter, it showed some of the post-pandemic effects are fading. After taking a slight bearish turn lately, Treasury yields dropped and rate volatility also dived, partly also because of strong demand at a debt auction. If you’re worried about rising consumer prices, you probably won’t find this report entirely reassuring, but anyhow it feels like we will get a better grasp of underlying inflationary pressures going forward instead of debating about used cars.
It all shows there’s still a healthy appetite for Treasuries, even when the rest of the market is actually showing rosier economic expectations. An index that goes long U.S. large-cap cyclicals and short defensives is set for its best week in seven, while a market-neutral value strategy its best week in 14 — both moves that extended strongly yesterday.
One way to tie it all together is the pressure did not mount on the Fed to taper on the CPI print, but the U.S. recovery is still trundling along nicely. It’s a good world to live in for now.
Please remain safe and healthy. Have a great day!