Morning Report: Inflation comes in hotter than expected.

Vital Statistics:

 LastChange
S&P futures4,2232.8
Oil (WTI)70.370.34
10 year government bond yield 1.52%
30 year fixed rate mortgage 3.14%

Stocks are flattish this morning after inflation came in higher than expected. Bonds and MBS are down.

Inflation at the consumer level rose 0.6% MOM and 5% YOY. Given the lockdowns of a year ago, the annual numbers will have a lot of noise in them. Used vehicles accounted for a third of the increase. Ex-food and energy, the index rose 0.7% MOM and 3.8% YOY.

Housing is poised to push up the inflation numbers going forward, according to research from Fannie Mae. The inflation metrices attempt to capture home price appreciation via a concept called owners equivalent rent. Owners equivalent rent is a pretty lagged variable, which means that it probably won’t filter into the inflation numbers until 2022.

Initial Jobless Claims rose to 376,000 last week. Given the tightness of the labor market, it is surprising to see initial claims so elevated. Pre-COVID, they were in the low 200ks on average.

Home equity rose 19%, or about $1.9 trillion in the first quarter, according to CoreLogic. Negative equity fell about 24% to 1.8 million homes. This rise in equity will make cash-out refis a much bigger chunk of business going forward. “Homeowner equity has more than doubled over the past decade and become a crucial buffer for many weathering the challenges of the pandemic,” said Frank Martell, president and CEO of CoreLogic. “These gains have become an important financial tool and boosted consumer confidence in the U.S. housing market, especially for older homeowners and baby boomers who’ve experienced years of price appreciation.”

A bipartisan group of Senators are trying to craft an infrastructure plan that avoids tax hikes. This will be a tug-of-war between the left which wants to hike taxes and Republicans who are dead-set against raising them. While the Democrats nominally control the Senate, they will need 10 Republicans to go along to get a plan through.

Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

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