Morning Report: NFIB reports highest inflation concerns since 1981

Vital Statistics:

S&P futures4,472-8.2
Oil (WTI)90.07-1.23
10 year government bond yield 1.96%
30 year fixed rate mortgage 3.93%

Stocks are lower this morning as bonds continue to sell off. Bonds and MBS are down.

Part of the reason for the sell-off in stocks and bonds has been the consistently hawkish direction of the Fed Funds futures. The March Fed Funds futures are now predicting a 71% chance of a 25 basis point increase and a 29% chance of a 50 basis point hike. A month ago, it was a 6% probability and markets thought there was a 25% chance that the Fed would hold rates at zero.

The consensus for the December 2022 FOMC meeting is that the Fed Funds rate will be 150-175 basis points, which represents six 25 basis point increases. Bank of America is even more aggressive, forecasting that the Fed Funds rate will be between 1.75% and 2%.

Small business optimism slid in January, according to the NFIB. “More small business owners started the New Year raising prices in an attempt to pass on higher inventory, supplies, and labor costs,” said NFIB Chief Economist Bill Dunkelberg. “In addition to inflation issues, owners are also raising compensation at record high rates to attract qualified employees to their open positions.”

The number of businesses characterizing inflation as their biggest problem reached the highest level since 1981. In addition, the net number of firms raising prices hit 61% which was the highest reading since 1974. In addition, a net 50% of small businesses reported increasing raising compensation, a 48 year high.

The slowdown in the mortgage business has hit Spanish bank Santander. It will exit the US mortgage business. “We are simplifying our business to focus on those areas where we can be successful with clients and deliver solid returns,” Tim Wennes, president and CEO of Santander Bank and its U.S. holding company, said in an interview.

The mortgage industry was understaffed in general heading into the big 2020 refi wave, and is now overstaffed. Expect more layoffs going forward.


Author: Brent Nyitray

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

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