Morning Report: Janet Yellen thinks inflation may have peaked

Vital Statistics:

 LastChange
S&P futures4,247-20.25
Oil (WTI)97.31-4.79
10 year government bond yield 2.82%
30 year fixed rate mortgage 5.41%

Stocks are lower this morning after Chinese stocks were down 5% in the overnight session. Bonds and MBS are up.

The upcoming week is full of data, with home price indices on Tuesday, GDP on Thursday, and personal incomes / spending on Friday. There is no Fed-speak as we are in the quiet period ahead of the May FOMC meeting next week.

The Fed Funds futures are locked in on a 50 basis point hike next week:

Mortgage delinquencies hit a record low in March, according to Black Knight Financial. The national delinquency rate fell to 2.84%, which beat the previous record of 3.22% in early 2020. A strong employment market, combined with continued student loan deferrals, along with super-low interest rates have helped borrowers keep their heads above water.

The Chicago Fed National Activity Index dropped in March as employment-related indicators made less of a positive impact. Overall, the economy is still growing well above the historical trend, and is territory usually reserved for economic booms.

Despite the rise in home prices, Realtor.com noted that median listing prices are falling in a few MSAs, particularly in the Rust Belt. “Many of the metro areas seeing median list price declines have seen an [influx] of smaller homes come to market, which carry lower price tags,” says George Ratiu, manager of economic research for Realtor.com. “At the same time, several of the cities have unemployment rates, which, while still historically low, are above the national level. [This indicates] that buyers may face steeper affordability challenges from rising mortgage rates.”

It is important to note that Realtor.com is using a median listing price, which is different than the repeat-sales price that home price indices like Case-Shiller or Clear Capital use. So this isn’t really indicative that home prices, which have been rising at a double digit pace have suddenly hit the wall and are beginning to decline. Realtor.com’s observations reflect a change in product mix. That said, affordability has taken a big hit over the past year as higher mortgage rates and more expensive housing are conspiring to make life difficult for the first time homebuyer.

Janet Yellen says that inflation may have peaked, and she doesn’t see a recession. Investors are beginning to buy Treasuries, as they bet the sell-off has gone too far, too fast and the economy is poised to slow. “We have been incrementally adding longer-duration bonds into our portfolios in anticipation of market participants pricing in slower growth moving forward,” said Gavin Stephens, director of portfolio management at Goelzer Investment Management.

It looks like Twitter and Musk are about to agree to a friendly deal at his original bid of $54.20 per share. It doesn’t contain a no-shop provision, so a process has yet to be run.

Author: Brent Nyitray

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

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