Morning Report: Inflation decelerating?

Vital Statistics:

 LastChange
S&P futures4,08430.25
Oil (WTI)113.74-0.9
10 year government bond yield 2.74%
30 year fixed rate mortgage 5.29%

Stocks are higher this morning on no real news. Bonds and MBS are up small.

The stock market is open for a full day today, but the bond market closes early at 2:00 pm. Liquidity should be downright lousy in the MBS market as most of the street will be on the LIE by noon.

Personal incomes rose 0.4% MOM in April, according to BEA. Personal consumption expenditures rose 0.9%. Incomes were lower than street expectations, while income were higher.

The PCE price index rose 0.2% MOM and 6.3% YOY. Ex-food and energy it was up 0.3% MOM and 4.9% YOY. The trend in the core rate has been decelerating which is good news as far as the Fed is concerned. The YOY numbers are still bad, but it looks like the worst is over as far as inflation goes.

Regardless of the inflation picture, consumer sentiment remains dour. It is back at the lows of 2008 -2010 and 2012. The drop in sentiment was driven primarily by buying conditions for durable goods and housing. Inflation is the key driver here, although housing inventory has been an issue for over a decade. Still, lower inventory and higher borrowing costs are making things difficult for would-be first time homebuyers. That said, consumers view this situation as temporary, and future expectations are higher.

Author: Brent Nyitray

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

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