Morning Report: Good news on inflation

Vital Statistics:

S&P futures4,171 33.5
Oil (WTI)82.32 0.85
10 year government bond yield 3.37%
30 year fixed rate mortgage 6.39%

Stocks are higher after the consumer price index came in lower than expectations. Bonds and MBS are up.

Prices at the consumer level rose 0.1% MOM and 5.0% YOY. Shelter was the big driver, as food and energy prices both fell. If you strip out food and energy, the core rate rose 0.4% MOM and 5.6% YOY. It looks like the spike we saw in January and February is over.

Chicago Fed president Austan Goolsbee made dovish comments yesterday, urging the Fed to use caution on further rate hikes. His point is that the banking crisis will restrict credit which will act as further tightening. The Fed meeting is May 2-3, so we will get one more PCE reading before the meeting. But other data points – ISM, NFIB, etc are showing price pressures are declining.

The Fed Funds futures have trimmed their expectations for the May meeting slightly, but are still tilted towards a final 25 basis point hike in the Fed Funds rate.

Mortgage applications increased 5.3% last week as purchases rose 8% and refis rose 0.1%. Refis are down 57% from a year ago. “Incoming data last week showed that the job market is beginning to slow, which led to the 30-year fixed rate decreasing to 6.30 percent – the lowest level in two months,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “Prospective homebuyers this year have been quite sensitive to any drop in mortgage rates, and that played out last week with purchase applications increasing by 8 percent. Refinance application volume was a mixed bag with total volume essentially flat, conventional volume down for the week, but VA refinance volume increasing. The level of refinance activity remains almost 60 percent below last year, as most homeowners are currently locked in at much lower rates.”

Mortgage Credit Availability increased in March, according to the MBA. “Mortgage credit supply increased modestly in March but remained close to its tightest levels since 2013. With the spring buying season underway, lenders are grappling with the threat of a recession and tighter overall financial conditions following the recent bank failures,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “The supply of government mortgage credit – which includes FHA and VA loans that many first-time homebuyers rely on – declined for the third time in four months, which could potentially hinder first-time buyer activity. There was a small increase in credit availability for jumbo loans, with more programs offered for cash-out refinances. However, we expect banks, which account for most of the jumbo market, will tighten jumbo credit criteria in response to recent challenges in the banking sector.”

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Author: Brent Nyitray

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

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