Morning Report: Inflation remains high

Vital Statistics:

S&P futures4,140 -11.75
Oil (WTI)75.320.57
10 year government bond yield 3.45%
30 year fixed rate mortgage 6.45%

Stocks are lower this morning after disappointing earnings from Amazon. Bonds and MBS are up.

Personal Incomes rose 0.3% in March, while spending was flat. The all-important PCE Price Index rose 0.1% MOM while the core rate rose 0.3%. The headline number rose 4.2% YOY while the core rate was up 4.6%. Inflation continues to move down, although it is well above the Fed’s target range.

This probably won’t change the Fed’s plans to hike 25 basis points next week. The market sees a 90% chance for another 25 basis points next week, and then a 25% chance of another 25 in June. After that, the betting is that rate cuts soon follow.

Employment costs rose 1.2% in the first quarter, according to the BLS. On an annualized basis, employment costs rose 4.5%. Private industry workers saw a 4.8% increase in compensation. Service workers saw increases up to 6%. The rise in service wages is a particular focus for the Fed.

The National Multifamily Housing Council reports that the apartment market is beginning to loosen. “Apartment operators reported an uptick in vacancies and concessions this quarter,” noted NMHC’s Vice President of Research Caitlin Sugrue Walter. “And while some of this softness can be attributed to seasonality, investors remain concerned about the coming wave of supply in some markets and the prospect of slower economic growth in 2023. Only 11% of Quarterly Survey respondents believe that the Fed will be able to achieve a soft landing this year in its effort to rein in inflation. The transaction market, meanwhile, remains at a virtual standstill, with current apartment owners unwilling to offer buyers the lower prices necessary to compensate for both this diminished economic outlook and the elevated cost of debt.”

You can see below how much multifamily units have been coming onto the market. We are at levels last seen since the mid 80s.


Author: Brent Nyitray

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

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