Market Matters

We saw choppy trading this week as the market flipped between risk-on/risk-off sentiment due to the coronavirus news. Stocks traded to new highs this week, while the 10 year is in the
1.50%-1.68% range. Fed Chairman Powell delivered his semi-annual testimony to House Financial Services Committee this week, although not much was learned on if the Fed will take any further action in cutting rates soon. In the week ahead, the uncertainty the market faces is what we have seen for the last several weeks, will the coronavirus headlines be worse or better than expected. If it is worse, we expect the 10 year and mortgage prices to rally, if the news comes in better, we expect them to sell-off.

 

CPI

January’s CPI inflation showed a rise on headline of +.1%, bringing the YoY rate up from 2.3% to 2.5%. Core prices,
ex-food and energy, were up +.2%, yet the YoY print held steady at 2.3%. Most components posted moderate gains with services prices increasing +.4%, housing up +.3%, and food/beverage costs +.2%, and apparel increased +.7%. Energy prices saw a larger decline of -.7%, down from a +1.6% prior gain as gasoline prices fell. Real average hourly earnings rose +.1% on the month, but slowed to a +.6% YoY rate. Overall, a cool report with relatively steady price data. With no signs of a pick up in price pressures, this is unlikely to alter the Fed’s current views in any way.

 

Initial Jobless Claims

Initial Jobless Claims for the week of February 8th increased by +2k to 205k from a previously revised 203k (orig. 202k). The 4-week moving average held steady at 212k, while continuing claims fell -61k to 1.698mln from 1.759mln. This is now the 258th consecutive week with jobless claims under the 300k mark, which is the longest stretch on record. Overall, claims seem to be dropping most likely due to the seasonal factors here at the first of the year. If weather does make a turn to the downside, we would expect the weekly claims prints to show higher numbers ahead.

 

NFIB Small Business Optimism Index

The January NFIB Small Business Optimism Index rose to 104.3 from a prior 102.7. Now that the Phase One trade deal has been signed, and the impeachment proceedings are concluded, it’s expected that optimism amongst small businesses on a whole is likely to improve. “Small businesses started 2020 on a strong note, adding an average employment change per firm of .49 workers, the highest level since March 2019,” according to NFIB’s monthly jobs report. The report notes that owners are also planning to raise their employee compensation to fill their open positions.

 

Mortgage Applications

The MBA Weekly Mortgage Applications Index saw an increase of +1.1% in the week ending February 7th. Purchase apps declined by -2.8%, while refi apps gained +5%. The
4-week average for purchases now sits at +13%, while the refi average is at +60%.