Market Matters

This was a light week in terms of data until we hit CPI on Thursday. That hot print of over 7% inflation, along with some extremely bearish comments from St. Louis Fed President Bullard, sent the 10-year over 2%. Bullard is wanting a full 1% hike by July, unsure if he will get that or not, but the market did not like the comments. It is likely at this point that we stay defensive as rates continue to keep moving higher.

 

Initial Jobless Claims

Initial Jobless Claims for the week ended February 5th declined by -16k to 223k from a prior 239k. The 4-week moving average for headline claims has now slipped from 255.3k down to 253.3k. Continuing claims, which lag by a week, remained flat at 1.621mln for the week of January 29th. They remain well below the pre-pandemic level of 1.7mln, while headline claims remain just a bit above their pre-pandemic level at ~215k.

 

CPI

Consumer inflation was hotter than expected for January, with the headline and core measures both posting +.6% increase MoM. This brought headline CPI up from a prior +7.0% YoY to +7.5%, and the core up from +5.5% YoY to +6.0%. Within the data, food prices rose +.9%, bringing its YoY rate up to +7.0%, the highest since 1981. Energy prices rose +.9% as well, and are up +27% YoY, but the big kicker came from household energy prices spiking on a +4.2% increase in electricity costs. Vehicle costs were flat for new autos and up +1.5% for used cars and trucks. The two categories have posted respective increases of +12.2% and +40.5% over the prior 12 months. Shelter costs, which make up roughly one-third of the total CPI print, increased by +.3% on the month, and is up +4.4% over the past year. The recent surges in inflation have muted the sizeable earnings growth workers have seen. Real average hourly earnings rose just +.1% for the month, as the +.7% monthly gain in wages was almost erased by the +.6% inflation gain.

 

Weekly Mortgage Applications

The MBA weekly mortgage application index declined by -8.1% for the week ending February 4th. Purchase applications fell -10.0% and are -12.0% lower than the same week a year ago. Refinance applications declined by -7.0% and were -52.0% lower vs. the same week last year. "Mortgage rates continued to edge higher last week, with the 30-year fixed rate climbing to 3.83 percent. Rates followed the U.S. 10-year yield and other sovereign bonds as the Federal Reserve and other key global central banks responded to growing inflationary pressures and signaled that they will start to remove accommodative policies. With rates 87 basis points higher than the same week a year ago, refinance applications continued to decrease," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting. "Purchase activity slowed after the previous week's gain. Both conventional and FHA purchase applications saw proportional declines, resulting in purchase activity overall dropping 10 percent. The average loan size again hit another record high at $446,000. Activity continues to be dominated by larger loan balances, as inventory remains tight for entry-level buyers."

 

Small Business Optimism Index

The NFIB Small Business Optimism Index fell -1.8 points to 97.1 for January, posting the lowest result since last February. The NFIB highlighted that more businesses were rising prices, as 22% said that inflation was their single biggest problem. That report noted that, "In addition to inflation issues, owners are also raising compensation at record high levels to attract qualified employees to their open positions." They also listed among their key findings that one component improved, seven declined, and two were unchanged. The net percentage that saw better business conditions over six months rose by two points to -33%, which is down -13 points in six months, but highest in four. In addition, 47% of owners had job openings that could not be filled, down -2 points and the lowest since last June.