Market Matters

This was an interesting week as we had some volatile intraday moves on Wednesday and Thursday, but overall, it feels not as volatile as some of the past weeks. CPI and PPI came in hot, and the market didn't sell-off as much as expected. The takeaway there is that the bond market is pricing in those Fed rate hikes and that there are expectations that growth will slow down enough that we now hear calls that the Fed will cut rates in 2023. Next week is a pretty light data week, the next big event is the FOMC meeting July 26th-27th, and whether the Fed will be raising rates 75 or 100 bps.

 

Initial Jobless Claims

Initial Jobless Claims for the week ending July 9th came in at 244k, which is higher than market expectations of 235k. This is the highest since mid-November 2021. The four-week moving average moved up 3.3k to 235.8k. Continuing Claims came in at 1.331mm, which is a nice beat from the expectations of 1.38mm.

 

Producer Price Index

PPI for June came in +1.1% MoM, beating market expectations of +0.8%, and for YoY it is up +11.3%, beating expectations of +10.7%. PPI ex food and energy was up 0.4% MoM, slightly below expectations of +0.5%, while PPI ex food, energy and trade was up 0.3% MoM, which also missed expectations of +0.5%. Specifically, gasoline prices jumped 18.5% in June. The indices for diesel fuel, electric power, residential natural gas, motor vehicle equipment, and processed young chickens also increased. On the other hand, the indices for iron, steel scrap, and jet fuel decreased.

 

Consumer Price Index

CPI for June came in hotter than expected, rising +1.3% MoM on headline, with the core up +.7%. This is the largest monthly gain in the headline figure since September 2005 and the biggest gain in the core measure in a year. This resulted in the YoY headline rising +.5% to +9.1%, the new high since 1981, with the core's measure ticking down just modestly by -.1% to +5.9%. Among the highlights in the June report were a +7.5% rise in energy, a +1.0% increase in food prices, +.6% in shelter, a +1.6% rise in used cars/trucks, and a +.7% increase in medical care services. Worth noting, food now is at +10.0% YoY, setting another record since 1981, while the energy index is now at a whopping +41.5% YoY. Overall, this is not what the Fed had hoped to see today, and while a 75bp hike is all buy a foregone conclusion, the questions and conversations over the next two weeks will center around whether the Fed goes higher than 75.

 

Weekly Mortgage Applications

The MBA weekly mortgage application index declined by -1.7% for the week ending July 8th. Purchase applications fell by -4.0% and were -18.0% lower than the same week last year. Refinance applications increased by +2.0% but were -80.0% lower vs. the same week a year ago. "Mortgage rates were mostly unchanged, but applications declined for the second straight week. Purchase applications for both conventional and government loans continue to be weaker due to the combination of much higher mortgage rates and the worsening economic outlook," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting. "After reaching a record $460,000 in March 2022, the average purchase loan size was $415,000 last week, pulled lower by the potential moderation of home-price growth and weaker purchase activity at the upper end of the market." Added Kan, "Refinance applications increased slightly last week, driven by an uptick in conventional and FHA refinances. The overall refinance index remained 5 percent below the average level reported in June. With the 30-year fixed rate 265 basis points higher than a year ago, refinance applications are expected to remain depressed."