Vital Statistics:
Stocks are lower this morning on no real news. Bonds and MBS are up.
Inflation at the wholesale level rose 0.1% MOM and 2.6% YOY. This was better than expected. Final demand less food, energy, and trade services rose 0.1% MOM and 2.7% YOY. This was again below expectations. We are seeing bond yields fall in the aftermath.
Separately, initial jobless claims increased to 248k last week, a sign the labor market is weakening.
None of this will matter to the Fed, which will maintain interest rates at current levels next week. Note that the Fed Funds futures are pricing in a miniscule probability of a rate hike.
Bonds rallied yesterday on the softer-than-expected CPI release. Bonds rallied further after strong demand in the 10 year bond auction. The Treasury sold $39 billion worth of 10 year bonds at 4.421% yield and a 2.52 bid-to-cover ratio indicating strong demand. We have a $22 billion 30-year auction set for today.
The Trump Administration said that deals were “rocking” with several countries including China, South Korea, and about 13 others. The EU has proven to be “thorny” and will probably be dealt with last. Trump said he was “vary happy” with China.
The US budget deficit hit $316 billion in May, down 9% from a year ago. Tax revenues were up 15% while spending was up about 8%. There was a jump month-over-month due to a small surplus in April tied to tax receipts. Interest on the debt continues to consume a larger part of the budget, falling behind Medicare and Social Security as the biggest expenditures.
Lock volume fell 5% last week according to MCT. The decline was driven by rate / term refis. Purchase volume was down about a percent. “I view the consistency in purchase activity as a good thing,” said Andrew Rhodes, Senior Director and Head of Trading at MCT. “Rates are still elevated, affordability remains a challenge, and yet we’re seeing steady demand. That tells me there’s still momentum in the market, even if it’s cautious.”
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