Core PCE 1.3% Fed wants 2%

October 30th, 2017

Suggestions that can change during the day: After the recent steep decline, Mortgage Bond prices are modestly higher on Stock weakness. Carefully floating is recommended.

After close Commentary: MBS kicked off the week on a positive note with the help of lower Stock prices and somewhat negative headlines out of Washington D.C. Lower shares of Merck, the Russian probe and corporate tax cuts to go slowly weighed on Stocks and boosted Bond prices, which led to lower yields. Tame Core PCE inflation also helped to buoy Bond prices. The Fannie Mae 30-yr 3.5% coupon closed at 102.84, +28bp and above resistance at the 200-day Moving Average (102.72). The Dow lost 85.45 points to 23,348.74 while the S&P 500 fell by 8.24 points to 2,572.83. The NASDAQ saw a small loss of 2.30 points to 6,698.96 as higher tech Stocks helped to limit the losses. WTI oil closed at $54.15, +$0.24. 10-yr T Note yield fell to 2.36%. Tomorrow's economic data includes Q3 Employment Cost Index, S&P Case-Shiller Home Price Index, Chicago PMI and Consumer Confidence.

Late morning Commentary:   The Fed's favorite inflation gauge, the year-over-year Core PCE, remained at 1.3% in October, well below the 2% target that the Fed has been looking for. On a monthly basis, the Core PCE was unchanged at 0.1%. The Fed has said that it will most likely raise rates at the December FOMC meeting, despite the low inflation levels. Within the report it also showed that Personal Spending recorded its largest increase in more than eight years last month, rising 1.0% versus the 0.8% expected. That is good news heading into to the holiday shopping season. Personal Incomes were up 0.4%, just above the 0.3% expected.

The two-day Federal Open Market Committee meeting kicks off on Tuesday and ends Wednesday with the 2:00 p.m. ET release of the Fed's monetary policy statement. A rate hike to the short-term Fed Funds Rate is not expected at this meeting. The Fed members will most likely repeat that economic activity has been rising moderately so far this year while job gains have remained solid in recent months. The decline in job growth in September will most likely be mentioned as well but the Fed has already said that the weak numbers were due to hurricanes Harvey and Irma.

Residential real estate company Redfin reported recently that the average price of a newly-built home rose in the third quarter of 2017. The average price rose to $374,000, up 3.3% year-over-year compared to existing home prices. The report went on to say that one in eight homes for sale in September were new construction, compared to one in 13 five years ago. “After almost a decade of underproduction, we are finally seeing a slow, steady increase in single-family housing starts, up 9% from a year ago,” said Redfin Chief Economist Nela Richardson. 

Johnmarbury.com has attempted to verify the information contained on this post.  However any aspect of such may change without notice.  Johnmarbury.com does not provide investment advice and does not represent that any of the information or related analysis is accurate or complete at any time. Forgive my spelling and grammatical mistakes due to writing skills that are lacking and the need to communicate quickly.  

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