12:30 PM : At mid-day stocks are higher. The Dow is +61.28 at 34,570.31 and the S&P 500 is +10.73 at 4,516.15. Mortgage Bonds are -0bp at 99.67
Last Week in Review
There was welcome news as June brought big drops in consumer and wholesale inflation. Plus, several indexes showed that home prices are appreciating nationwide, providing opportunities right now for buyers to build wealth through homeownership. Read on for these stories and more:
-Consumer Inflation Makes Meaningful Move Lower
-Huge Progress in Wholesale Inflation
-Home Price Appreciation Continues Higher
-Holiday Impact on Unemployment Filings
Consumer Inflation Makes Meaningful Move Lower
June’s Consumer Price Index (CPI) showed that inflation rose 0.2%, with this monthly reading coming in just below estimates. On an annual basis, CPI fell sharply from 4% in May to 3% last month, reaching its lowest level in more than two years. Core CPI, which strips out volatile food and energy prices, increased 0.2% while the annual reading declined from 5.3% to 4.8%.
What’s the bottom line? Declining costs for used cars and airfares helped inflation last month, while stubbornly high shelter costs remained a key contributor.
Inflation has declined sharply from the 9.1% peak seen in June 2022, and it continues to make meaningful progress lower with the headline reading now all the way down to 3%. Easing inflation is welcome news as it signifies a break from price increases for some goods and services. Lower inflation also typically helps both Mortgage Bonds and mortgage rates improve over time. In fact, Mortgage Bonds had a strong rally last Wednesday after this report was released.
Huge Progress in Wholesale Inflation
The Producer Price Index (PPI), which measures inflation on the wholesale level, increased by 0.1% in June, coming in just below expectations. On an annual basis, PPI fell from a downwardly revised 0.9% to only 0.1%, which is the lowest level in almost three years. Core PPI, which also strips out volatile food and energy prices, rose by 0.1%, with the year-over-year reading dropping from 2.6% (also downwardly revised) to 2.4%.
What’s the bottom line? This latest PPI report is another encouraging sign that inflation is easing, with June’s 0.1% year-over-year reading a sharp drop from last year’s 11.7% peak. Plus, PPI tends to lead the way for CPI, which suggests further good progress moving forward.
The Fed must be pleased with both the CPI and PPI readings for June, as they started hiking their benchmark Fed Funds Rate (which is the overnight borrowing rate for banks) last year to slow the economy and help curb runaway inflation. While the Fed is still expected to hike at their meeting later this month, the real question is what will they do at the following meeting in September?
Home Price Appreciation Continues Higher
CoreLogic’s Home Price Index showed that home prices nationwide rose for the fourth straight month, up 0.9% from April to May. Prices were also 1.4% higher when compared to May of last year. CoreLogic forecasts that home prices will rise 1% in June and 4.5% in the year going forward.
Black Knight also reported strong growth in May, with home prices up 0.7% from April. Their index has seen prices rising since January at an accelerating pace. Meanwhile, Zillow’s latest Housing Market Report showed that home values rose 1.4% in June, which was a very strong gain and followed an equal 1.4% rise in May.
What’s the bottom line? Black Knight’s Vice President of Enterprise Research, Andy Walden, explained that home values have erased the losses from the second half of 2022 and have now set a new all-time high. “There is no doubt that the housing market has reignited from a home price perspective,” said Walden. “Firming prices have now fully erased the pullback we tracked through the last half of 2022 and lifted the seasonally adjusted Black Knight HPI to a new record high in May.”
Based on the price gains that have been reported so far this year, CoreLogic’s index is on pace for 10% appreciation in 2023, with Zillow also at a very strong 9.4% pace and Black Knight at a 5% pace. These gains are a far cry from the housing crash that many media pundits forecasted and show that opportunities exist right now to build wealth through homeownership and appreciation.
Holiday Impact on Unemployment Filings
Initial Jobless Claims fell by 12,000 in the latest week, with 237,000 people filing for unemployment benefits for the first time. Continuing Claims rose by 11,000, with 1.729 million people still receiving benefits after filing their initial claim. While this latter metric is well above the low of 1.289 million seen last September, it has trended downward since April as some people have found new employment while others have seen their benefits expire.
What’s the bottom line? While the decline in Initial Claims appears to show a strong labor market, the measured week included July 4 and this likely impacted the data as people often put off filing during holiday weeks. We saw a similar dynamic when Initial Claims declined in the week encompassing the Juneteenth holiday, only to see them rise the following week. Note that Continuing Claims measured the week before Independence Day, so they were unaffected by the holiday.
Family Hack of the Week
It’s National Ice Cream Month! This homemade Chocolate Chip Ice Cream courtesy of Food52 makes for a delicious treat all month long – no ice cream maker required!
In a large bowl, whip 2 1/2 cups heavy whipping cream to stiff peaks using a whisk or hand mixer. Add 1 14-ounce can sweetened condensed milk, 3 tablespoons extra-virgin olive oil, and 1/2 teaspoon Kosher salt. Whisk until just incorporated – do not overmix.
Gently fold 1/2 cup cacao nibs and 100 grams grated milk chocolate into the whipped cream mixture. Pour mixture into a loaf tin and cover with parchment paper touching the ice cream to prevent freezer burn.
Freeze for 6 to 12 hours to desired consistency and enjoy.
What to Look for This Week
Housing data will be plentiful, starting Tuesday with an update on home builder sentiment for this month from the National Association of Home Builders. June’s Housing Starts and Building Permits follow on Wednesday, while Existing Home Sales releases on Thursday.
Also ahead, look for July’s manufacturing data for the New York and Philadelphia regions on Monday and Thursday, respectively. June’s Retail Sales will be reported on Tuesday and the latest Jobless Claims on Thursday.
After a strong rally last week, Mortgage Bonds gave back a bit of their gains on Friday, ending the week testing a floor of support at their 25-day Moving Average. The 10-year has broken above its 25-day Moving Average, with the next ceiling at the 3.908% Fibonacci level.