Markets are lower this morning as the dollar rallies and commodities fall. Bonds and MBS are up.
The FOMC meeting begins today. The decision will come out at 2:00 pm EST tomorrow, along with the new economic and Fed Funds forecasts. Here is Tim Duy’s take on the state of play. His take: while you could make an argument to tighten, the Fed still considers the bigger risks to be to the downside. The doves are ascendant on the Board.
Retail Sales fell 0.1% in February, although declining gasoline prices had a lot to do with it. Ex-autos and gas, they were up 0.3%. The control group, which also strips out building products was flat. The downward revisions to January got everyone’s attention however as the initial 0.2% estimate was revised downward to -0.4%.
Inflation at the wholesale level remains well below the Fed’s target. The Producer Price Index fell 0.2% in February as well. Ex-food and energy, it was flat on a month-over-month basis and is up 1.2% YOY.
The Empire Manufacturing Index rebounded smartly to .62 after a heavily negative start to the year.
The NAHB Homebuilder Sentiment Index was unchanged at 58 in March. This is a 9 month low. A shortage of lots and labor continue to be the biggest headaches facing the sector. The builders have been able to drive the top line by raising prices, not by pushing volume. You can see below how the index has tracked versus housing starts. The divergence is as big as it has ever been.
Voters go to the polls in several states today, including Florida and Ohio, which are do-or-die races for Marco Rubio and John Kasich respectively. The Democratic side seems pretty much set at this point, unless Bernie Sanders pulls a free rabbit out of a hat.