Morning Report: Inflation returning? 3/16/16

Markets are lower this morning after inflation comes in a little hotter than expected. Bonds and MBS are down.

The consumer price index fell 0.2% month-over month, but the core index, which excludes food and energy, rose 0.3% and is up 2.3% year-over-year. This makes the FOMC statement (and the press conference that follows) more significant this afternoon. Remember, the decision will be out at 2:00 pm EST, so expect some volatility in bonds around that time.

Bonds sold off on the CPI number and the more dramatic move was in the 2-year, not the 10-year. The 2 year yield increased 3 basis points on the news to .99%. Movements in the 2-year signify the market’s expectations about what the Fed is up to. The 10 year is more driven by longer-range economic forecasts. The 10 year was up, sold off on the news and is now flat on the day.

Housing starts rose to an annualized pace of 1.178 million in February and January was revised upward to 1.12 million. Building Permits fell however to 1.17million from 1.2 million. The drop in permits was driven by multi-family construction as single-fam remains slow and steady.

Mortgage Applications fell 3.3% as purchases rose 0.3% and refis fell 5.6%. Refis now constitute 55% of the total number of loans, down about 9 percentage points over the last month.

The strong dollar is still making life tough for manufacturers. Industrial production fell 0.5% month-over-month, while manufacturing production rose 0.2%. Capacity Utilization fell to 76.7%.

Marco Rubio is out after losing his home state of Florida to Donald Trump. John Kasich won Ohio, which keeps him in the race and makes him the de facto “Establishment Candidate. Ted Cruz is still in and he is probably going to split the Trump vote, while Kasich solidifies the establishment vote. Policy-wise, Kasich and Hillary are almost identical. Trump is warning that there will be riots if he has the delegates (or is close) and loses a contested convention. The convention is 4 months away. A lot can happen.

On the Democratic side, Hillary did well, so we can stick a fork in the #FeelTheBern hashtag.

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