Morning Report: Inflation back at the Fed’s target rate 1/18/16

Vital Statistics:

Last Change
S&P Futures 2267.0 5.0
Eurostoxx Index 362.1 -0.3
Oil (WTI) 61.7 -0.8
US dollar index 94.5 0.5
10 Year Govt Bond Yield 2.38%
Current Coupon Fannie Mae TBA 103
Current Coupon Ginnie Mae TBA 104
30 Year Fixed Rate Mortgage 4.08

Stocks are higher this morning as bank earnings roll in. Bonds and MBS are down ahead of the European Central Bank’s first meeting, which is tomorrow.

Mortgage applications rose 0.8% last week as purchases fell 5% and refis increased 7%. The change in MIP spurred refinance applications and the FHA’s share of applications jumped.

Homebuilder sentiment slipped in December, however it is still elevated. A tight housing market is buoying the sector, while labor shortages and regulations continue to be headwinds.

The consumer price index increased 0.3% last month and is up 2.1% YOY. Ex-food and energy it was up 0.2% MOM and is up 2.2% YOY. While the CPI is not the preferred inflation index for the Fed (the Personal Consumption Expenditure Index is) it does show that inflation is back at the Fed’s target range. Gasoline and shelter drove the increase.

Note that rental inflation is beginning to moderate, especially at the top end. The overall rental index increased 3.4% this year, which was a deceleration from the 4% growth we saw the year before. That said, the lower price points are still exhibiting strong growth. There is still a wide geographic variation – from still torrid growth in the Northwest to negative in the South. Yet another data point to sell the first time homebuyer – on a 30 year fixed rate mortgage, your P&I payment isn’t going to increase.

It looks like home price appreciation is moderating in Southern California, after a long run.

Industrial Production increased 0.8% last month while manufacturing production increased 0.2%. Capacity Utilization ticked up to 75.5%.

We have a lot of Fed-speak today, and the World Economic Forum continues in Davos. There probably shouldn’t be any market moving news, but be aware. Janet Yellen speaks at 3:00 pm EST. Lael Brainard said today that if Trump’s fiscal policy ends up goosing the economy too much in the short term and doesn’t do enough to help foster long-term growth, the Fed will probably react by raising interest rates sooner, and more.

Trump Commerce Secretary pick Wilbur Ross heads to Capitol Hill for his confirmation hearing.

World leaders at the Davos Forum are scratching their heads wondering what happened with the Brexit vote and Donald Trump. The consensus is unsurprisingly that income inequality is the problem and the answer is more wealth redistribution. The problem is that there is no appetite for tax increases when people’s incomes are already squeezed. Meanwhile, here are the biggest risks for 2017, according to a survey of economists meeting there.

Has technology changed the seasonality aspect to the real estate industry? At least in New York City, it may have. Note the Spring Selling Season more or less unofficially starts right around Super Bowl Sunday.

JP Morgan is accused of racial bias in lending, however in this case it is at the wholesale level and their crime is allowing brokers to change their compensation, which allegedly ended up in minority borrowers paying higher rates and fees. Separately, Deutsche Bank settled for $7.2 billion for various and sundry mortgage violations.

Here is a good list of common-sense items to tell your borrower about getting a mortgage. No, don’t quit your job or buy a new car. Also, think twice about contesting the appraisal.

23 Responses

  1. Stuff i learned today.

    The best way to stop Iranian ships from harassing US naval vessels to to understand the entire concept of a nation state is a fiction.

    Like

    • hmmmmm……

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    • and DNC leaks from WikiLeaks are an act of war from Russia, but Iranian boats going full speed at a US destroyer without responding to hails is just something to be tolerated.

      Because Iran is the real victim.

      It was a back and forth over the incident described here:

      http://www.esquire.com/news-politics/politics/news/a52149/us-navy-iran-warning-shots/

      Brent, did you ever have to deal with this?

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      • I was there during the time when we were reflagging Kuwaiti tankers and escorting them through the Strait of Hormuz. This was after the Vincennes incident so everyone kept their distance. Between the Stark incident and the Vincennes incident, ROE review and scenario discussions were a constant part of officer training. The admiral would send out an op-immediate message with a scenario (a small boat is issuing a distress signal and is heading right towards you and will not change course to keep its distance for example) and the junior officers would be assigned to come up with a response in a short time frame (like 15 minutes or so). We used to draft a “shoot the bastard” scenario and a “leave him alone scenario” in case the CO didn’t like our answer.

        Generally speaking, the Iranian gunboats would parallel our course and keep an eye on us, but nothing hostile ever happened. For most of Desert Storm, we were assigned to defend a Tomahawk shooter in the Northern Persian Gulf, so we didn’t spend much time in the SOH. On the first deployment, we spent a lot of time there in the Strait of Hormuz Eastern Patrol Area (SOHEPA). We called it the penalty box because you were usually at General Quarters or a step below in readiness, which meant you were always on watch…

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  2. Update on the Trump/Russia investigation:

    “FBI, 5 other agencies probe possible covert Kremlin aid to Trump
    By Peter Stone and Greg Gordon
    McClatchy Washington Bureau”

    http://www.mcclatchydc.com/news/politics-government/article127231799.html

    McClatchy has been pretty well sourced in the past.

    Like

    • jnc:

      McClatchy has been pretty well sourced in the past.

      Perhaps, but when it parrots deceptive Dem talking points like this:

      …and [Trump] called on Russia to hack away to uncover thousands of emails that Clinton had never made public after using a private server while secretary of state from 2009 to 2013.

      …it is hard not to conclude that it is pushing an agenda.

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  3. Good piece on Putin:

    “The Real Meaning of Putin’s Press Conference

    The Russian leader tries to claim the role of senior partner in relationship with the U.S.

    Julia Ioffe 9:50 AM”

    https://www.theatlantic.com/international/archive/2017/01/putin-trump-press-conference/513401/

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    • McWing:

      That’s hilarious.

      Like

    • Upon closer examination, Warren appears to be signaling to DeVos in her native Cherokee. The open hand gesture, first developed in 1823, is universally recognized among Native American Indian sign-language studies, according to manataka.org.

      DeVos may have perceived it as a refusal to shake hands, but it was actually an attempt at a friendly gesture. Like a typical Trump supporter, DeVos failed to recognize and embrace the diverse tapestry of America. This is problematic on several levels.

      Hah!

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  4. That’s a lot of power.

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    • I think it’s true, but why is it true? Because Limbaugh and Fox speak to previously ignored swaths of the country. Facebook and Twitter also contributed to that environment, but I’m guessing Obama didn’t mention them.

      I’m not sure what value the point has made publicly. They aren’t going to silence Limbaugh, Hannity, Fox News, or their successors. It’s just constructing a fantasy world where, if it was all WaPo and NYT as far as the eye could see, Democrats would win everything and be unobstructed in doing the important progressive work of the America left—I mean, people. It’s like the non-stop fantasies Democrats and the American left have been indulging in since election night. The “faithless elector” fantasy, the “impassioned pleas from Hollywood will make it go away” fantasy, the “we’re going to get rid of the electoral college so this never happens again” fantasy.

      Also the current “Trump will immediately be impeached, and thrown out of office, for conflicts of interest . . . and then I guess we’ll impeach Pence” fantasy.

      And it’s not like there isn’t plenty of pressure on the left that attempts to keep Democrats from working with Republicans. And there always has been. The DC social-structure, from what I hear, seems designed to punish Democrats socially if they work with Republicans in any method that doesn’t involve complete capitulation on progressive ideas by Republicans. It’s a two-way street!

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  5. Great story:

    https://ca.news.yahoo.com/undocumented-worker-sues-san-francisco-violating-sanctuary-law-001854835.html

    An undocumented immigrant from El Salvador is suing San Francisco alleging police violated the city’s sanctuary city policy by turning him over to U.S. immigration authorities after he reported his car stolen.

    The lawsuit was filed on Tuesday on behalf of Pedro Figueroa Zarceno, 32, in federal court in San Francisco against the city and its police chief for violating his right to due process and breaking an ordinance barring municipal employees from cooperating with federal immigration authorities seeking to deport a person.

    This part was particularly amusing:

    “We’ll obviously have to review the lawsuit before we can comment on it,” John Cote, a spokesman for the San Francisco city attorney, said by phone. “That being said, San Francisco has strong policies in place to encourage victims and witnesses to report crimes without fear of being deported.”

    Except, of course, if the witness is a police officer and the crime is a violation of immigration law.

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  6. Why isn’t this good old fashioned Federalism rather than secession?

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    • Mcwing;

      Why isn’t this good old fashioned Federalism rather than secession?

      Distinguishing between federalism and secession requires an understanding of and appreciation for the Constitutional structure of the United States. The NYT has neither.

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    • Can’t have that. better to leave, only to come back when the time is right, than share power among the several states

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    • I’d call it “Massive Resistance” myself.

      “And in Los Angeles, Sheila Kuehl, a member of the powerful county board of supervisors, has started what she has called “Operation Monkey Wrench,” urging people, including state and federal government workers, to systematically disrupt Trump policies that run counter to California laws and policies.

      “I said ‘If you have to lie, cheat and steal, do it,’” Ms. Kuehl said. “Take federal money and just tell them you are going to do whatever they want.””

      Like

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