Morning Report: Weak retail sales and inflation 5/12/17

Vital Statistics:

Last Change
S&P Futures 2386.0 -5.0
Eurostoxx Index 394.7 0.3
Oil (WTI) 47.9 0.1
US dollar index 90.2 -0.2
10 Year Govt Bond Yield 2.36%
Current Coupon Fannie Mae TBA 102.33
Current Coupon Ginnie Mae TBA 103.78
30 Year Fixed Rate Mortgage 4.08

Stocks are lower this morning as retailer earnings disappoint. Bonds and MBS are up on weak inflation data.

Inflation remains tame according to the Consumer Price Index which rose 0.2% MOM and is up 2.2% YOY. Stripping out food and energy, it is up 0.1% MOM and 1.9% YOY. This 1.9% YOY print in the core CPI is the lowest in almost 2 years.

Retail sales came in lower than expected at 0.4% for April. The control group, which strips out volatile elements like autos, gasoline and building products rose 0.2%. Note that retail sales only captures a part of consumer spending – services are largely ignored. Overall it points to steady consumer demand – nothing great. The mall based retailers have been getting crushed however as Q1 numbers were pretty much abysmal.

Wells Fargo is contemplating doing a private label MBS deal this year. Private label MBS are backed by mortgages without government insurance, and have been mainly limited to the jumbo market since the crisis.

Rising wages helped ease affordability concerns in the first quarter. A total of 60.3% of all homes were affordable to someone earning the median income of 68,000, up from 59.9% in the fourth quarter, according to NAHB / Wells Fargo Housing Opportunity Index.

Good news for the first time homebuyer: entry level salaries for college grads are the highest in a decade.

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