Morning Report: Some good news on the inflation front

Vital Statistics:

 LastChange
S&P futures4,107-26.5
Oil (WTI)93.81-4.80
10 year government bond yield 2.60%
30 year fixed rate mortgage 5.30%

Stocks are lower this morning as earnings continue to come in. Bonds and MBS are flat.

We have a big week of data coming up, with the ISM data, job openings, and the employment situation report on Friday. Note that the ADP Employment Report is on hold while ADP works on their model.

Interest rates continue to fall, which is triggering margin calls for originators. This is not just a US-driven phenomenon. The German Bund (a proxy for European interest rates) yields 0.77%, which is down 100 basis points from late June. Global interest rates tend to correlate, and the European economy is weakening.

I sat down with Mike Savino of National Mortgage Professional and did a podcast on the state of the economy. You can access it here.

The manufacturing economy decelerated in July, according to the ISM Manufacturing Index. New Orders and production declined, which shows the economy slowing. On the bright side, prices are beginning to moderate. From the report: “The month-over-month decline of 18.5 percentage points is the fourth biggest decline on record (since 1948) and the steepest since a 22.1-percentage point drop in June 2010. “The slowing in price increases is being driven by (1) volatility in the energy markets, (2) softening in the copper, steel, aluminum and corrugate markets and (3) a significant decrease in chemical demand. Notably, 21.5 percent of respondents reported paying lower prices in July, compared to 8.3 percent in June,” says Fiore. A Prices Index above 52.6 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.”

Much of this is due to falling commodity prices, which is partially due to the dollar. The US dollar has been on a tear lately, and since commodities are quoted in dollars, when the dollar rises, commodity prices fall. That said, the Fed will breathe a sigh of relief as one of the big components of our current inflation eases.

Construction spending fell 1.1% MOM in June, according to the Census Bureau. Residential construction was down 1.6% MOM but up 15.4% YOY. I don’t think the construction spending data is inflation-adjusted so that would account for the big YOY increase despite falling housing start.

6 Responses

  1. Worth noting:

    “”Biden vowed never to raise taxes on any Americans making less than $400,000 annually. Yet according to the Joint Committee on Taxation, the Schumer-Manchin bill does just that. Up to $16.7 billion worth of tax increases, JCT estimates.

    Republicans, as expected, jumped all over this. “The mislabeled ‘Inflation Reduction Act’ will do nothing to bring the economy out of stagflation and recession, but it will raise billions of dollars in taxes on Americans making less than $400,000,” Sen. Mike Crapo (Idaho), the top Republican on the Finance Committee, said in bashing the Democratic plan.

    Democrats countered that the JCT analysis failed to factor in several elements of the legislation, including Obamacare credits, savings from allowing Medicare to negotiate on prescription drugs and clean energy credits for individuals, as well as other provisions.

    Here’s Ashley Schapitl, spokesperson for Finance Committee Democrats:

    “A family making less than $400,000 will not pay one penny in additional taxes under the Inflation Reduction Act …The analysis Republicans are pointing to is also incomplete. It doesn’t include the benefits to middle-class families of making health insurance premiums and prescription drugs more affordable. The same goes for clean energy incentives for families.””

    https://punchbowl.news/archive/8-1-22-punchbowl-news-am/

    Like

    • Why is Manchin going along with this?

      Like

    • jnc:

      Biden vowed never to raise taxes on any Americans making less than $400,000 annually…

      Republicans, as expected, jumped all over this. “The mislabeled ‘Inflation Reduction Act’ will do nothing to bring the economy out of stagflation and recession, but it will raise billions of dollars in taxes on Americans making less than $400,000,” Sen. Mike Crapo (Idaho), the top Republican on the Finance Committee, said in bashing the Democratic plan.

      A good indication of how completely perverted our politics are, when the one thing both sides seem to agree on is that forcing a tiny minority of citizens to pay for massive government expenditures is less objectionable than spreading that cost among all the people.

      Liked by 1 person

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