Morning Report: Some good news on the inflation front.

Vital Statistics:

S&P futures4,060-16.00
Oil (WTI)82.391.21
10 year government bond yield 3.55%
30 year fixed rate mortgage 6.13%

Stocks are lower this morning on poor earnings from Intel. Bonds and MBS are down.

Personal Incomes rose 0.2% MOM in December, according to the BEA. These were driven by increases in wages and rental income. Personal Consumption Expenditures fell 0.2%. The PCE price index rose 0.2% MOM, while the core PCE price index rose 0.3%. This was an uptick in core rate, although the annual numbers keep going in the right direction.

The goods inflation and supply chain issues seem to be in the past – remember the big chip shortage? Intel is swimming in excess inventory. Commodities like lumber are back at pre-pandemic levels. Housing inflation will stop bumping up the inflation numbers during the summer. The final leg is incomes, which have been falling for 3 months. The Fed seems to have gotten a hold of inflation and its work is largely done. Does that mean prices will return to pre-pandemic levels? No. The inflation of the past year means that prices have hit a new, higher plateau.

Consumer sentiment improved in January, according to the University of Michigan Consumer Sentiment Survey. Improvements were noted in both the current conditions index and the expectations index. FWIW, these consumer sentiment indices are heavily influenced by prices at the pump, so these numbers reflect the decline in gas prices.

Inflationary expectations fell again, falling for the fourth straight month to 3.9%. Longer-term expectations remain around 2.9% which is above the Fed’s target and higher than the pre-pandemic levels of 2.2% – 2.6%.

Pending Home sales rose 2.5% in December, after six straight months of declines. Year-over-year, transactions are still down by a whopping 33.8%. That said, it looks like the nuclear winter in housing is over. “This recent low point in home sales activity is likely over,” said NAR Chief Economist Lawrence Yun. “Mortgage rates are the dominant factor driving home sales, and recent declines in rates are clearly helping to stabilize the market.”

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