Morning Report: More hawkish Fed-Speak this morning

Posted on May 18, 2023 by Brent Nyitray

Vital Statistics:

Stocks are flattish this morning as retail earnings come in. Bonds and MBS are down.

Bonds are down this morning after Dallas Fed President Lorie Logan said that inflation is still too high to consider pausing rate hikes. “The data in coming weeks could yet show that it is appropriate to skip a meeting,” Logan said in remarks prepared for delivery to the Texas Bankers Association in San Antonio, referring to the Fed’s twice-quarterly policy-setting meetings, the next of which takes place June 13-14. “As of today, though, we aren’t there yet.” The June Fed Funds futures are now handicapping a 37% chance of another 25 basis point hike at the June meeting.

The debt ceiling issue isn’t helping either, but for the most part it is nothing more than kabuki theater. The debt ceiling always gets raised, and if it doesn’t the government “shuts down” which usually means they close down the parks in Washington DC and not much else. Principal and interest on the debt still gets paid. FWIW, it looks like both sides are inching towards a deal.

WalMart reported strong comp sales this morning, bucking the trend seen by Home Depot and Target. It looks like WalMart is a beneficiary of inflation, as shoppers eschew more expensive stores and bargain-hunt.

Existing home sales fell 3.4% in April, according to NAR. On a YOY basis, sales were down 23.2%. The median home price fell 1.7% compared to a year ago. “Roughly half of the country is experiencing price gains,” Yun noted. “Even in markets with lower prices, primarily the expensive West region, multiple-offer situations have returned in the spring buying season following the calmer winter market. Distressed and forced property sales are virtually nonexistent.” Inventory rose 7% MOM and 1% YOY.

In other economic news, initial jobless claims fell to 242k, while the Philly Fed Index improved, while remaining negative. The Philly Fed index showed that price inflation dropped to the lowest level since mid-2020. The prices received index declined for the third month in a row and hit -3.3, which means more companies are reporting decreases in prices received than increases. FWIW, it looks like the prices diffusion index is back to normal.

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