Morning Report: Headline CPI comes in hot

Posted on December 12, 2023 by Brent Nyitray

Vital Statistics:

Stocks are lower this morning after the Consumer Price Index report. Bonds and MBS are down.

The Consumer Price Index came in slightly above expectations, rising 0.1% on a month-over-month basis. The Street was looking for a 0% increase. The core rate, which excludes food and energy, rose 0.3%, in line with expectations. Falling energy prices helped offset increases in shelter and the index for used cars. The majority of the increase (70%) in the core rate was driven by shelter.

The report probably doesn’t move the needle for the FOMC meeting, which starts today. The expectation is that the Fed will maintain rates at current levels, however a lot of attention will be focused on the dot plot and economic projections within the report.

The Fed Funds futures are now roughly a 60 / 40 bet against a rate cut in March.

The CFPB is suing Wells Fargo and other banks over pricing concessions. The practice of concessions to save a deal has been going on forever in mortgage banking, but the regulators would like to end the practice entirely. “As long as pricing exceptions exist, pricing disparities exist,” said Ken Perry, founder of a Washington-based compliance firm for the mortgage industry. “They’re the easiest way to discriminate against a client.”

Small Business Optimism decreased 0.1% in November, according to the NFIB. Like many non-governmental economic reports, the NFIB Small Business Optimism index doesn’t comport with the official narrative of 5%+ growth in Q3. Optimism remained well below the long-term all year, while a net 17% of firms reported sales declines. Inventory boost might have boosted Q3 numbers, but the lack of follow-through in sales makes it look like Q4 might be weak. The number of firms raising prices fell again to a net positive 25%, which is below the peak of 60% earlier this year.

The Senate has introduced legislation which would ban hedge funds from owning single-family rentals. The report is concerned that 577,000 homes in the US are owned by institutional investors. Of course there are 144 million homes in the US, so as a percent, this isn’t much. It certainly isn’t enough to affect the market.

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