Market Review: Volatility Sparks In Response To Crucial Inflation Data

The Week of August 14th, 2023 

This week’s market review highlights the impact of crucial inflation data on market volatility, as well as the opportunities presented in homeownership. Read on for more insights. 

Is Consumer Inflation Resurfacing? 

The Consumer Price Index (CPI) for July indicates a 0.2% rise in inflation, slightly below estimates. However, on an annual basis, CPI increased from 3% to 3.2%, although it remains close to its lowest level in over two years. Core CPI, which excludes volatile food and energy prices, increased by 0.2%, while the annual reading declined from 4.8% to 4.7%. 

Factors such as declining costs for used cars and airfares, as well as moderate readings for shelter, gasoline, and food, contributed to inflation’s moderation last month. It is worth noting that July’s increase in annual inflation is partly due to a negative figure from the previous July, which was replaced in the rolling 12-month calculation. Overall, inflation has shown significant progress in decline from its peak of 9.1% in June 2022. This easing inflation is welcome news, indicating a break from price increases for certain goods and services. Additionally, lower inflation typically supports improvements in Mortgage Bonds and mortgage rates over time. 

Surge in Wholesale Inflation Exceeds Expectations 

The Producer Price Index (PPI) revealed a 0.3% increase in wholesale inflation for July, surpassing expectations. On an annual basis, PPI rose from 0.2% to 0.8%. Core PPI, which excludes volatile food and energy prices, also rose by 0.3%, with the year-over-year reading remaining at 2.4%. 

While annual PPI has moved in the wrong direction, it originated from a very low level and remains significantly subdued, well below last year’s peak of 11.7%. 

The Federal Reserve’s Decision Dilemma 

There has been mixed speculation regarding the possibility of the Federal Reserve hiking interest rates again at their upcoming meeting on September 20th. The Fed initiated rate hikes last year to curb runaway inflation and slow down the economy. In weighing this decision, the Fed will closely monitor upcoming CPI, PPI, and the Personal Consumption Expenditures inflation report. 

Home Prices Continue to Ascend  Black Knight’s Home Price Index reached a record high in June, with almost every major market experiencing month-over-month growth. June saw a 0.7% increase in home prices, resulting in a 0.8% rise on an annual basis. Home price appreciation for the first six months of this year stands at 2.9%, suggesting a projected appreciation of 5.8% for 2023.  These positive findings align with other reputable housing indexes, such as Case Shiller, CoreLogic, Zillow, and the Federal Housing Finance Agency, showcasing the strength of the housing market. These robust gains contradict previous forecasts of a housing crash and highlight current opportunities for wealth accumulation through homeownership and appreciation. 

Jobless Claims Show Mixed Trends 

After three consecutive weeks of staying below 230,000, Initial Jobless Claims rose by 21,000, with 248,000 people filing for unemployment benefits for the first time. However, Continuing Claims fell by 8,000, with 1.684 million individuals still receiving benefits after filing their initial claim. This decline reflects a combination of individuals finding new jobs and benefits expiring. 

The difficulty in hiring that many businesses report has contributed to the relatively low levels of Initial Jobless Claims. Businesses finding it challenging to secure qualified workers are less likely to lay off existing employees. For instance, the National Federation of Independent Business revealed that 92% of small businesses looking to hire last month could not find qualified workers. It remains uncertain whether the recent jump in Initial Jobless Claims represents a one-time occurrence or the beginning of a new trend reflecting labor market weakness. 

Family Hack of the Week: Delicious Peach Cobbler 

In celebration of National Peach Month, the Food Network presents an easy and classic Peach Cobbler recipe. Preheat the oven to 325 degrees Fahrenheit. Add four cups of sliced and peeled peaches to a 9×9 inch baking pan. In a medium bowl, mix one cup of all-purpose flour, 3/4 cup of granulated sugar, one teaspoon of baking powder, and 1/2 teaspoon of Kosher salt. Add 1/2 cup of milk and four tablespoons of melted unsalted butter, then mix well. Pour the batter evenly over the peaches. In a small bowl, combine 1/4 cup of sugar, one tablespoon of cornstarch, and 1/2 teaspoon of salt. Sprinkle this mixture over the batter. Finally, pour 1/2 cup of boiling water evenly over the cobbler. Bake for approximately 50 minutes or until golden brown and bubbling. Serve topped with your favorite whipped cream or vanilla ice cream. 

What to Expect this Week 

This week, keep an eye out for important housing reports, starting with the National Association of Home Builders’ update on home builder sentiment for this month on Tuesday. On Wednesday, July’s Housing Starts and Building Permits data will be released. Manufacturing data for August in the New York and Philadelphia regions will be available on Tuesday and Thursday, respectively. Additionally, July’s Retail Sales and the latest Jobless Claims will be released on Tuesday and Thursday. The minutes from the Fed’s July meeting, set to be released on Wednesday, have the potential to add volatility to the markets. 

Technical Picture 

Mortgage Bonds concluded last week’s trading within a wide range, with support at 97.984 and overhead resistance at 98.716. Wide ranges like this make bond prices vulnerable to sudden market swings. The 10-year Treasury yield closed above support at 4.09% last week, with the next ceiling at 4.23% if yields continue to worsen.