Markets calmer after two days of inflation data

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Published Date 8/16/2024

Yesterday July retail sales, hotter than estimates. This morning began with rates down a little and stock indexes lower. For all of the comments, there isn’t much conviction that the Fed will cut 50 bps next month. Stronger retail sales and a drop in weekly jobless claims rattled traders.

Yesterday the 10 year note increased 8 bps, the 2 year note increased 14 bps and MBS prices declined 28 bps; the DJIA +555, NASDAQ +402, S&P +88. This morning some improvement with traders thinking the Fed is still likely to lower rates in September and potentially more cuts by year end. The retail sales improvement is a one-off report driven by school shopping, the increase in sales is based on the costs of goods and they too are increasing. It is important to keep in mind the recent decline in rates have already completely discounted a 50 bp decline from the Fed, so any additional improvement must be driven by fresh belief that the Fed will move forward with additional comments of lower rates ahead.

This morning the July housing starts and permits were a lot weaker than estimates. Starts were believed at 1.342 million, reported at 1.238 million and June revised to 1.329 million from 1.353 million. Permits estimated at 1.430 million reported at 1.396 million, permits in June revised a little better from 1.446 million to 1.454 million. Single family starts down 14.1% at 851K single family permits down 0.1%, multi-family starts increased 11.7%. Yesterday the August NAHB housing market index at 39 was the weakest in months. Starts at the lowest level since May 2020, discounting the pandemic starts lowest since March 2019.

Chicago Fed president Austin Goolsbee said the labor market and some leading indicators on the economy are flashing warning signs, adding there are concerns unemployment will continue to rise.

At 9:30 am the DJIA opened -29, NASDAQ -77, S&P -16. 10 year at 9:30 am 3.89% -2 bps. FNMA 5.5 30 year coupon at 9:30 am +16 bps from yesterday’s close and +17 bps from 9:30 am yesterday.

At 10 am, the mid-month University of Michigan consumer sentiment index, expected at 67.0 from 66.4 in July increased to 67.8.

Source: TBWS

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