Import costs see biggest drop since December

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Published Date 9/13/2024

Yesterday another day with little movement, overnight the 10 year note traded down to 3.63% -5 bps but it didn’t last, at 8:30 am ET the 10 3.66% -2 bp. MBS prices opened this morning +8 bps from yesterday.

At 8:30 am August import and export prices, month/month imports expected -0.2% fell 0.3%, year/year expected at +0.9% increased 0.8% and down from +1.6% in July. It was the largest drop in import costs since December, primarily led by a 3% decline in fuel import prices, with petroleum prices declining by 3.2% and natural gas prices decreasing by 3.7%. Export prices month/month -0.7% on expectations of -0.1%, year/year -0.7% from +1.4% in July.

Last night former NY Fed president Dudley added is view that the Fed should cut the FF rate by 50 bps next week. “I think there’s a strong case for 50,” Dudley said at a forum organized by The Bretton Woods Committee in Singapore. “I know what I’d be pushing for.” He pointed to what we have been saying, the labor market slowing and put it ahead of the inflation fears. As we noted, Jerome Powell at Jackson Hole last month stressed not wanting to see additional weakness in the labor market. Dudley added, “The question is why don’t you just get started?” Dudley said. “It’s basically up to Chairman Powell to see how much support he has for being more aggressive.”

The 50 bp cut idea went out the window on Wednesday when month/month core inflation, expected +0.2% increased to +0.3%, the highest in four months. Overall CPI increased 0.2% from July marking the fifth month of decline down from 2.5% one year ago as energy prices have been falling. It is a 25 cut that is presently the consensus now.

Barron’s this morning... The case for the Fed to speed up the rate-cutting pace in its final two meetings of the year—especially if it makes a small cut next week—is strong. This is especially true when viewed through the lens of real fed-funds rate, which can be calculated as the difference between the effective fed-funds rate and expected inflation rates. Real rates reflect the true cost of borrowing after taking inflation into account. They show how the Fed’s restrictive monetary policy has worked with a lag, weighing on economic growth. The difference between the expected inflation rate over the next five years (1.86%) and the effective fed-funds rate (5.33%) was 3.47% on Wednesday, the highest level on record since 2003, Dow Jones data team says. Over a 10-year period, real rates hit a record of 3.31% on Tuesday. This is one way to calculate real rates.”

This is the prime selling season in the housing sector. Redfin analysis of the top 50 US housing markets, cities in Florida and Texas had the steepest percentage declines in transactions this April through June, compared with the same period of 2023.

At 9:30 am the DJIA opened +55, NASDAQ +5, S&P +7. 10 year 3.65% -3 bps. FNMA 5.5 30 year coupon at 9:30 am +10 bps from yesterday’s close and +6 bps from 9:30 am yesterday.

At 10 am the mid-month University of Michigan consumer sentiment index expected at 68.0 from 67.9 in August. Sentiment, current conditions and expectations were better than at the end of August.

Gold continues to set new records this morning.

Source: TBWS

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