The July Consumer Price Index met expectations

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Published Date 8/14/2024

Last week MBA applications increased 16.8% after the prior week’s 6.9% increase. Refinances jumped 34.5% from +15.9%. Purchase applications still soft, +2.8% from +0.8% the preceding week. The index at 251.3, up from 193.0 one year ago, the re-fi index 117% higher than one year ago.

Yesterday Fannie Mae said re-finances increased 33.0%, the highest level since August 2022.

Prior to July CPI at 8:30 am the 10 year note yield down 2 bps from yesterday’s’ 5 bp fall, the 2 year note unchanged at 3.94% from declining 9 bps yesterday, MBSs opened +6 bps from yesterday’s 26 bp increase.

At 8:30 am July CPI data was mostly as expected. Month/month overall CPI +0.2% as thought, year/year +2.9% down from 3.0% estimates and the same as in June. The core, ex food and energy month/month +0.2% as thought but up from +0.1% in June, year/year core +3.2% as thought and down from 3.3% in June. The initial reaction sent rates up and MBS prices down from +6 bp prior to 8:30 am to unchanged and the 10 year up 1 bp, the key 2 year note yield at 9 am jumped 4 bps to 3.98%. Inflation is cooling but not in the shelter area, costs increased 0.4% after softening in June and made up 90% of the increase in the overall CPI. It isn’t likely this data will change the outlook for a rate cut at the September FOMC meeting; some still talk about a 50 bp reduction although we don’t see that yet, markets will need more evidence to justify a 50 bp cut.

Prior to the FOMC meeting more inflation data will hit, July PCE on the 30th and employment data on September 6th. There are several key data points prior to the FOMC. The next headline is next week’s Jackson Hole symposium where Jerome Powell will have the opportunity to set the stage one way or the other. The Fed isn’t going to be influenced by what traders and investors presently think, although it is taken into consideration. Traders this morning cutting back the outlook for a 50 bp rate cut, lowering the odds of a half-point cut at the next central bank meeting to around one-third after underlying US inflation eased for a fourth month on an annual basis in July.

At 9:30 am the DJIA opened +8, NASDAQ +38, S&P +10. 10 year note 3.86% +1 bp. FNMA 5.5 30 year coupon +1 bp from yesterday’s close and +11 bp from 9:30 am yesterday, the 6.0 coupon +1 bp and +15 bp from 9:30 am yesterday.

Nothing left on the calendar today. Tomorrow has a number of data points: Weekly claims, July retail sales, July import and export prices, the August NAHB housing market index July industrial production and capacity utilization.

Source: TBWS

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