Market Update 09/14: The Impact of Volatility on Mortgage Bonds

Overview:

Stocks and mortgage bonds are higher by after volatility in the producer price index, retail sales and jobless claims - breakdown below.

United Auto Workers plans to strike at midnight tonight if a solution cannot be found. This could have an impact on inflation: If the strike occurs and continues, it could lead to an increase in used car prices, which would have an unfavorable impact on inflation and the bond market.

New York Fed President and Fed Voting Member John Williams commented on the level of inflation if housing and rental costs were reached today. He said he estimates inflation will be closer to 2 in .The 5% is the first sign that Fed members are looking forward rather than in the rearview mirror. He then added: “I'm not saying the job is done or that we're at 2.5%, but this shows us that there are favorable, if we say unfavorable, factors that will bring inflation down. This probably sounds very familiar to me."

To you, when we broke above the CPI mark yesterday, we estimated that if we were able to recover today, the real-time core CPI would be 2.6%. We believe the Fed will leave interest rates unchanged at its meeting next week, and the real question will be what it will do in November.

This morning the ECB raised interest rates by 25 basis points to 4% after new forecasts show inflation expectations are higher in the Eurozone. However, Christine Lagarde said today that the ECB has already completed its journey, which has contributed to the growth of the European bond market and had some positive impacts. Producer Price Index The July Producer Price Index (PPI) report showed that overall producer price inflation rose by , or 0.7%, in August, above the estimate of 0.4%. On an annual basis, producer inflation rose from 0.8% to 1.6%.

Although this number is trending in the wrong direction, it starts at a very low level of and is still under 2%.Furthermore, we know that this increase is mainly due to energy prices, as shown in yesterday's CPI report. The base interest rate, which excludes food and energy prices, rose 0.2%, in line with estimates. On an annual basis, underlying inflation rose to 2% from 2.4%.2%, which also corresponds to the expectations of people.

Once again, headline inflation rose like yesterday thanks to oil, but core inflation fell. Retail sales rose 0.6% in August, more than expected (0.2%). However, when gasoline was phased out, sales only increased by 0.2%... clearly showing that this entire increase was due to increased prices for gasoline, which is not a discretionary expense. Core retail sales were slightly below expectations in August, particularly given the negative revisions in the previous two months. The bond market initially reacted negatively to the news, but was able to see that the increase was entirely due to the price of gas.

The first-time unemployment figure, which measures people applying for unemployment benefits for the first time , rose by 3,000 to 220,000. Although this is a small number, it did not have a negative impact on the bond market, as this report shows. was likely lower due to Labor Day. The number of ongoing claims, i.e. those who continue to receive benefits after the first claim, increased by 4,000, to 1,688 million. We'll look at next week's numbers to see where demand plateaus.