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Weekly Review
Newsletter - 09/19/2022

Week of September 12, 2022 in Review

Last week’s inflation data had a big impact on Stocks, Mortgage Bonds and mortgage rates, while chatter of a global recession made headlines. Don’t miss these important details:

  • Markets Plunge After Hotter Than Anticipated Consumer Inflation
  • Initial Jobless Claims Decline for Fifth Straight Week
  • Retail Sales, GDP and Global Recession Talk
  • Crippling Railway Strike Averted

Markets Plunge After Hotter Than Anticipated Consumer Inflation

The Consumer Price Index (CPI), which measures inflation on the consumer level, showed that inflation increased by 0.1% in August. Although this is a low figure, it was larger than the -0.1% decline that was expected.

The real headliner was Core CPI, which strips out volatile food and energy prices. It rose by 0.6%, double the expected 0.3% increase. As a result, year over year Core CPI increased from 5.9% to 6.3%, which was also hotter than anticipated. Stocks and Mortgage Bonds fell sharply Tuesday due to this report, with the Dow having its worst day since June 2020.

Of note within the report, shelter costs increased by 0.7% in August, marking the highest increase since 1991. Rents rose 0.7% last month and are now up 6.7% year over year. Energy prices fell 5%, bringing the annual gain to almost 24%. Gasoline prices declined nearly 11% in August but they are up almost 26% year over year. Food costs climbed another 0.8% in August, bringing the year-over-year gain to 11.4%.

What’s the bottom line? Besides causing higher prices, inflation is the arch enemy of fixed investments like Mortgage Bonds because it erodes the buying power of a Bond's fixed rate of return. If inflation is rising, investors demand a rate of return to combat the faster pace of erosion due to inflation, causing interest rates to rise, as we’ve seen this year.

Initial Jobless Claims Decline for Fifth Straight Week

The number of people filing for unemployment benefits for the first time fell by 5,000 in the latest week, as 213,000 Initial Jobless Claims were reported. This marks the fifth consecutive week of declines and also the lowest level since late May. Continuing Claims, which measure people who continue to receive benefits after their initial claim is filed, increased by 2,000 to 1.403 million. However, this is after the previous week’s Continuing Claims was revised lower by more than 70,000.

What’s the bottom line? The 4-week average of Initial Jobless Claims had been rising steadily this spring and summer after reaching 170,500 on April 2. However, it has moderated slightly in recent weeks and now sits at 224,000 after the high of 249,500 on August 6. It appears that layoffs and, in turn, Initial Claims have slowed in recent weeks.

Retail Sales, GDP and Global Recession Talk

Retail Sales were up 0.3% in August, which was stronger than expectations of a 0.1% decline. However, this does not tell the whole story. When looking at Core Retail Sales, which removes things like automobiles, gasoline, building materials and food services, the reading for August was flat, coming in much lower than the 0.5% gain expected.

What’s the bottom line? The worse-than-expected Core Retail Sales figure is significant because it gets factored into GDP and could result in a negative revision to GDP estimates for the third quarter. GDP or Gross Domestic Product is a measure of economic activity, and changes in this activity are a great way to measure the economy's health.

Remember, first quarter GDP was -1.6% and the second reading for the second quarter was -0.6%. As of now we do have two consecutive quarters of negative GDP. And many economists are saying the third quarter might be even tougher.

Meanwhile, both the World Bank and FedEx CEO Raj Subramaniam made headlines last week by saying they believe the world is edging toward a global recession. Typically, when you see recessions, roughly 50% of the globe participates. Often the countries not experiencing a recession may be able to help the countries in a recession pull out of it. But if it’s highly synchronized like many are predicting, who is going to pull us out?

Crippling Railway Strike Averted

Last Thursday, the White House announced that a tentative deal was in place to avoid a railway strike that would have started on Friday. Given our already strained supply chains and persistently high inflation, this was a critical resolution to the situation, as the estimated cost to the economy of this strike was $2 billion per day.

What to Look for This Week

The biggest news will be the Fed’s two-day meeting beginning Tuesday, with the Monetary Policy Statement and press conference coming on Wednesday. As noted above, the Fed is expected to again hike its benchmark Fed Funds Rate to help cool inflation. Investors will be closely watching their actions and commentary.

Technical Picture

Mortgage Bonds improved throughout the day on Friday, ending the week trying to remain above the low of 99.375 from Tuesday as well as a longer-term trend line from April. Bonds are deeply oversold from a momentum standpoint, and with this week’s upcoming Fed rate hike, we could see a relief rally and reversal higher.


Information (weekly review) was provided by Mark Hedman
Homebridge Financial Services  - Sales Manager, Mortgage Loan Originator

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