Good evening,
Mortgages continue to stay above 106:00 which is a great indicator of possible lower rates in the future. Special attention should be paid to this week’s FOMC minutes release. This sole indicator can move markets.
Commentary has been minimal the last couple of weeks as we focus on updating our systems to migrate from Datatrac to Encompass 360, please be patient.
Inflation Expectations Dropping; Japan Contracting
by Craig Dismuke
This week will bring a handful of important data releases. The Empire Fed Manufacturing index rose from 6.17 to 10.16 for the month of November. This was a smaller rebound than expected after the index dropped from 27.54 in September. October’s Industrial Production report will be released at 8:15 a.m. CT and is expected to show lackluster growth in overall output and manufacturing output. Manufacturing hours worked declined during the month.
There will be three housing report including the November homebuilder confidence report (Tue), October housing starts and building permits (Wed), and October existing home sales (Thu). The housing data has flat-lined since the mild increase in mortgage rates last spring and is certainly complicating the Fed’s decision on raising short-term rates. Also complicating the decision is the expected drop in inflation through year-end. The October CPI report is due out this week and is expected to show a drop in headline CPI from 1.7% YoY to 1.6%. Gasoline prices fell 3% in October which will help push price gains lower, but the coming impact will be even more substantial. Gas prices are already down 6% in November and are likely to result in headline CPI falling as low as 1.2% by year-end. However, the Fed has already weighed in on the lower oil prices and stronger Dollar saying they believe the impact will be temporary. Adding to the concern, however, last week’s University of Michigan Consumer Confidence report showed 5-year inflation expectations falling from 2.8% to 2.6%, the lowest reading since 2009. While the Fed uses market-based indicators for inflation, they also lean heavily on consumer inflation expectations (see Chart of the Day).
What will likely prove to be the most market-moving release of the week will be the FOMC’s October Meeting Minutes. Recall that the Fed was expected to slow down their crawl towards policy normalization because of the lower inflation expectations. Instead, they surprised the markets in their Official Statement by acknowledging that the slack in the labor market was diminishing and by dismissing disinflation concerns. It will be interesting to see how much momentum the hawkish argument for raising rates is getting. Clearly, there has been a slight shift in the center of the Committee with two hawks dissenting to the September Statement and one dove dissenting to the October Statement.
Bonds caught a bit of a bid last Friday after the consumer survey showed lower inflation expectations. Adding to the risk-off tone this morning, Japan’s economy fell into a recession once again with 3Q GDP contracting another 1.6%. The two quarters of contraction came after Abe’s sales tax increase last April from 5% to 8% stifled capital investment, inventory building, and retail sales. This puts the second leg of the tax increase to 10% in jeopardy which was scheduled to go into effect this month.
There will be three housing report including the November homebuilder confidence report (Tue), October housing starts and building permits (Wed), and October existing home sales (Thu). The housing data has flat-lined since the mild increase in mortgage rates last spring and is certainly complicating the Fed’s decision on raising short-term rates. Also complicating the decision is the expected drop in inflation through year-end. The October CPI report is due out this week and is expected to show a drop in headline CPI from 1.7% YoY to 1.6%. Gasoline prices fell 3% in October which will help push price gains lower, but the coming impact will be even more substantial. Gas prices are already down 6% in November and are likely to result in headline CPI falling as low as 1.2% by year-end. However, the Fed has already weighed in on the lower oil prices and stronger Dollar saying they believe the impact will be temporary. Adding to the concern, however, last week’s University of Michigan Consumer Confidence report showed 5-year inflation expectations falling from 2.8% to 2.6%, the lowest reading since 2009. While the Fed uses market-based indicators for inflation, they also lean heavily on consumer inflation expectations (see Chart of the Day).
What will likely prove to be the most market-moving release of the week will be the FOMC’s October Meeting Minutes. Recall that the Fed was expected to slow down their crawl towards policy normalization because of the lower inflation expectations. Instead, they surprised the markets in their Official Statement by acknowledging that the slack in the labor market was diminishing and by dismissing disinflation concerns. It will be interesting to see how much momentum the hawkish argument for raising rates is getting. Clearly, there has been a slight shift in the center of the Committee with two hawks dissenting to the September Statement and one dove dissenting to the October Statement.
Bonds caught a bit of a bid last Friday after the consumer survey showed lower inflation expectations. Adding to the risk-off tone this morning, Japan’s economy fell into a recession once again with 3Q GDP contracting another 1.6%. The two quarters of contraction came after Abe’s sales tax increase last April from 5% to 8% stifled capital investment, inventory building, and retail sales. This puts the second leg of the tax increase to 10% in jeopardy which was scheduled to go into effect this month.
Capital Markets
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Economic Calendar
Date/Time(Central)
|
Indicator
|
Period
|
Est.
|
Actual
|
Prior
|
Revised
|
11/17/2014 7:30 AM
|
Empire Manf.
|
NOV
|
12.00
|
10.16
|
6.17
| |
11/17/2014 8:15 AM
|
Industrial Production
|
OCT
|
0.2%
|
1.0%
| ||
11/17/2014 8:15 AM
|
Capacity Utilization
|
OCT
|
79.3%
|
79.3%
| ||
11/18/2014 7:30 AM
|
PPI Final Demand (MoM)
|
OCT
|
-0.1%
|
-0.1%
| ||
11/18/2014 7:30 AM
|
PPI (MoM) Ex. Food & Energy
|
OCT
|
0.1%
|
0.0%
| ||
11/18/2014 7:30 AM
|
PPI Final Demand (YoY)
|
OCT
|
1.3%
|
1.6%
| ||
11/18/2014 7:30 AM
|
PPI (YoY) Ex. Food & Energy
|
OCT
|
1.5%
|
1.6%
| ||
11/19/2014 6:00 AM
|
MBA Mortgage Apps.
|
14-Nov
|
-0.9%
| |||
11/19/2014 7:30 AM
|
Housing Starts
|
OCT
|
1025K
|
1017K
| ||
11/19/2014 7:30 AM
|
Building Permits
|
OCT
|
1040K
|
1018K
|
1031K
| |
11/19/2014 1:00 PM
|
FOMC Minutes Released
|
OCT
| ||||
11/20/2014 7:30 AM
|
Consumer Price Index (MoM)
|
OCT
|
-0.1%
|
0.1%
| ||
11/20/2014 7:30 AM
|
CPI (MoM) Ex. Food & Energy
|
OCT
|
0.1%
|
0.1%
| ||
11/20/2014 7:30 AM
|
Consumer Price Index (YoY)
|
OCT
|
1.6%
|
1.7%
| ||
11/20/2014 7:30 AM
|
CPI (YoY) Ex. Food & Energy
|
OCT
|
1.8%
|
1.7%
| ||
11/20/2014 7:30 AM
|
Initial Jobless Claims
|
15-Nov
|
280K
|
290K
| ||
11/20/2014 7:30 AM
|
Continuing Jobless Claims
|
8-Nov
|
2392K
| |||
11/20/2014 9:00 AM
|
Philadelphia Fed Index
|
NOV
|
18.0
|
20.7
| ||
11/20/2014 9:00 AM
|
Existing Home Sales
|
OCT
|
5.15M
|
5.17M
| ||
11/20/2014 9:00 AM
|
Existing Home Sales (MoM)
|
OCT
|
-0.4%
|
2.4%
| ||
11/20/2014 9:00 AM
|
Leading Indicators
|
OCT
|
0.6%
|
0.8%
|
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