Financial Outlook: Easing Inflation and Market Trends

Market trends

Today, let’s break down recent market data, inflationary pressures, and what they mean for our economy.

Bond Market: Upturns in Sight

We start the day with mortgage-backed securities (MBS) in positive territory. They rose by 44 basis points yesterday and another 13 basis points today. This encouraging performance seems linked to good discussions about the debt deal, which will likely be finalized soon.

We’re pleased to see MBS and the bond market respond more to economic fundamentals, which should bring more predictability and stability.

Inflation Watch: Lower Pressures Expected

Inflation is a hot topic, so let’s review some key indicators for May, comparing them to April’s figures.

First, oil prices. They contributed significantly to April’s inflation, peaking at $83 a barrel due to OPEC production cuts. However, oil prices have been lower throughout May than in April, even dropping below $70 a barrel in the last week. This decrease should help lower inflation pressure as oil costs trickle down into numerous sectors.

Next, used car prices are another key contributor to April’s inflation. CarGurus said used car prices had increased about 0.8% over the last 30 days—a slower pace than the previous month. This slow-down and certain seasonal adjustment could even introduce deflationary pressure.

Lastly, shelter costs, which account for 43.2% of the index, have started falling. A new report from Apartment List shows rents are now up only 0.9% year-over-year, a significant deceleration from the 18.5% increase seen previously.

Considering these indicators, we expect to see lower inflation numbers in upcoming reports.

Market Trends: The Big Picture

While we’re sharing real-time updates, the Fed is still looking at past data. Recent comments from Fed officials indicate an intent to continue raising rates, despite our current economic landscape. This discrepancy is concerning and raises questions about future policy decisions.

On the job front, the Job Openings and Labor Turnover (JOLTS) report for April showed a slight increase in job openings, but overall, the trend has been downward. We’ll get more insight with the ADP and BLS reports due later this week.

Meanwhile, mortgage applications have decreased with rising rates, which may impact job creation and unemployment rates. With inflation projected to decline, it’s plausible that the Fed may pause rate hikes. However, with the Fed’s tendency to focus on older data, we’ll have to wait and see.

Despite last week’s higher rates, mortgage bonds show signs of reversing. Hopefully, next week’s report will reflect this trend and more market activity.

We have some promising signs of easing inflation and stabilizing market trends. However, with uncertain factors like job data, we must stay vigilant and adaptable. Watch for the upcoming inflation report on June 13th and the Fed meeting on June 14th. Let’s hope for the continued green in the market!