Economic Update - Hot Inflation, PPI, and Mortgage Data
Stocks opened higher, dipped lower shortly, and are continuing to trend upwards. All 3 major indexes posted their biggest one-day drop since June 2020, all fell at least 4%. After the hot inflation reading yesterday, some projections were calling for the Fed to hike by a full percentage point at the FOMC meeting next week, stoking investor fears.

The Producer Price Index fell 0.1% in Aug, matching expectations, and prices were up 8.7% YoY, down over 1% from last month & the lowest reading since Aug 2021. Core prices, which exclude food, energy, and trade, were up 0.2% for the month, just below expectations, and 5.6% YoY, the lowest reading since June 2021.

Elsewhere, MBA mortgage applications fell 1.2% last week as refinance applications fell by 4.2% to the lowest level since 1999. The purchase index edged 0.2% higher for the week. The report also showed that the average interest rate of a conforming 30-year mortgage rose to 6.01%, the highest level since November 2008.

Treasury yields are higher this morning, with the 2-year T yield up 3.6 basis points to 3.79%, the 5-year T yield up 1.4 basis points to 3.61%, and the 10-year T yield up 0.1 basis points to 3.42%. Advance rates are lower for terms under 1-year, higher on longer terms.image
Alejandro Rodriguez's avatar
Right now would you say there is any metric or event that will move markets more than inflation prints? Seems like that is the biggest catalyst for market movements right now.
Dividend Dollars's avatar
@alejandro_r unless world war three breaks out I think inflation readings will continue to be the biggest catalyst in the market for some time
Alejandro Rodriguez's avatar
@dividenddollars Agree— ok so taking the thought experiment a step further: What event would signal to you that inflation prints will no longer be the most important game in town as far as market reaction?

My answer was going to be inflation slowing, but the caveat that if it was a gradual slowing. If If all of a sudden it plummets, markets would still react strongly.

So I guess my answer is, if we get like four or five months in a row where inflation is subsequently a little smaller than the previous month, that will bore the market and open the door for other events to be more surprising and market-moving.