A national measure of prices climbed 20.4% in April, down from the 20.6% gain in March, the S&P CoreLogic Case-Shiller index showed Tuesday. Craig Lazzara, a managing director at S&P Dow Jones Indices, noted that April data was showing initial, but inconsistent, signs of a deceleration in price gains.
Mortgage rates have nearly doubled since the end of 2021. The run-up in rates, combined with high prices, are squeezing potential buyers and starting to slow housing markets in some of the most popular pandemic boomtowns.
Covid monetary stimulus remains in place at inflation hits 8.6%.
Washington DC has the slowest growth in home prices at 11.9% with Chicago and Cleveland close behind. Phoenix barely beat Tampa, FL for hottest home prices with both above 30% YoY.
When Lagarde talks about the first line of defense, all I can picture is The Maginot Line in France, a failed defensive line that was easily bypassed by the German Wehrmacht (army).
The European Central Bank will activate the bond-purchasing firepower it’s earmarked as a first line of defense against a possible debt-market crisis on Friday, according to President Christine Lagarde.
Applying “flexibility” to how reinvestments from the ECB’s 1.7 trillion-euro ($1.8 trillion) pandemic bond-buying portfolio are allocated is aimed at curbing unwarranted turmoil in government bonds as interest rates are lifted from record lows to curb unprecedented inflation.
Net buying under a separate asset-purchase program is also set to end on Friday.
In other words, Euro-area inflation has exploded in 2021, just like the USA.
But the US also has an inflation problem caused in part by Covid and the government’s reaction to Covid: economic shutdown and massive Federal monetary and fiscal stimulus. The stimulus is still in play.
The bond market is already anticipating an about-face by The Federal Reserve (implied overnight rate peaking at the March 2023 FOMC meeting, then receding.
Again, nothing has been the same since the Covid outbreak of 2020 and Fed monetary blitz. Here is the US Dollar Swaps curve before Covid (yellow line) and today’s Fed-enhanced curve (green).
Mortgage rates in the US have climbed to 6% then backed-off slightly. The good ole Back-off Boogaloo as The Fed attempts to unwind its monetary stimulypto.
The French Maginot Line, easily bypassed by German tanks. The Federal Reserve is the US’s Maginot Line. The Yellenot Line??
Consumers are healthy? It is true that the US U-3 uemployment rate is low (3.6% versus 14.70% in April 2020 thanks to government shutdowns over Covid). But even though unemployment is low, consumer sentiment is at its lowest point since 1977.
Generally, consumer sentiment is high when unemployment is low, but not this time around. Currently, inflation is at the highest level since March 1980 even though consumer sentiment bottomed-out in April 1980.
Here is my chart showing that REAL average hourly earnings growth YoY is negative and getting worse, hardly a sign of “healthy consumers.”
Of course, rising gasoline and diesel prices have risen dramatically since 2021, but are declining slightly thanks to the global economic slowdown (read “lower demand”).
And a M2 Money Stock (green line) declined, US rents (blue line) declined as well.
Russia defaulted on its foreign-currency sovereign debt for the first time in a century, the culmination of ever-tougher Western sanctions that shut down payment routes to overseas creditors.
For months, the country found paths around the penalties imposed after the Kremlin’s invasion of Ukraine. But at the end of the day on Sunday, the grace period on about $100 million of snared interest payments due May 27 expired, a deadline considered an event of default if missed.
It’s a grim marker in the country’s rapid transformation into an economic, financial and political outcast. The nation’s eurobonds have traded at distressed levels since the start of March, the central bank’s foreign reserves remain frozen, and the biggest banks are severed from the global financial system.
But given the damage already done to the economy and markets, the default is also mostly symbolic for now, and matters little to Russians dealing with double-digit inflation and the worst economic contraction in years.
War is hell and Ukraine is paying the price as well.
Meanwhile, European sovereign bond yields are up over 10 basis point this morning, but not UK and Sweden (non-ECB nations).
As a recession approaches, we are seeing the WIRP implied Fed o/n rate (green line) declining. And with The Fed chickening-out, we saw a surge in equities (NASDAQ composite index in blue).
Gasoline prices are falling too (orange line), but due to rising global economic slowdown. But notice that The Fed’s balance sheet (yellow line) is still growing despite repeated signals that Covid stimulus would be removed (I call this Quantitative Frightening).
As I mentioned above, The Fed has stopped trimming their balance sheet despite signals to the market of getting rid of the Covid stimulus. As Billy Preston sang, “Nothing From Nothing.”
The Atlanta Fed GDPNow Q2 forecast is for … 0% GDP growth despite the massive monetary stimulus and fiscal stimulus from Biden/Pelosi/Schumer.
And yes, the S&P 500 has officially entered a bear market under the leadership of Joe “The Bear” Biden.
So, Biden’s economic agenda (read, just spend more money and inflation declines?) is failing. Hence, The Fed is backing off a bit helping to drive up stock prices.
Thanks to massive Fed monetary stimulus still stalking the housing market, US new home sales rose +10.7% MoM (from April to May), but were down -5.9% YoY (from May 2021 to May 2022) as mortgage rates rose.
Median price of new home sales rose 42% since May 2021, thanks to Fed stimulypto. And Federal government stimulus spending.
Yes, like the predators from the movies, The Fed’s balance sheet is still stalking markets.