Weekend Update: Oil, Commodities, Wheat, Soaring In Price, Mortgage Rates Down (Inflation Forecast To Worsen)

This has been a brutal week for consumers. With the Russia/Ukraine conflict raging and Congress seems determined to not allow for additional oil and gas production, and Biden’s anti-fossil fuel edicts still in place, we are seeing dramatic price increases in wheat (UP 89.5% since January 1, 2021), WTI Crude (UP 143% since January 1, 2021), and food stuffs (UP 55% since January 1, 2021).

Bankrate’s 30-year mortgage rate has actually been falling the last several days, which is good for prospective home buyers as the 10-year US Treasury Note yield has been declining.

The USD/Russian Ruble cross is skyrocketing and the USD/Euro is doing likewise. Russians visiting the US will find that their trip is suddenly unaffordable (as do many American citizens will its rampant inflation). As Bruce Willis said in “Die Hard,” “Welcome to the party, pal.”

On Friday, the US Treasury 10-year yield declined 11 bps.

And energy prices continue to soar, particularly UK Natural Gas Futures that rose 19.85% overnight.

The US inflation data will be released on March 10th and the consensus is that February CPI inflation will rise to 7.9% YoY.

But even the latest unemployment rate report (3.8%) is signalling that The Fed should be raising interest rates since it is lower than the Natural Rate of Unemployment or NAIRU (4.44%).

And we have the next Fed policy error on March 16th. The Fed dots plot looks like the glide slope for an aircraft, but the message is that rates will be going up at future meetings.

And just for amusement, I present to you the infamous Hindenburg Omen chart that forecast the 2008/2009 stock market correction. Since that correction, the Hindenburg Omen has been flashing “danger” but the only correction was the COVID-linked correction of early 2020. While the Hindenburg Omen is flashing red right now, The Federal Reserve’s balance sheet (green line) has protected against market corrections. Let’s see what happens if and when The Fed decides to remove the epic monetary stimulus.

Its anyone’s guess as to whether The Fed will actually tighten monetary policy.

Hey Bartender! Jobs Report Friday … The Good? 678k Jobs Added, The Bad? 0% Growth In Earnings (MoM), The Ugly? Inflation Is 7.5% (REAL Wage Growth Is -2.4%) WTI Crude UP 4.37% Overnight

Today’s jobs report is a mixed-bag. According to the February Bureau of Labor Statistics (BLS) report …

The good: 678k jobs were added.

The bad: Month-over-month wage earning experienced 0% growth (although YoY growth declined to 5.1%).

The ugly: inflation is still at 40 years highs of 7.5%. Meaning that REAL wage growth is -2.4%.

Here is the jobs report summary.

Of course, the leading sector for job creation was … leisure and hospitality with 179k added. Food services and drinking places (aka, bars) added 124k jobs.

Energy prices are way up … again … which will fuel more price increases. WTI Crude is up over 4% overnight, NYH gasoline futures are up 4.33%, coal is up 22.48%.

Hey bartender! You are the leading job addition.

At least the 30-year mortgage rate is down slightly. Why? Fed Stimulypto is still in place!

Inversion: Russia’s Sovereign Yield Curve Inverts As Technical Default Occurs (Russia’s Foreign Bond Sinks To 21.75) Biden Releases 1 1/2 Days Of Strategic Oil Reserves To Lower Prices

The US still has a steeply upward-sloping yield curve, but Russia has the exact opposite: a steeply downward-sloping or inverted yield curve.

Here is a comparison of the US Treasury Actives curve (steeply-upward sloping) compared to Russia’s sovereign curve (steeply-downward sloping).

Russia’s technical default on international bonds has led to its 5.25% coupon international bond (denominated in Euros) to plunge from 131.6 in September 2022 to only 21.75 this morning.

Commodity prices? Commodity prices saw the biggest one-day gain in 13 years on Tuesday.

Between Biden’s anti-fossil fuel executive orders and the Russian invasion of Ukraine, gasoline futures are up 126% since the start of January 2021.

Biden is tapping the US strategic oil reserves releasing 30 million barrels. Unfortunately, this amounts to only 1 1/2 days of US oil consumption. Instead of “Release the Kraken!”, Biden is releasing a Petit Basset Griffon Vendéen. Woof.

This reminds me of “Does your dog bite?”

Powell Backs A Quarter-point Rate Hike In March Meeting, 10Y Treasury Yield Rise By 11 BPS, UK Natural Gas UP 35% (Taylor Rule Suggests A Target Rate Of 13.40%)

Like the old E.F. Hutton ads, when Fed Chair Jerome Powell talks, people listen.

Stocks rose, while bonds fell after Jerome Powell said he was inclined to back a quarter-point U.S. rate hike in March to combat inflation that is “too high.”

In a broad-based equity rally, financial and industrial companies led gains in the S&P 500. The two-year Treasury yield — which is more sensitive to imminent Federal Reserve policy moves — was near 1.5%. The Fed chief also noted that the central bank is prepared to be more aggressive if inflation is more persistent than expected, while adding that he’s open to “series of rate increases” in 2022. Investors also assessed the latest geopolitical developments, with oil paring gains after earlier topping $110 a barrel.

WTI Crude futures are up to $107.05 a barrel.

Natural Gas (UK) rose 34.58% to 100.28. Wheat is 7.62% to $1,059.

The 10-year Treasury yield jumped 11 Basis Points on Powell’s comments. And Eurozone yield are up nearly the same amount.

Powell signalling a more moderate rate expansion led to the Dow rising over 500 points (up 1.65%).

Based on core PCE growth of 5.21%, the Mankiw specification of the Taylor Rule model infers that The Fed Funds Target rate should be … 13.40%. Since The Fed’s target rate is only 25 basis points, a 25 basis point increase is modest indeed.

Mortgage rates are down slightly today, but you can see the separation between The Fed’s target rate and the 30-year mortgage rate.

Not, Not, Not! Mortgage Purchase Applications Declined 9% YoY For Week Ending February 25, 2022 (Refi Applications Drop 56% YoY)

While Corelogic’s January home price index was hot, hot, hot (UP 19.1% YoY), today’s mortgage applications index for the week ending February 25, 2022 was not, not, not.

Mortgage applications decreased 0.71 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 25, 2022.

The seasonally adjusted Purchase Index decreased 1.76 percent from one week earlier. The unadjusted Purchase Index increased 1.16 percent compared with the previous week and was 9 percent lower than the same week one year ago.

The Refinance Index increased 1 percent from the previous week and was 56 percent lower than the same week one year ago.

Yes, the mortgage industry is going through some difficult times. But not as difficult as trying to understand Biden’s State of the Union address: “Putin may circle Kyiv with tanks, but he’ll never gain the hearts and souls of the Iranian people.” Huh?

And then Biden’s closing remark was “Go get ’em!” What? Go get whom? The Russians? Inflation? Trump supporters?? I feel like Biden thought the SOTU was the annual Army-Navy football game.

My State Of The Union Rebuttal: WTI Crude UP 126% Since Jan 1, Gasoline Prices UP 61% (GDP Near Zero, Inflation Still Rising)

President Biden is giving his first State of the Union address tonight with rebuttals from Iowa Governor Kim Reynolds and The Squad’s Rashida Talib (yes, a Republican is giving the rebuttal to Biden’s SOTU speech, and a Democrat is rebutting a Democrat President??)

Let’s look at a short list of Biden’s economic triumphs. I will ignore Biden’s catastrophic Afghanistan withdrawal and his weak response to the Russian invasion of Ukraine.

If you want higher oil and gasoline prices, Biden is a tremendous success.

If you like rampant government spending, then Biden is your man. Home price growth is up to 18.84%, making housing unaffordable for millions of American families.

Wages? They are up, but declining after 7.5% YoY inflation. And GDP is almost zero.

Biden can only point to rising average hourly wages, but not REAL average hourly wages.

Inflation? Highest in 40 years, due to excessive Federal spending, The Fed’s crazy printing and Biden’s energy mandates.

I am scratching my head to think of accomplishments for Biden to mention in the SOTU. But I am sure that he will say something positive. Otherwise, Biden’s SOTU speech should be the Billy Preston song “Nothing from Nothing.“

Feeling Hot, Hot, Hot! US Home Prices Grew At 19.1% YoY In January (Is US Housing Market Addicted To Gov?)

Feeling hot, hot, hot!

Corelogic released their January housing report and its a doozy.

Home prices nationwide, including distressed sales, increased year over year by 19.1% in January 2022 compared with January 2021. On a month-over-month basis, home prices increased by 1.4% in January 2022 compared with December 2021 (revisions with public records data are standard, and to ensure accuracy, CoreLogic incorporates the newly released public data to provide updated results).

But Corelogic is still forecasting only 3.8% YoY growth in 2022.

Home prices are hot, hot, hot in all states except North Dakota and New York. The fastest growing states are lower taxes, higher growth states.

Phoenix, Las Vegas and San Diego are booming. But Chicago and Washington DC are growing at near 9% YoY.

Case-Shiller’s December report show home prices growing at 18.84% YoY thanks to Fed stimulypto and historic low inventory of homes available for sale.

Is the US housing market addicted to gov?

Let’s see if the five expected rate hikes from The Fed materialize.

US 30-year Mortgage Rate Rises To 4.30% As 10-year Treasury Yield Plunges -8.2 BPS (Eurozone Yields Dropping Like A Rock)

As someone who needs to move to Ohio, I would really appreciate it if mortgage rates would more closely follow the 10-year Treasury yield. But alas, Bankrate’s 30-year mortgage rate just rose to 4.30% as the US Treasury 10-year yield dropped -8.2 basis points.

Europe. Middle East and Africa (EMEA) sovereign yields are all down over 10 basis points averaging around -15 bps.

Ukraine’s 10-year yield has plummeted by -48.3 bps this morning.

The anticipated meeting between Russia and Ukraine on Belarus soil was a failure. Likely due to Belarus showing-off their modern air force capabilities.

Oh Atlanta! Atlanta Fed GDPNow Q1 Forecast Drops To 0.631% With REAL Wage Growth At -2.38% (Coal Is SOARING!)

Oh Atlanta! Fed, that is.

The Atlanta Fed GDPNow Q1 real-time GDP index fell to 0.631%. And the Atlanta Fed REAL wage tracker fell to -2.38 growth.

Volatility reigns supreme on the energy front (look at NYM Dubai crude AVAT!) And coal is up 18.68% this morning.

Here is a map of gas and oil pipelines in Europe.

US Trade Balance Widens To All-time High, Rise In Imports, Drop In Exports (10Y Treasury Yield Sags To 1.884%, Russian Ruble Getting Clobbered)

The U.S. merchandise-trade deficit unexpectedly widened in January to an all-time high, reflecting a record value of imports and a drop in shipments overseas.

The shortfall grew to $107.6 billion last month from $100.5 billion in December, according to Commerce Department data released Monday.