August CPI and this Week’s FOMC Decision

Wednesday, a mixed inflation print showed an acceleration in headline CPI (3.7% up from 3.2%) next to a deceleration in Core (4.3% down from 4.7%)–now at the lowest level since September 2021. A combination of Saudi Arabian and Russian production cuts, strong China manufacturing data, and natural gas gains due to the risk of Chevron strikes in Australia have driven energy prices up creating the rebound in the headline number. Nonetheless, the market is pricing in a 98% chance of no rate change in September and a 72% chance of a further pause in November.

U.S. home purchases at the highest rate in 10 months

U.S. home purchases are getting scrapped at the highest rate in nearly a year as the highest mortgage rates in more than two decades are giving homebuyers “cold feet.” Almost 60K home-purchase agreements across the U.S. were canceled in August, equivalent to 15.7% of homes that went under contract last month, vs. 14.3% a year before, marking the highest share of cancellations since October. A weekly survey from Freddie Mac showed that the average 30-year, fixed mortgage loan rose 7.18% as of Sept. 14 from 7.12% a week earlier. Borrowing costs have stayed above 7% for the past five weeks, adding pressure on shoppers who are also grappling with a limited number of homes for sale and, consequently, rising prices.

TSLA Dojo Hype

A surge in Tesla shares helped move markets in a positive direction. Many investors believe it was because of the hype surrounding a supercomputer, “Dojo”. Tesla shares went up 10% after Morgan Stanley upgraded the stock because of reports of a supercomputer, which is said to be able to add $500 billion to the company’s value. Only time will tell whether or not Tesla can live up to the hype – and whether their stock keeps surging. 

Macroeconomic Perspective of the Market

The US economic calendar produced generally positive surprises, particularly with the Institute for Supply Management’s report of services sector activity in August reaching its highest level since February. Weekly jobless claims came in lower than expected, suggesting robust labor demand despite a slight increase in the unemployment rate in August. This news prompted a rise in short-term bond yields. The tax-exempt municipal bond market remained subdued as participants awaited new issuances from California and the Port Authority of NY/NJ, which affected the secondary market. In the coming week, investors will be closely monitoring several key economic reports in the United States. The focus will be on the CPI report, which expects headline consumer prices to have risen 3.6 percent in the last month, marking the second consecutive month of acceleration.