UMBS down 33 bps on the open.  Ouch.

M/M Core PPI = 0.5 vs 0.1 f’cast   [-0.1 prev]

Y/Y Core PPI  =  2.0 vs 1.6 f’cast,   [1.8 prev]

This is a huge miss for this report, even after considering the fact that it’s more prone to misses than CPI.  It’s also less prone to be as big of a market mover otherwise things would be drastically worse.  Even so, they’re not great.  Healthcare was a big driver of the increase in services cost, and services inflation is driven primarily by wages.

Housing starts rose 1.33 million in January, which was way below expectations. This is 14% below December and down around 1% on a year-over-year basis. Building permits fell 1.5% MOM to 1.47 million, which is up 9% on a YOY basis.

The mix of permits is changing pretty dramatically, with single-family houses up 36% YOY while multi-fam is down 27%. Remember, we have a record number of multi-fam units under construction, and rental inflation is leveling out.

Homebuilder sentiment improved in January, according to the NAHB.  Great.  Then build more damn houses

The percentage of all-cash buyers of existing homes in 2023 averaged 28% of all sales, well above the 22% trailing average seen since the end of 2015. In fact, its been above that trailing average since October 2022.

In the short term, it’s nice to see that today’s massively higher PPI reading didn’t do more than it did to crush the bond market’s spirit.  This isn’t the craziest turn of events given that we already had a bit of spirit crushing after Tuesday’s CPI, but that several Fed speakers said they’re not reading too much into one month of data that breaks from the recent disinflationary trend.  In the slightly bigger picture, however, there’s an opportunity cost.  Sure, things may not be unimaginably worse than they were last week, but where would we be if inflation came in slightly below forecast?  Very likely, that would have resulted in a much more constructive narrative heading into March where a decent result in NFP and CPI in 3 weeks would pave the way for the Fed to give the first signal that a rate cut would be on the table in subsequent meetings.  As it stands, even if the data released in March is bond-friendly, it will have to be taken with a grain of salt until April.  More waiting as opposed to less.

MBS closed the day down 23 bps at 100.22

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