Surprising data in all respects. Let’s dig in.
Mortgage apps surprised to the upside this week. Last week, the 10y dipped to 4.32% on Thursday. It looks like that was all it took for homebuyers to jump in. Purchase apps pop 10% in the week, which will support housing transactions in 2-3 months. The refi index also popped 16%. Housing is simply doing better than expected.
Onto CPI, no way around it a surprisingly cool report. Prints 0.13% MoM unrounded. This is 4 straight lukewarm prints. No tariff impact yet, but even so, this is colder than expected and must be acknowledged.
Category changes below.
-Shelter prints 0.3 which is the new normal.
-Energy was negative, but this should reverse ahead. Oil rose 6.4% on the month. Nat gas was flat. Gasoline 2.5%. So all told a bit of a bounce expected next month.
-Insurance continues to be strong. LA riots likely to add to it at some point. Electricity strong and this is related to AI demand.
-Airfares sharply negative which I had not heard of coming into this report.
-Used cars was the big surprise. Printed two straight negative months but in April, used car prices rose 2.7%. So this will show up next month but I thought it would this month.
All told, no sign of tariffs in core goods. Is this report colder than expected because of the dynamics around frontloading before tariffs hit? It’s possible that the rush to build inventory has created a cold window, but it’s hard for me to say that conclusively. It’s also possible we see a hotter PPI, which would mean some margin hits from companies in response to the modest tariffs in place so far. That would be bad for stocks.
I wouldn’t get excited about this report given all the signs of inflation building in the pipeline (see NFIB survey yday), but also no reason for a hawkish response from Fed next week. Probably argues for unchanged SEP all things considered. They will still wait to see the impact and I think that’s the correct approach.
Bonds rallied 6 bps or so off this. IWM popped 1.4% but is now up about 60 bps. Dollar is trading soft against EUR and GBP and CHF but flat the rest, notably JPY.
