Limited economic data releases leave economic outlook uncertain
Summary
In a week marked by a relatively quiet economic calendar, U.S. labor and housing data pointed to a mixed economic outlook. Rates inched higher as the market reacted to higher-than-expected CPI figures released earlier this month and consumer sentiment came in lower than expected.
Housing and rates
Last Wednesday, the Mortgage Bankers Association (MBA) released data surrounding the U.S. housing sector. This included their weekly U.S. 30-year mortgage rate, which reflects the average contract interest rate for 30-year fixed-rate mortgages. The results showed that average 30-year fixed-rate mortgages rose for a fourth straight week to 6.90%, the highest since early July. The recent rise in 30-year rates erases progress made after the Fed’s September rate cut, indicating market sentiment that the Fed may not cut rates as quickly as previously thought. In fact, just before the Fed’s September rate decision, the market was pricing in around 150-200 bps worth of cuts over 12 months. However, today we see a drastic change in outlook as markets currently price in just two to three cuts over the next 12 months. As of Wednesday, U.S. mortgage applications, published on November 20 by the MBA, increased 1.70% over the previous week despite current rate conditions. However, one should view this increase with caution, as mortgage application volume is down over 30% compared with September.
Source: Federal Reserve Bank of St. Louis
Consumer sentiment
A disappointing shock hit markets last Friday when consumer sentiment came in below consensus. Michigan Consumer Expectations were anticipated to come in at 78.50 after last month’s 74.10 release. While November’s release at 76.90 shows an increase in consumer sentiment, the increase shows lagging confidence compared to its expected reading of 78.50. While the growth shows the economy is still resilient and could lead to an increased probability of the Fed slowing its pace of rate cuts, the negative shock may say otherwise. Regardless of rate impact, this month's reading is the highest since March, which is positive from the consumer standpoint as it inches closer to the 10-year historical average.
Jobless claims
Thursday’s initial jobless claims fell to their lowest level since April, coming in at 213,000, which is 11,000 below forecasts and seen as a positive indicator of economic strength. Continuing jobless claims rose to 1.91M, representing the highest number since 2018, excluding the pandemic months. The elevated measure signals that unemployed Americans are taking longer to find work. Ultimately, the two contrasting measures released by the U.S. Department of Labor further the narrative of market uncertainty.
The week ahead
Next week, economic releases will pick up as the Fed’s preferred measure of inflation, the Personal Consumption Expenditures Index (PCE), comes out next Wednesday.
Subscribe to receive our market insights and webinar invites
About the author
-
Amol Dhargalkar
Managing Partner, Chairman
Kennett Square
Amol Dhargalkar is a Managing Partner and Chairman for Chatham’s Board of Directors. He brings over 20 years of experience in derivatives capital markets expertise.
Disclaimers
Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit chathamfinancial.com/legal-notices.
24-0154