Morning Report: Inflationary expectations fall

Vital Statistics:

Stocks are lower after the United Auto Workers went on strike against all three big auto makers. Bonds and MBS are down.

Consumer sentiment fell in September, according to the University of Michigan Consumer sentiment Survey. Since consumer sentiment surveys are highly influenced by gasoline prices, this isn’t much of a surprise. Importantly, inflationary expectations for the next year declined from 3.5% in August to 3.1%. Long-run inflationary expectations also fell to 2.7%, which is below the 2.9% -3.1% range we have been stuck in.

Prior to the pandemic, year-ahead inflationary expectations were in the 2.3% – 3.0% range and long-run inflationary expectations were in the 2.2% – 2.6% range. This is good news for the Fed, and we know the Fed pays close attention to the UMich numbers.

ICE and Black Knight have completed their sale of Optimal Blue and Empower to Constellation Software. This sale was a required divestiture in order for the two companies to complete their merger. ICE will hold a conference call in two weeks to discuss their going-forward plan.

Homebuyers are canceling deals at the highest rate in a year as rising mortgage rates kill affordability. “I’ve seen more homebuyers cancel deals in the last six months than I’ve seen at any point during my 24 years of working in real estate. They’re getting cold feet,” said Jaime Moore, a Redfin Premier real estate agent in Reno, NV. “Buyers get sticker shock when they see their high rate on paper alongside extra expenses for maintenance, repairs and closing costs. Many of them would rather back out, even if it means losing their earnest money. A lot of sellers are also willing to let buyers slip away because they don’t want to concede to repair requests.”

Industrial production rose 0.4% MOM, according to the Fed. Manufacturing output rose 0.1%. As is typical these days, the prior month’s numbers were revised downward. Capacity Utilization increased. Separately, manufacturing activity picked up in New York State, according to the Empire State Manufacturing Survey.