Market Update – 1/18/2021

Jobless Claims continue to move in the wrong direction

Another 965,000 people filed for unemployment benefits for the first time during the week ending January 9. This was well above estimates and, unfortunately, around five times the number of Initial Jobless Claims that were being filed each week before the pandemic began. 

Inflation also made headlines, as it remained tame overall at both the wholesale and consumer levels in December per the latest Producer and Consumer Price Index reports. At the consumer level, Core CPI, which strips out volatile food and energy prices, was up only 0.1% from November to December while the year over year reading remained stable at 1.6%. Read on to learn why inflation data is critical to monitor when it comes to home loan rates.  

The pandemic continues to impact manufacturers and retailers around the country. The Empire State Index (which shows the health of the manufacturing sector in the New York region) came in below expectations in January while December Retail Sales fell by 0.7% versus expectations of a 0.1% loss. Retail Sales in November were also revised lower by 0.3% to a loss of 1.4%.  

Following suit, the National Federation of Independent Business Small Business Optimism Index dropped 5.5 points in December to 95.9, which is a 7-month low. Most of the categories were lower, with those who expect a better economy falling 24 points to -16.  

NFIB Chief Economist Bill Dunkelberg said, “Small businesses are concerned about potential new economic policy in the new administration and the increased spread of COVID-19 that is causing renewed government-mandated business closures across the nation.” 

Plans for more stimulus are on the horizon, however. President-elect Biden released details for the American Rescue Plan, which are highlighted below. 

Initial Jobless Claims Well Above Estimates 

 jobless claimsAnother 965,000 people filed for unemployment benefits for the first time during the week ending January 9, which was well above estimates of 765,000 claims and an increase of 181,000 from the previous week. California (+161K), New York (+56K) and Illinois (+45K) reported the largest increases. 

Putting this into perspective, Initial Jobless Claims were around 200,000 a week pre-COVID, meaning claims are almost five times that amount nearly a year into the pandemic 

Continuing Claims, which are delayed a week and which measure people continuing to receive benefits, increased by 199,000 to 5.3 million.  

Pandemic Unemployment Assistance Claims, which give benefits to people who would not usually qualify, dropped by 941,000 to 7.4 million. Pandemic Emergency Claims, which extends claims by 13 weeks after regular benefits expire, also decreased by 325,000. Unfortunately, these decreases are likely due to benefits expiring rather than people finding employment. 

Inflation Tame Overall in December 

The Producer Price Index (PPI), which measures wholesale inflation, rose by 0.3% in December, which was lower than market expectations of 0.4%. On a year over year basis, headline PPI remained stable at 0.8%. Core PPI, which strips out volatile food and energy prices, was up 0.1% for the month and decreased from 1.4% to 1.2% year over year. 

On the consumer side, inflation was up 0.4% from November to December per the Consumer Price Index report. The year over year reading increased from 1.2% to 1.4%. About 60% of the rise was due to gasoline prices. 

The Core Reading, which again strips out volatile food and energy prices, was up only 0.1% from November to December while the year over year reading remained stable at 1.6%. The services sector has been hit especially hard by the pandemic, and when we take service inflation out of the picture, goods prices were up 1.7% year over year – the fastest pace since April 2012. This is because of supply chain issues companies are having, which is causing the cost of goods to rise. 

Also of note, rents are rising 2.3% across the US, which is down from 2.4% from the previous month. While many markets are seeing rents rise at a faster pace, some of the major cities are seeing sharp declines, which is dragging down the overall figure. 

Inflation is always important to monitor because it erodes the buying power of a Bond’s fixed coupon over time. This means that rising inflation can cause Bonds to worsen or move lower. Home loan rates are inversely tied to Mortgage Bonds, so when Bonds worsen, home loan rates can rise. Though many factors influence the markets, tame inflation can benefit Mortgage Bonds and help home loan rates remain low.  

Highlights of Proposed StimuluPlan  

President-elect Biden released details for the American Rescue Plan. Among the highlights, his plan includes direct payments of $1,400. This would give many recipients a total of $2,000 when the amount is added to the $600 direct payments that were included in the bill which recently passed.  

The boost to unemployment benefits would increase $400 (up from $300) through September. Pandemic Unemployment Assistance and Emergency claims would also be extended through September, after being previously extended to March in December’s package. 

Minimum wage would also be increased to $15 per hour. 

The proposal also includes another $25 billion to help renters (which is in addition to the $25 billion provided in December) and an extension of the eviction and foreclosure moratorium through September. People would also be able to apply for forbearance through the end of September. 

Lastly, the proposal would expand the Child Tax Credit as well as make it refundable for the year. 

Family Hack of the Week  

Winter is the perfect season for baking. This easy homemade banana bread recipe is sure to become a family favorite. 

Preheat oven to 350 degrees Fahrenheit. Flour and butter a 9×5-inch loaf pan. 
In a medium bowl, whisk 1 1/2 cups all-purpose flour, 1 teaspoon baking soda, 1 teaspoon baking powder and 1/4 teaspoon salt. In a small bowl, combine 1 cup dried cranberries, 1 cup walnuts and 1 tablespoon of the flour mixture, and toss to coat. 
Beat 1/2 cup unsalted butter in a stand mixer on medium until butter is fluffy. Slowly add 1 cup sugar and beat until well blended. Beat in 2 eggs, one at a time. Mash 2 ripe bananas in a small bowl and add 2 tablespoons lemon juice and 1 1/2 teaspoons vanilla. Beat banana mixture into butter, sugar and eggs. Slowly add the flour mixture into the wet ingredients until just blended. Be careful not to overmix.  
Pour 1/3 of the batter into the loaf pan. Sprinkle in half of the nut mixture. Add another 1/3 of the batter. Add the remaining nut mixture and then cover with remaining batter. Run a fork through the mixture to combine, and then across the top to flatten it. 
Bake for one hour or until toothpick inserted into loaf comes out clean. Turn out on to a rack, and cool for 30 minutes. Slice and enjoy! 

What to Look for This Week  

After the market closures Monday in observance of the Martin Luther King Jr. holiday, housing news dominates the second half of the week. 

On Wednesday, we’ll get a real-time read on builder confidence with the National Association of Home Builders Housing Market Index for January, while Thursday brings news on Housing Starts and Building Permits for December. Ending the week on Friday, we’ll get the details on December’s Existing Home Sales. 

Also of note, the latest Jobless Claims figures will be important to evaluate when they’re released on Thursday. Plus, Thursday also brings an update on regional manufacturing with the Philadelphia Fed Index. 

Technical Picture 

The Fed’s ongoing purchases of Mortgage Backed Securities continues to provide stability to the markets. After the morning star pattern and positive stochastic crossover, Mortgage Bonds remain in a range between a floor of support at the 200-day Moving Average and resistance at the 103.053 Fibonacci ceiling.  

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