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Supply Chains, Home Prices & Inflation Assert Themselves

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Tuesday, September 28, 2021

Pre-market futures are taking another leg down this morning, likely on continuing supply chain constraints that have even gotten the attention of Fed Chair Jay Powell of late. Q3 earnings projections are taking this into account, and early holiday shopping may be necessary to ensure gifts will have arrived by the end of the year. The Dow is -140 points currently, the S&P 500 -35 and the Nasdaq is down -230 points.

Fears of a government shutdown are apparent, as partisan politics on Capitol Hill has created something of an obstacle course with a refusal of a raised debt ceiling by the minority Republicans joining up with a trepidatious $1.2 trillion infrastructure bill and a $3.5 trillion investment in “human infrastructure” and capital bill, both of which have been penciled-in by companies expecting the Biden administration to provide a boost to working families. Lots of moving parts without many solutions.

We did get an Advance Trade in Goods print for August this morning, but even though the headline is a wider-than-expected -$87.6 billion from -$86.4 billion estimated, this is not the culprit behind falling market indexes this morning. The July read has been revised downward to -$86.8 billion. Even still, we’re up from the all-time low we saw in June of this year, -$92.0 billion.

Imports grew +0.8% month over month to $236.6 billion, led by Consumer Goods, +4.6%. Exports came in at +0.7% to $149 billion, which saw a strong Industrial Supplies read, +5.9%. Capital Goods Shipments fell -1.5% month over month. Jay Powell now sees supply issues causing sustained inflation beyond his earlier projections, which may mean today’s testimony before the House Banking Committee may bring a new revision to Powell’s outlook.

The 10-year Treasury bond yield is now up to its highest level in the past three months, to 1.54%. Economists are now gauging possibilities of near-term acceleration to +2% and beyond, which would obviously spur the Fed into taking action (tapering asset purchases first, then increasing interest rates from near-zero). The last time we reached these 10-year levels, we did dip back down to 1.2% or so, on fears of global stagnation and the Delta variant here at home. Those stops look to have been pulled this time.

The Case-Shiller home price index for July jumped to a new record high +19.9% year over year, with the National Composite Index +19.7% — the 14th straight up month for this metric, and solidly higher than the +18.6% estimate. Case-Shiller is an “old” report, bringing data from July when we’re about to enter October, but widely considered the most accurate in terms of home prices. The June print was upwardly revised to +19.1%.

The same three top cities in terms of home pricing growth led the way this time, as well — and by a lot: Phoenix home prices are +32.4% year over year, San Diego +27.8% and Seattle +25.5%. Considering the moves these markets had already made previously, these are rather astronomical year-over-year comps. It also is another arrow in the quiver of those who, unlike Jay Powell until very recently, believe inflation is a lot more permanent than “transitory.”

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