08/19/2022
The inflation data in Europe released this week revealed sharp increases, which caused global bond yields to rise, including U.S. mortgage rates. The U.S. economic news had little impact.
While inflation in the U.S. has been moderating a bit recently, it has surged to record levels in Europe. The latest report from the European Union revealed a massive annual rate of increase of 8.9%, while the figures for the UK were an even higher 10.1%. Like the U.S. Fed, European Central Bank officials target an annual inflation rate of just 2.0%. Achieving this goal will be even more challenging in Europe due to the steep increase in energy prices resulting from the conflict in Ukraine.
In July, housing starts of single-family units dropped 10% from June to the lowest level since June 2020. An unusually high 16% of homes that went into contract for purchase in July were canceled. A separate survey of home builder sentiment from the NAHB declined for the eighth straight month to the lowest reading since early in the pandemic.
In July, retail sales were flat overall from June. While the dollar value of gas sales declined sharply due to lower gas prices, consumers used their savings to purchase other items. In particular, strength was seen in sales of electronics, which are commonly boosted by back-to-school shopping.
The Minutes from the July 27 Fed meeting released on Wednesday contained no surprises and offered no specific guidance on future monetary policy. Officials simply said that decisions on how aggressively to fight inflation will be made based on incoming economic data.
Looking ahead, investors will watch for Fed guidance on the pace of future rate hikes and bond portfolio reduction. Beyond that, New Home Sales will come out on Tuesday. Durable Orders will be released on Wednesday. The core PCE price index will come out on Friday. Fed Chair Powell is scheduled to speak at the Jackson Hole Conference on Friday as well.
