Tuesday, May 31, 2022

Pre-market futures are trading the first week of trading the indices in the green for many weeks on what you’d expect: a move back into the red. On this last trading day of May, the Dow is down -234 points, the S&P 500 is at -30 and the Nasdaq is at -66 points since Friday’s close.

Eurozone inflation hit a new all-time high of +8.1% year-on-year in May, beating expectations by 30 basis points and above the previous high of +7.4% in April. Germany jumped to +8.7% and France reached a record of +5.8%. And now that the EU is rejecting Russian oil (with some exceptions, like Hungary), we can expect high prices for longer, at least until the West can help accommodate some of the oil and gas supply chain for Europe.

Here at home the S&P Case-Shiller Home Price Index for March reached +20.6%, demonstrating that year-over-year growth has not slowed even though mortgage rates had already started to rise at least a few months ago. The survey in 10 cities came in at +19.5% vs. +18.7% in February; the 20 cities increased to +21.2% against +20.3% previously.

We started the year with an average 30-year fixed mortgage rate of around 3.3%, and that rate rose to 4.67% in March. Based on other April mortgage data, we can expect that number to rise to around 5.5% when this next report comes out. We may also have seen activity in the housing sector pull back early in the year because consumers knew mortgage rates were going to rise.

For the first time in three years, Phoenix is ​​no longer No. 1 in US home price growth. That honor now goes to Tampa, which led all cities in price growth at 34.8%. Phoenix slipped to No. 2, 32.4%, followed by Miami at 32.0%. The worst performing cities still posted double-digit growth: Chicago 13.0%, Washington DC 12.9% and Minneapolis 12.4%. Obviously, hot climates are always preferred over colder and/or boggy climates.

This data represents a lagging indicator, however, so reading the tea leaves here regarding housing numbers affecting measures of inflation isn’t quite the same as in the detailed housing data we saw the last week. That said, Case-Shiller is considered the most accurate of the housing price indexes, so we are moving forward with confidence in our understanding of the housing market at the end of the first quarter.

After today’s opening we will have new data for May, the consumer confidence and Chicago PMI. Both are expected to decline gradually but notably, to 103.9 from 107.3 previously and 55.9 from 56.4, respectively.

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