September to Remember
"Life starts all over again when it gets crisp in the fall." — F. Scott Fitzgerald
Hey, Risers!
Shutdown.
Yet another government shutdown is looming unless Congress passes a temporary spending bill before the new fiscal year commences on October 1. As the Democratic-led Senate and Republican-led House remain at odds over the specifics of this stopgap measure, the conversation has shifted from whether a shutdown will occur to how long it may persist.
The yield on the 10-year Treasury yield climbed back to approximately 4.59%. It charged to its highest level since 2007 this week, up from 3.50% in May and just 0.50% in 2020.
Although shutdowns are unlikely to impact financial markets, we are watching the developments closely.
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Economy & Markets
Cooling.
Deflation
The core personal consumption expenditures price index, which strips out the volatile food and energy components, climbed 0.1% in August, according to the Bureau of Economic Analysis report out Friday. The overall PCE price index jumped 0.4%, reflecting a pickup in energy costs. Oil prices are over $90 a barrel, posing a serious risk in the fight against inflation.
Our take: The inflation fight is far from over.
House Call
The average rate on 30-year mortgages rose to 7.42 percent this week, up from 7.41 percent last week, according to Bankrate’s weekly national survey of large lenders1. This is the highest level since December 2000. Pending home sales slipped 7.1% in August compared to July, according to the National Association of Realtors.
Measured using the Pending Home Sales Index, a forward-looking indicator of home sales based on contract signings, pending transactions fell by 18.7% compared to the same time last year. Home sales dipped from August across all regions of the country, falling the most in the South, where pending sales recorded a drop of 9%.
While the construction of new homes has been on the rise, prices still haven't budged enough to bring priced out homebuyers off of the sidelines. Total value of the market has surged to almost $52 trillion this year.
Our take: As long as inventory stays low, prices will stay high.
Work Out
According to the Department of Labor, the number of initial jobless claims increased by 2,000 to 204,000 in the week ending September 23. This figure was below the market expectation of 215,000. The four-week moving average of initial claims fell by 6,250 to 211,000. These numbers indicate that while labor market conditions are cooling, the job market is still characterized by very few layoffs.
Our take: We repeat: A strong job market stands in the way of lower interest rates.
Learning Block: Why Government Shutdowns Occur
It’s the politics, silly.
The US government operates on 12 appropriations bills that are passed annually by Congress and signed by the president. These bills provide funding for various government agencies and programs. However, when all 12 bills are not adopted by the start of the fiscal year on October 1, Congress and the president must find a way to keep the government running.
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