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OCTOBER 12, 2023


The Labor Department has revealed that consumer prices in September rose slightly faster than expected as the consumer price index (CPI), which is a key measure of inflation superpassed the estimated increased. The CPI increased by 0.4% compared to the previous month and by 3.7% compared to the same period last year. Meanwhile, when excluding volatile food and energy prices, the core consumer price index was in line with expectations as it rose by 0.3% on a monthly basis and 4.1% over the past year. This data has drawn the attention of Federal Reserve officials, who are considering another interest rate hike to control inflation, and if core prices continue to rise at a slower rate, along with moderate wage gains and increased bond yields, policymakers may determine that further rate hikes are unnecessary this year. This suggests that the recent cycle of rate hikes may have peaked after reaching a 22-year high. Nonetheless, it is important to note that experts caution that complete victory over inflation has not yet been achieved.


Despite increasing slightly as of 8:00 AM CST, Bitcoin and other cryptocurrencies experienced a decline earlier this morning, marking the sixth consecutive day of losses. Bitcoin’s price dropped by 1.5% in the past 24 hours, reaching its lowest point this month. This return to a familiar trading range is disheartening for Bitcoin, as it had shown signs of a bullish trend. Some analysts attribute the decline in cryptocurrencies to concerns about conflict in the Middle East or simply a lack of interest. Moroever, investors are awaiting to see how the latest CPI may impact Bitcoin’s price, as it could either push it back above $27,000 or keep it stuck around $26,000. Furthermore, Ether, the second-largest cryptocurrency, also experienced a 1% drop, currently below $1,550, while other smaller tokens and memecoins like Cardano, Polygon, Dogecoin, and Shiba Inu also showed declines.


Following the recent notable hike of mortgage rates, the Mortgage Bankers Association has sent a letter to the Federal Reserve, urging them to reduce rates to prevent a recession. Mike Fratantoni, Chief Economist of the Mortgage Bankers Association, has appeared on a live show to discuss the situation. He emphasizes that the housing market is highly sensitive to interest rates, and the recent increases have significantly slowed down activity. The organization believes that the housing market’s stability relies on maintaining stable long-term rates and low inflation. Moreover, while some critics argue that these housing groups did not express the same concerns during the housing bubble of the mid-2000s, Fratantoni points out that in 2020, they did request the Fed to restrict its purchases of mortgage-backed securities. The Federal Reserve has now begun to acknowledge the risks associated with the recent surge in long-term rates, which have strained not only the housing sector but also other industries. Looking ahead, a sustainable long-term mortgage rate could be around 5.5%, but currently, rates remain at a worrying 7.5%.


Bond investors are adjusting their strategies as yields potentially hit their peak after a significant sell-off. Notable financial institutions, like Schroders Plc and Pendal Group, have recently closed out certain trades, commonly referred to as curve steepeners. These trades had demonstrated strong performance despite the prior bond market turbulence caused by the Federal Reserve’s hawkish projections, however, the market sentiment has recently shifted as Fed officials hint at a potential pause in interest rate hikes, sparking renewed optimism that the worst of the Treasury selloff may be behind us. This optimistic outlook has enticed investors back into the bond market, with a particular focus on longer-term bonds. Bank of America (BofA), for example, has shifted its stance from bearish to bullish on German bonds. Furthermore, with yield spreads beginning to narrow, market observers are cautiously hopeful about future trends.


According to a recent report from the Bank of Japan (BOJ), Japan’s producer prices experienced a slower pace of gains than expected in September, falling below the latest consumer inflation reading for the first time since early 2021. The BOJ’s report revealed that input prices for Japanese firms rose by 2% compared to the previous year, marking the smallest increase since March 2021, which was lower than the anticipated 2.4% gain. This decline in producer prices suggests a moderation of import-driven price pressure, with imported materials such as wood and energy witnessing a continuous decrease. However, it is important to note that the recent depreciation of the yen could potentially lead to higher import costs and reignite inflationary pressures. Therefore, analysts predict that the BOJ will likely revise its inflation forecasts higher at their upcoming meeting in response to the persistently high inflation level.

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