Summary
United States: Little Love in January Data
- Economic data were stuck in the doldrums this week, highlighted by a hot January CPI print. The out-of-consensus start to the year for economic data continued with a slip in retail sales and industrial production followed by a startling 14.8% drop in housing starts during January.
- Next week: LEI (Tue.), Existing Home Sales (Thu.)
International: International Data Deliver Downside Surprises
- This week in international data, U.K. Q4 GDP fell 0.3% quarter-over-quarter, and January inflation was slower than forecasted, holding steady at 4.0%. Japan’s GDP was also weak, reporting an unexpected decline. Australia’s January labor market report was disappointing, with employment virtually unchanged, while the jobless rate rose more than forecast to 4.1%.
- Next week: Canada CPI (Tue.), Eurozone PMIs (Thu.)
Interest Rate Watch: Central Banks on Hold for Longer?
- We explain why we think the FOMC is still on pace to cut rates by 25 bps at its May 1 meeting despite this week’s higher-than-expected print on CPI inflation in January. We look for the European Central Bank to reduce its policy rate by 25 bps on April 11. That said, we readily acknowledge that both central banks could wait longer to ease policy than we currently anticipate.
Credit Market Insights: Housing Affordability Update
- The affordability of the U.S. housing market continues to be bifurcated across prospective and existing homeowners as the differential between rates for new mortgages and the average existing mortgage widens. Purchase affordability has reached its lowest level in close to 40 years. Meantime, existing homeowners have yet to directly feel the pinch of higher mortgage rates.
Topic of the Week: Slow to Find Shelter from Inflation
- The strengthening in January’s CPI for owners’ equivalent rent (OER) stood in contrast to leading measures of shelter inflation and moderation in rent of primary residences (RPR). We expect to see some payback next month, but January’s gap between OER and RPR growth hints at a firmer path for OER ahead as the single-family rental market remains tight amid low purchase affordability.
