Global economics continues to send waves of volatility throughout United States markets. The drama in the United Kingdom over Prime Minister Liz Truss' sweeping tax cuts unfolded further on October 14 when she fired her Finance Minister, Kwasi Kwarteng, and was expected to walk back parts of the economic policy that contributed to a massive gilt selloff. The Bank of England stepped in a second time to buy up bonds to help keep borrowing costs down and prevent a total fallout for the U.K.'s bond market. 

Earlier in the week, OPEC+ (the main group of oil producing and exporting countries including non-OPEC exporters like Russia) announced its largest supply cut since 2020. President Biden requested that Saudi Arabia, which is essentially the leader of OPEC, to delay the cut by at least a month. Saudi Arabia denied the request and will proceed with cutting oil supply by 2 million barrels a day starting in November.

The main concern with that decision, of course, is how it will affect inflation that is already running extremely hot in America. The latest producer price index (PPI) and consumer price index (CPI), both produced by the Bureau of Labor Statistics, both came in higher than expected for September. 

The PPI measures what businesses pay for goods while the CPI measures what consumers pay for those goods. PPI increased 0.4% month-over-month with an increase of 8.5% on a 12-month basis. The CPI was also up 0.4% on a monthly basis with an 8.2% increase year-over-year. The core CPI, which excludes the more volatile energy and food prices, showed a 0.6% monthly increase with a 6.6% year-over-year increase. The core CPI is one of the Fed's preferred measures of inflation. 

When you pair this data with last week's stronger-than-expected jobs report, it's clear that the Federal Reserve has all the fuel it needs in order to implement another strong rate hike at its next meeting. The minutes from the Federal Open Market Committee (FOMC) meeting in September discussed inflation and determined that, "showing little sign so far of abating … they had raised their assessment of the path of the federal funds rate that would likely be needed to achieve the Committee's goals."

FOMC members still remain cognizant of the larger impact of their quantitative tightening measures. The minutes showed that, "Several participants noted that, particularly in the current highly uncertain global economic and financial environment, it would be important to calibrate the pace of further policy tightening with the aim of mitigating the risk of significant adverse effects on the economic outlook."

HOUSING MARKET SHIFT CONTINUES

It is an extremely tough pill to swallow when you compare 2022 with what we had in 2021. Just looking at the stats on a 12-month basis alone will tell you that rate locks are down 60% (according to Black Knight's market monitor report). The Mortgage Bankers Association's Weekly Mortgage Applications Survey shows refinances are down 86% and purchases are down nearly 40%. What you have to keep in mind is that 2021 was an anomaly. The mortgage industry originated a record $4.4 trillion in 2021—and $2.7 trillion of that came from refinances. So let's look at that $2.7 trillion. Earlier this year, Fannie Mae predicted that the entirety of 2022 would produce $2.7 trillion in total origination volume and that would move to $2.25 trillion in 2023. 

Real estate tech strategist Mike Delprete recently published a statistical look at historical trends in the mortgage industry, stating that "2021 is an outlier, not a benchmark." He notes that, "If we consider 2021 the outlier and not the benchmark, the market in 2022 doesn't look nearly as catastrophic as headlines suggest."Unfortunately, the pain is real for many would-be homebuyers who are watching home affordability drop dramatically despite slowing home price growth. The latest Freddie Mac 30-year fixed-rate mortgage average came in at 6.92%. Freddie Mac's analysts lamented, "Rates resumed their record-setting climb this week, with the 30-year fixed-rate mortgage reaching its highest level since April of 2002. We continue to see a tale of two economies in the data: strong job and wage growth are keeping consumers' balance sheets positive, while lingering inflation, recession fears and housing affordability are driving housing demand down precipitously. The next several months will undoubtedly be important for the economy and the housing market."