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1 big thing: The inflation cooldown is (maybe) back on

After a series of too-hot-for-comfort inflation readings to start 2024, the April Consumer Price Index finally brought some relief.

Why it matters: In a sense, the best news is in what the report didn't say. The April cooldown helps reduce fears that inflation may be reaccelerating.

But it is not definitive evidence that price pressures have resumed the downward trend seen in 2023, and Federal Reserve officials will want to see more evidence of disinflation before cutting interest rates.

What they're saying: "The first downside surprise in inflation since the turn of the year will be a relief to the niggling concerns that inflation was starting to trend upwards again," Seema Shah, chief global strategist at Principal Asset Management, wrote in a note.

By the numbers: In the 12 months through April, CPI rose 3.4%, a smaller gain than the 3.5% the prior month.

Core CPI, which excludes energy and food costs, rose 3.6% compared to 3.8% in March.

Over the last three months, core CPI rose at an annualized rate of 4.1%. That's down from 4.5% in March but still higher than that seen throughout the latter half of 2023 and far above the levels consistent with the Fed's 2% inflation target.

The intrigue: Housing is the wildcard that might keep inflation from returning to a more palatable level. It was the largest factor in core CPI's 0.3% monthly increase.

Rent prices rose 0.4% for the third straight month — a still-rapid pace that does not reflect the disinflation trends seen in private sector data.

Fed chair Jerome Powell told reporters earlier this month that he was confident housing disinflation would eventually show up in the government data, "but not so confident in the timing of it."

Other service sector price increases look sticky, too. Auto insurance costs, for instance, rose 1.8% alone last month. Hospital service costs, too, are still rising sharply.

Between the lines: The April data alone will likely not convince Federal Reserve officials that inflation is decisively falling in a way that makes them comfortable lowering interest rates this summer.

But the numbers are finally moving in a direction that — if sustained — put September rate cuts squarely on the table.

Putin to Visit China to Discuss Energy Ties

Russian President Vladimir Putin is set to visit China on May 16-17 for discussions with President Xi Jinping, in part to discuss expanding energy and trade partnerships.

The state visit, initiated by Xi, will cover topics such as China's Belt and Road Initiative as well as the situation in the Middle East and Asia, and Ukraine.

Putin will be accompanied by key officials including Defense Minister Andrei Belousov, Foreign Minister Sergei Lavrov, Security Council Secretary Sergei Shoigu, foreign policy adviser Yuri Ushakov, and executives from major Russian companies such as Sberbank, VTB, Rosneft, and Novatek. They will engage in informal meetings and discussions, highlighting the strategic partnership between the two nations.

The visit also includes a gala evening commemorating the 75th anniversary of the Soviet Union recognizing the People's Republic of China. This relationship, now more critical than ever, sees China challenging U.S. dominance across various sectors, including quantum computing, synthetic biology, and military power.

A key focus of Putin's visit will be discussions with Chinese Premier Li Qiang on trade and economic cooperation. Putin will also visit Harbin, a city with historical ties to Russia, further strengthening regional connections.

Trade between China and Russia reached a record $240 billion in 2023, a 26.3% increase from the previous year, according to Chinese customs data.

China has bolstered its trade and military relations with Russia amid Western sanctions. Russia has become China's top crude oil supplier, with exports to China increasing by over 24% in 2023, despite the sanctions imposed by the West.

In March, China was expecting to import record-high volumes of crude oil from Russia as multiple cargo of India-bound Russia’s Sokol crude were stranded due to Western sanctions, before finding a new destination in oil-hungry China.

Ukraine war live updates: Under heavy Russian fire, Ukraine withdraws troops from parts of besieged Kharkiv region

Ukraine’s military said it has withdrawn troops from several fighting hot spots in Kharkiv to avoid losses, as Russian forces continue to make incremental gains in their new offensive in the northeast of Ukraine.

“The situation in the areas of hostilities remains difficult,” Ukraine’s General Staff said in an update on Facebook late Tuesday, adding that as a result of Russia’s assaults and artillery bombardment, the military had moved troops from around Lukyantsi and Vovchansk “to more advantageous positions” in order to save its personnel’s lives.

Ukrainian President Volodymyr Zelenskyy postponed all scheduled foreign visits for several days, a spokesperson announced on social media.

Zelenskyy was due to travel Spain and Portugal later this week.(...)

ECB says stress in home loans manageable despite high rates

FRANKFURT, May 15 (Reuters) - Stress in the euro zone market for home loans is "manageable" despite higher interest rates stretching borrowers and lax checks by some banks, the European Central Bank said on Wednesday.

Record high interest rates, imposed by the ECB to bring down inflation, have taken a toll on house prices, particularly in countries where there had been boom when rates were low, such as Germany.

The ECB reviewed the mortgage books of 37 euro zone banks, accounting for 40% of the sector's 3.7 trillion euros ($4.00 trillion) exposure to residential real estate (RRE).

It found deficiencies in how mortgages are originated but still came away with a reassuring message.

"While the review uncovered some challenges in the RRE sector, the overall outlook remains relatively positive," the ECB said in a newsletter. "Although RRE is under some stress, this appears manageable, and banks are actively engaged in addressing concerns."

Of the 1.4 trillion euros worth of home loans outstanding as of last June, 412 billion euros were set to have their interest rate re-set - likely much higher - by June 2025, the ECB said.

"This will entail a material risk for borrowers not able to meet higher interest rates," it added.

The ECB's review also showed that lenders were still not adequately weighing up risks before granting a mortgage - 16 years after a global financial crisis that started in that market and a decade since the ECB took over bank supervision.(...)

CARTERAS QUASAR Y ANTICIPA
Aliseda acelera el desagüe y pone a la venta miles de pisos ocupados de Blackstone

Aliseda ha pulsado el botón rojo y ha activado la venta de las viviendas más complicadas que tiene Blackstone en las carteras de Quasar (Banco Popular) y Anticipa (Catalunya Caixa)

Blackstone ha pulsado el botón rojo y ha activado la venta de las viviendas más complicadas que tiene en las carteras de Quasar, formada por los activos tóxicos que compró del desaparecido Banco Popular, y Anticipa, heredera de la antigua Catalunya Caixa.

Se trata de pisos y casas sin posesión, categoría bajo la que se enmarcan todas las situaciones especiales por las cuales el fondo no puede entregar las llaves de la vivienda al comprador, ya que el inmueble está habitado por un tercero, en la inmensa mayoría de las veces, de manera irregular.

En todos los casos, al ser casas cuya posesión no se puede garantizar, se venden con importantes descuentos frente al precio de mercado. Una rebaja creciente cuanto más difícil sea poder recuperar el uso de la vivienda por parte de su nuevo propietario, y cuanto peor sea el estado del inmueble.

La mitad de la cartera, algo más de un millar de viviendas, son lo que se podría definir como casas okupadas con k, mientras que la otra mitad se reparte, fundamentalmente, entre inquilinos que han dejado de pagar el alquiler o hipotecados cuyos préstamos han sido ejecutados por impago, pero continúan viviendo en la casa.

Bajo la definición de vivienda sin posesión también entran los pisos que se venden con inquilino al corriente de pago y contrato en vigor. En estos casos, el comprador está obligado a respetar la permanencia del arrendatario hasta que venza el alquiler. Una casuística minoritaria en la cartera que ha lanzado al mercado Blackstone.

El fondo ha sacado a la venta estas casas a través de su servicer, Aliseda, y aunque la ofensiva alcance a más de 2.000 hogares, no se trata de una venta en bloque, sino que las operaciones son individuales, piso a piso.

El inversor estadounidense tomó la decisión de acelerar la venta de sus inmuebles más conflictivos apenas unas semanas antes de que el Gobierno aprobara lo que era un secreto a voces: la prórroga del escudo antidesahucios hasta el año 2028, iniciativa que recibió la luz verde este martes.

Para hacerse una idea del alcance de esta cifra, basta señalar que Aliseda comercializa actualmente 3.493 viviendas sin situaciones especiales, muchas de ellas propiedad de particulares. Dicho con otras palabras, en torno al 40% de la cartera de pisos actualmente en venta en Aliseda son sin posesión u ocupados.

El comprador natural de estas viviendas son fondos especializados en adquirir con descuento activos complicados, aunque Aliseda ha lanzado la campaña en su canal minorista, por lo que está abierto a cualquier interesado.

Gran peso de Barcelona

La mitad de las viviendas a la venta se ubican en la provincia de Barcelona, mientras que en Madrid apenas hay 136 inmuebles, en Málaga 74, en Valencia 54 y en Sevilla 52. Si se amplía el foco al resto de la comunidad autónoma catalana, se comprueba que el impacto de la ocupación es mucho menor, con 123 pisos en Gerona, otro centenar en Tarragona y apenas 15 en Lérida.

La decisión de Blackstone de sacar ahora al mercado estos 2.000 inmuebles responde a su interés por acelerar el desagüe, una estrategia en la que lleva inmerso más de seis años con diferentes estrategias.

La mitad de toda la cartera de viviendas ocupadas o sin posesión, un millar de hogares, se ubica en la provincia de Barcelona

En el pasado, por ejemplo, ha puesto en marcha iniciativas similares, a través de Aliseda, pero con suelos o activos a medio construir (lo que se conoce en la jerga del sector como Work in Progress, WIP).

Desde la aprobación de la Ley de Vivienda, el fondo ha doblado esfuerzos tanto en la venta de sus diferentes carteras, como en su gran filial de vivienda en alquiler, Testa Homes. Esta se ha sumado también a esta estrategia de ventas y ha decidido desprenderse de los pisos que tiene en edificios donde no controla la propiedad de todo el inmueble.

Why the Fed Is So Obsessed With Rent

Rents are the biggest remaining obstacle for the US Federal Reserve in bringing inflation back down to its 2% target. That is, rents as measured in the consumer price index, a key yardstick for the Fed. But other measures of inflation meant to give more up-to-date data show rental inflation has moderated more quickly than the CPI indicates. Much of the divergence is driven by the methodological quirks of a CPI component known as owners’ equivalent rent, or OER. Because rents make up an outsize share of the CPI, higher-than-expected OER readings earlier this year have led Fed officials to suggest they will hold off longer than originally planned before reducing interest rates they hiked steeply in 2022 and 2023 to fight inflation. Fed Chair Jay Powell on May 13 called housing inflation “a bit of a puzzle,” saying that lags between the different measures mean “we have to wait.”(...)



The outlook

Despite some hiccups so far this year, forecasters generally expect the pace of increase in the rent components of the CPI to continue moderating as the year goes on, which should give the Fed confidence to begin cutting interest rates later in 2024.

But a big question concerns just how much “catchup” to market rents the CPI components have left to do. The Zillow index has risen about 28% since March 2021, while the new BLS index tracking new tenants is up just 16% over the period. OER, meanwhile, is somewhere between the two, having risen about 20%. Which market measure the OER will eventually converge with is a subject of great uncertainty.

“Primary rents and owners’ equivalent rent (OER) should both slow slightly in April. We expect the former to grow 0.38% (vs. 0.41% prior) and the latter 0.41% (vs. 0.44% prior),” a Bloomberg Economics team led by chief US economist Anna Wong wrote in a May 10 report. “Market rents suggest both OER and primary-rent inflation will slow throughout 2024, with annual overall shelter inflation falling to 4.0% by the end of the year (from 5.6% in March).”

What this all means

Leading indicators, like the Zillow and New Tenant indexes, are sending strong signals that rental inflation will return to its pre-pandemic levels of 3% to 4%. (That’s a rate consistent with the Fed’s 2% inflation target, as other parts of the CPI normally run below 2%.) That is, the steepest rise in rental costs are behind us and the market is returning to normal. But it’s hard to say when the CPI will begin to reflect that trend, given the complexities of the OER calculation and the lags involved.

There’s an argument that the Fed should look past those methodological quirks and proceed with the planned interest-rate cuts that are now on hold. But seeming to fly in the face of CPI figures would be a tough task for the Fed, particularly since officials there are still licking their wounds for downplaying inflation’s rise in 2021 and drawing sharp criticism for moving too slowly, in the minds of many, to begin hiking rates.

Powell in his May 13 remarks at an event hosted by the Foreign Bankers’ Association in Amsterdam said that the Fed had learned that when it comes to CPI figures versus market rents, “the lags are longer than we thought.” He said that the decline in housing inflation “will show up” eventually, “but we have to wait for it to happen.”

Fed's Powell: 'We'll need to be patient' on rates

Fed Chair Jerome Powell said Tuesday his confidence that inflation will keep cooling is not as high as it was at the start of the year, and that the central bank will need to be patient before lowering interest rates.

"We did not expect this to be a smooth road, but these [inflation readings] were higher than I think anybody expected," Powell said during a panel in Amsterdam. "What that has told us is that we'll need to be patient and let restrictive policy do its work."

Powell said that he expects inflation will move back down on a monthly basis to levels that were more like the lower readings of late last year.

"[But] I would say my confidence in that is not as high as it was having seen these readings in the first three months of the year."



Powell's comments came just hours after a fresh reading on wholesale prices for April came in hotter than expected.

Wholesale prices increased 0.5% month over month in April, above the 0.3% consensus had expected, per the latest release of the Producer Price Index, which measures prices producers receive for goods produced.

"Core" PPI, which strips out the volatile food and energy categories, also rose 0.5% in April, above estimates for a 0.2% increase.

Notably, however, March's monthly price increase was revised lower to a decrease of 0.1% from an initial reading of a 0.2% increase.

"I would say [the PPI reading was] actually quite mixed," Powell said Tuesday. "You know, the headline numbers were higher, but they were backward revisions ... I wouldn't call it hot."

In terms of when the Fed will cut interest rates, Powell noted the Fed's current restrictive stance may take "longer than expected to do its work and bring inflation down."

"I do think it's really a question of keeping policy at the current rate for a longer time than had been thought," Powell said.

Powell's rhetoric fell in line with recent commentary from other Fed officials. On Monday, Fed Vice Chair Philip Jefferson said the Fed would need "additional evidence" inflation is falling to the Fed's 2% target before cutting interest rates.

“Until we have that, I think it is appropriate to keep the policy rate in restrictive territory," Jefferson said said during a question and answer session at the Cleveland Fed.

Powell's comments came ahead of another reading of inflation on Wednesday morning, with the release of the April Consumer Price Index (CPI) expected at 8:30 a.m. ET.

Wall Street expects an annual gain of 3.4% for headline CPI, which includes the price of food and energy, a decrease from the 3.5% headline number in March. Prices are set to rise 0.4% on a month-over-month basis, in line with March's rise.

On a "core" basis, which strips out food and energy prices, inflation is expected to have risen 3.6% year over year, a slowdown from the 3.8% increase seen in March. Monthly core price increases are expected to clock in at 0.3%, down from 0.4% in the prior month.