October 16, 2017 – Markets awaited the September FOMC minutes and Consumer Prices this week for further clues on inflation. Even though estimates were expected to be distorted (higher) due to the hurricanes, the numbers fell short yet again. The Consumer Price Index (CPI) rose 0.5% in September and 2.2% over the past year.  However, core inflation, which excludes food and energy costs, rose a much smaller 0.1% last month and 1.7% year over year, a level that’s remained unchanged for five consecutive months despite a labor market that continues to tighten.  Minutes from the Fed’s September meeting indicated officials were split over questions of inflation regarding whether the soft patch was due to temporary factors or longer lasting developments.  Most Federal Reserve officials believed that they would likely raise short-term interest rates again this year, but some cautioned the decision would hinge on whether inflation picks up.  Fed Chairwoman Janet Yellen said in a speech Sept. 26 she expected another rate increase this year, but she was open to changing her mind. Economic data will continue to drive decisions by the Fed.  Market probabilities still show a 75% probability for a December rate hike with 1.5 hikes now priced in for 2018.

Alternative Lenders are taking advantage of both low rates and tight credit spreads.  SoFi priced their fifth student loan securitization this year, SOFI 2017-E last week. With a $777 million deal size, it’s SoFi’s largest student loan deal to date.  Marlette is in the market with their third consumer loan securitization for 2017.  Marlette Funding Trust 2017-3 is expected to close at the end of October with $298 million in loans.  Prosper Funding LLC filed form 15G with the SEC for a securitization of consumer loans. PMIT 2017-3 will be the third transaction for Prosper this year. CommonBond Student Loan Trust 2017-B-GS also filed form 15G with the SEC for a securitization of student loans. In M&A news, Navient announced it would acquire Earnest for $155 million in cash. The acquisition, which is expected to close in Q4 2017, marks the entry of Navient into the private student loan refi market where it will compete with the likes of SoFi, CommonBond, Citizen’s Bank, Wells Fargo, and First Republic Bank.  Overall, Navient’s acquisition of Earnest is consistent with a larger trend of traditional financial services firms marrying their resources with nimble financial technology firms.

Opinions expressed within the commentary are general opinions of Chris Lalli  and are not opinions of CapAccel or SF Sentry Securities, Inc. Nothing in this commentary should be viewed as solicitation to buy or sell specific securities or a recommendation to participate in any transactions. Securities offered through SF Sentry Securities, Inc., member FINRA/SIPC.

Sources:  TIAA-CREF, Payden & Rygel, Wall Street Journal, Orchard Platform, PeeriQ