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Listen Live
Saturday’s: 9AM 1590 AM/97.9 FM KVTA
Sunday’s: 7AM K-EARTH 101 FM
Three Things: These are the three areas that have the greatest ability to impact your backend pricing this week. 1) Inflation Nation, 2) The Consumer and 3) Central Bank Palooza.
1) Inflation Nation: We get the Fed’s key measure of inflation, Personal Consumption Expenditures (PCE) on Friday. Both headline PCE and Core (ex food and energy) are expected to show monthly increases. However, the YOY readings are expected to move lower due to the time frame comparison.
2) The Consumer will take center stage to see if they can weather higher rates, higher prices and an economic slowdown all at the same time. This week we get Consumer Confidence, Consumer Sentiment and Personal Incomes and Personal Spending.
3) Central Bank Palooza: This week we get interest decisions out of China and Japan.
Treasury Dump: We have a very important 20 year bond auction this week.
The 10 yr. note began higher this morning at 3.57% +8 bps after increasing 3 bps last Friday. MBSs -48 bps from Friday, stock indexes slightly lower. This week begins the last two weeks of the year, always funky with end of year positioning and thin trading. This week’s economic data primarily on the housing sector. Friday markets get the next inflation read with Nov PCE; forecasts are for a decline in Powell’s favorite inflation report.
Last week markets were rocked when Mr. Powell came down hard against the view the Fed was about done increasing rates, an idea that had gained momentum the prior couple of weeks. Powell made it clear that the Fed would not let up until inflation is back toward 2.0%, even at the risk if economic slowing. This morning BlackRock, the world’s largest asset manager, is saying markets are too relaxed about inflation slowing. BlackRock agrees inflation is slowing faster than it expected but is recommending being underweight on government bonds in favor of inflation-linked debt and investment-grade credit next year. Scott Thiel, its chief fixed-income strategist, sees US inflation only easing to 3.50% toward the end of 2023 amid persistent labor shortages, higher wages and falling inventories. If you want an outlook that matches your personal opinion there is one out there that will fit your comfort zone.
The yield curve is fully priced for two more 25 bp increases in the FF rate. The 10 yr. note has huge technical support at 3.40%, the level that we believe will hold any improvements. 30 yr. mortgage rates will settle within the present levels, that will help improve sales early next year as consumers continue to adjust to the reality that those low rates at the beginning of this year are not coming back. 6.5% 30 yr. mortgages have always been seen as reasonable until the financial crisis of 2008 and the 2020 pandemic.
At 10 am Dec NAHB housing market index expected at 34 from 33 in Nov, as reported the index fell to 31 (the high in January 84)
The next two weeks should hold interest rates in their current tight range. The 10 yield has achieved its low two weeks ago when the it dropped to 3.40%, I don’t expect the 10 yr. will move any lower. The likelihood rates will increase rather than decline is rising. Powell broke the back of treasuries last week. We have been floating but by the end of the day today will lock and stay risk adverse the rest of the year.
