Listen Live
Saturday’s: 9AM 1590 AM/97.9 FM KVTA
Sunday’s: 7AM K-EARTH 101 FM
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) Geopolitical, 2) Jobs, Jobs, Jobs and 3) The Talking Fed
1) Jobs, Jobs, Jobs: We have Big Jobs Friday this week with Non Farm Payrolls, the Unemployment Rate and most importantly, Average Hourly Earnings. Throughout the week we have JOLTS, ADP Payrolls, Challenger Job Cuts, Initial Weekly Jobless Claims and internal employment readings in ISM. The bond market will be very sensitive to the data all week long.
2) The Talking Fed: We get the Minutes from the last FOMC meeting on Wednesday. The bond market will be looking for more background/discussion on their economic projections, and their hawkish statement.
3) Geopolitical: We are seeing more volatility and more of a response in long bonds to the Ukraine war as concerns are increasing over Russian casualties on Russian soil due to attacks launched from Ukraine using American supplied weapons which heightens the potential of direct conflict between the U.S. and Russia. China’s reopening and potential global economic upside vs. their massive spike of Covid is also a big concern.
Happy new year. The year beginning with improvement in interest rates and higher MBS prices we expected last week. 10 yr. at 8:30 am ET this morning 3.76% -12 bps from Friday, MBS prices 34 bps higher. Weak manufacturing data overnight propelling rates lower, the indexes were all below 50.0, which is indicative of manufacturing activity in a state of contraction. Good to see rates a little lower this morning, we see it more as a technical rally with near term rates over-extended and positioning for employment on Friday. Not expecting rates to decline much, nor increase much. The prior two weeks rate increased daily, the 10 from 3.50% to 3.88% last Friday.
Two key standouts this week, Dec employment data and the minutes from the Dec FOMC meeting.
The Fed will increase the FF rate 25 bps on Feb 1st, there is no debate about it within markets.
Stock indexes improving a little this morning on China’s recovery and resilience in Europe stoked optimism about the global economy. Europe looking for better growth with higher inflation setting up the ECB to increase its base rate in Feb and March in step with the Fed. European Central Bank President Christine Lagarde indicated borrowing costs will increase again, saying this is required to temper soaring consumer-price growth. While such rate aggression comes just as an economic downturn takes hold in the region, LaGarde highlighted that the “recession we feared is likely to be short-lived and shallow,” citing her institution’s most recent forecasts. Just as the Fed is very concerned about wage increases in the US, Lagarde commented “We must not allow inflationary expectations to become de-anchored or wages to have an inflationary effect,”… “We know wages are increasing, probably at a faster pace than expected, but we must be wary that they do not start fueling inflation.”
At 9:45 am Dec PMI manufacturing index expected at 46.2, as reported 46.2.
At 10 am Nov construction spending, expected -0.4%, as reported +0.2%.
We don’t look for additional improvement for the 10 yr. note today, likely have seen the low. Employment and FOMC minutes later this week will keep rates in check.
