January 4, 2023 – Economic News

• January 4, 2023
• realestate
• Announcements, Business & Markets, Fed, Interest Rates, Politics & Economy, Rates, Real Estate, Real Estate Finance, Recession, World News, Your Real Estate Life

MBS OVERVIEW

4:00 EST – Our benchmark FNMA MBS 6.00 January Coupon is up +30 BPS with 60 minutes left to trade.

Jobs, Jobs, Jobs: The November Job Openings and Labor TurnOver Survey (JOLTS) showed 10.458M unfilled jobs vs. est. of 10.0M and October was revised higher to 10.512M. The key take-a-way here is that there is 1.7 job openings per 1 person that is Unemployed which remains stubbornly high.

Rosie the Riveter: December ISM Manufacturing PMI hit 48.4 vs. est. of 48.5. The Employment Index increased to 51.4 from 48.4. Price Paid continued to drop, falling from 43.0 to 39.4 and so did New Orders which fell from 47.2 to 45.2

The Talking Fed: We got the Minutes from the last FOMC meeting at 2:00. You can read the official Minutes here. Overall, the Minutes made it clear that the Fed is concerned that the markets simply are not getting their message.

• The key section in the Minutes that everyone is talking about is: “Participants noted that, because monetary policy worked importantly through financial markets, an unwarranted easing in financial conditions, especially if driven by a misperception by the public of the Committee’s reaction function, would complicate the Committee’s effort to restore price stability.”
• They want the markets to understand that a slowing pace of rate hikes or an eventual pause is not a “Pivot” in policy: “A number of participants emphasized that it would be important to clearly communicate that a slowing in the pace of rate increases was not an indication of any weakening of the Committee’s resolve to achieve its price-stability goal”
• Wait, no “soft” landing? The Fed seemingly admitted that a recession is on que: “… the staff still viewed the possibility of a recession sometime over the next year as a plausible alternative to the baseline”

Across the Pond:

France: Monthly CPI actually dropped -0.1% vs. est. of +0.3% which is Europe’s first deflationary reading on a monthly basis. YOY, its still very high at 6.7%.

On Deck for Tomorrow: Challenger Job Cuts, ADP Payrolls, Initial Weekly Jobless Claims.

The FOMC minutes didn’t meet the enthusiasm that many were hoping for. The Fed isn’t about to give up fighting inflation no matter what investors want to believe, every comment, data point or speeches from Fed officials are lead my optimism from media and investors, only to be disappointed by the Fed not budging about beating down inflation. The minutes sent another strong message to those that still think the Fed is kidding; in an unusually blunt warning to investors, cautioned against underestimating their determination to keep interest rates high for some time. The minutes noted economic activity in 2023 would grow well below trend.

Prior to the meeting markets were pricing interest rate cuts in the second half of the year. Fed officials noted that “an unwarranted easing in financial conditions, especially if driven by a misperception by the public of the committee’s reaction function, would complicate the committee’s effort to restore price stability,” The minutes showed Fed officials intent on lowering inflation back toward their 2% target at the risk of rising unemployment and slower growth. “Several participants commented that the medians of participants’ assessments for the appropriate path of the federal funds rate in the summary of economic projections, which tracked notably above market-based measures of policy-rate expectations, underscored the committee’s strong commitment to returning inflation to its 2% goal,” the minutes said. No official predicted rate cuts in 2023. To be cynical, now the idea of rate cuts this year are dead, that view will last until the next weak economic report or the next inflation report, then the optimism will return; can’t kill the goose.

The Nov JOLTS job openings this morning were at 10.46 million, although jobs were lower in Nov than in October they were higher than forecasts. A still-tight jobs market where employers’ demand for workers far outstrips supply. Hiring, while moderating, remains solid and layoffs low.

Crude oil declining rapidly on weak demand and not expecting much demand from China. On Gold, the dollar has finally lost momentum sending gold prices higher as we said three months ago. We believe gold will climb to $4,000 over the next three years.

Tomorrow two key data points, weekly jobless claims (225K unch from the prior week); Dec ADP private jobs (145K from 127K in Nov). Friday the BLS employment data.

Difficult to get a true read on MBSs; we use two sources, Tullett-Prebon and Reuters; today Tullett’s price for the 5.5 coupon +29 bps, Reuters +14 bps, both priced at 100.77.