CHM Blog

January CPI inflation was higher than forecasts, but lower than in December. The estimates were m/m at 0.4%, as reported +0.5%, year/year expectations were +6.2% but increased 6.4%. Core inflation expected +0.3% m/m it increased 0.4%, year/year expectations +5.5% increased 5.6%. Missing the forecasts with higher-than-expected inflation was swept aside though as inflation did decline from December’s 6.5% to 6.4% and the core in December +5.7% fell to 5.6%. There wasn’t much initial reaction to the report, traders focused more on month-to-month decline and not interested in forecasts. Annual inflation cooled for the seventh straight month in January, but the pace of easing is starting to level off. Prior to 8:30 am ET the 10 year note was 3.68% -4 bps, by 9 am 3.69% -1 bp. The data support officials’ recent assertions that they need to hike rates further and keep them elevated for some time, and possibly to a higher peak level than previously expected. The largest factor was in housing and rents, +0.7% accounting for half the increase, used cars declined or the seventh month.

At 9:30 am the DJIA opened -127, NASDAQ -95, S&P -21. The 10 prior to the 8:30 am inflation data traded 3.68% -4 bps, by 9:30 am inched up to 3.75% +4 bps. FNMA 5.5 30 year coupon at 9:30 am -17 bps and -5 bp from 9:30 am yesterday.

The US dumped more oil from the strategic reserve to counter Russia’s cutting output and OPEC+ holding the line with current production. On the initial announcement from Russia oil traders began to question $100.00/barrel. At that price inflation would increase, the Fed would go postal, stocks would decline, and interest rates would increase. This morning crude declined $2.50 to $77.50.

There isn’t anything left on the schedule today, tomorrow retail sales, NAHB housing market index, industrial production, and factory use. Thursday another inflation read with Jan PPI (5.5% down from 6.2%). Rate markets totally focused on inflation and expectations the Fed will continue to increase rates even with inflation slowing, but still running at 6.4% year/year, well above the Fed’s 2.0% that seems a long way off and the potential of a recession if the Fed keeps it up.

The 10 holding well so far, trading between 3.70% and 3.75%, MBS prices also not moving much. The 10 once again held above its long term trend line, trading above its 20 and 40 day averages and the relative strength over 50.

PRICES @ 10:00 AM

S&P 500: 4147 +10

Richard Sardella has been actively managing and providing services in the mortgage industry for over 30 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.

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