CHM Blog

CPI at 8:30 am ET was much softer than forecasts, sending the 10 yr. note yield down 17 bps to 3.97% and MBSs up 60 bps from yesterday. Prior to 8:30 am the DJIA in futures trading was +60, immediately after the CPI +748. Annual inflation is 7.7%, down from September's 8.2% and expected +7.9% The so-called core rate that excludes the volatile food and energy sectors is up 6.3%, just a hair below the prior month's 6.6%, which was the highest since August 1982. Economists expected, on average, an 8% headline rate and 6.5% core rate. Energy rose 1.8%, reversing some of the declines of the prior four months, and remains a wild card heading into winter.

The weaker than thought CPI sent markets sky-rocketing and interest rates dropped significantly on the initial reaction, at 9 am the 10 yr. note 3.92% -20 bps, the DJIS +800, MBS prices +102.

The lower-than-expected CPI lifting the idea the Fed will begin to slow its rate hikes, although inflation is still well above the Fed’s target of 2.0%. Not likely this report will change the Fed’s target. CPI going back to July hasn’t changed a lot, it’s been in the current range moving back and forth with no trend change. Yesterday Richmond Fed President Thomas Barkin: “The Fed can’t let inflation fester and expectations rise. If we back off for fear of a downturn, inflation comes back even stronger and requires even more restraint,”… “That’s why the Fed is not waiting around for things to settle on their own time. We know inflation is painful and everyone hates it.”… “We are doing what it takes to get inflation back to our 2% target,” Barkin said. “That’s one place I can assure you we are headed back to normal.” That was yesterday, and yesterday is gone.

Weekly jobless claims expected 221K increased to 225K, up 7K from the prior week; the four-week average 218.75K from 219.00K.

At 9:30 am the DJIA opened +910, NASDAQ +521, S&P +136. 10 yr. at 9:30 am 3.92% -22 bps. FNMA 6.0 30 yr. coupon +103 bps from yesterday and +115 bp from 9:30 am yesterday.

At 1 pm $21B of 30s up for auction.

The reaction to softer inflation in the markets seems excessive, but so far, the early gains are holding. The selling of treasuries is continuing, stock indexes though backing off a little from the 9:30 am open. We talk about the market volatility in interest rates and MBSs, today set a new record. Inflation is still high; the Fed will likely slow its 75 bp increases but won’t stop increasing. Every Fed official including Jerome Powell making it clear the Fed is intent to push inflation back to 2.0%.

PRICES @ 10:00 AM

S&P 500: 3907 +159

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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