January 14th, 2022 9:50 AM by Richard Sardella MLO.100007700/NMLS 233568
Prior to 8:30 am ET this morning when Dec retail sales data was released the 10 yr increased to 1.75% +5 bps from yesterday, yesterday and Wednesday the 10 yr tested its technical resistance at 1.70%, failed to break through and rates increased overnight although still in very narrow ranges. Retail sales it at 8:30 am and they were a huge miss from forecasts. Sales were expected to be unchanged from November, they fell 1.9%, Nov sales revised from +0.3% to +0.2%; excluding auto sales the estimates were +0.3%, as reported -2.3%. The reaction pushed the 10 yr from 1.75% to 1.72% +2 bps from yesterday’s close. MBS prices declined 16 bps with the 10 up 2 bps. If it weren’t for the weak sales the 10 would likely have held 1.75% and MBS prices would have been down a great deal more.
Omicron is the guilty party; retail dropped more than expected in services such as travel and dining out, falling price-adjusted wages, dwindling savings and the end of the government’s pandemic-related financial programs suggest a more moderate pace of spending. The report isn’t adjusted for inflation, suggesting price-adjusted receipts were even weaker than the headline number. Ten of the 13 retail categories showed declines in receipts last month, led by non-store retailers, which includes e-commerce. Those sales plummeted 8.7% from a month earlier. Department-store receipts decreased 7% after a 5.5% drop in November. Sales at furniture stores, electronics outlets and sporting goods establishments also fell.
Also, at 8:30 am Dec import and export prices; imports expected +0.3% were down 0.2%, yr/yr thought to be +10.9% increased 10.4%. Export price expectations +0.4$ but dropped 1.8%, yr/yr expected at 17.5% were up just 14.7%.
At 9:15 am more key data; Dec industrial production and capacity utilization; production expected to be up 0.3% was down 0.1%; capacity use expected at 77.0% was at 76.5%, that is down frm 76.6% in November.
The three reports this morning imply some slowing, driven by omicron. January data also will be less than what might have been expected as the virus continues through the month. The slowing though won’t last, omicron will be gone within a few more weeks. Expectations for growth in gross domestic product for the January-March period dropped to 3%, from 3.9%, but after that economists are projecting quarterly GDP to increase through the rest of 2022. Bloomberg economists saying: “We expect the omicron hit to GDP to be short and sharp. And the rebound should be just as swift. Conditional forecasts based on our daily GDP tracker suggests activity to trough in early February, and a rebound would be in full swing by the March FOMC meeting.”
At 9:30 am the DJIA opened -289, NASDAQ -86, S&P -30. 10 yr 1.73% +3 bps. FNMA 3.0 30 yr coupon -16 bps and -10 bps from 9:30 am yesterday. At 10:00 am MBS prices down 25 bps.
At 10:00 am the mid-month U. of Michigan consumer sentiment index, expected at 70.4 from 70.6 in Dec, as reported sentiment collapsed to 68.8, probably on omicron fear.
Today Q4 earnings season begins with banks reporting, not good; so far banks are reporting less optimistic data and driving the stock indexes lower. JP Morgan Chase CFO commenting, we are in for a couple of years of sub-target returns.
Keep focused on the 10 yr note and its inability to break through its technical resistance at 1.70%, tested yesterday and Wednesday. Rates are consolidating the rapid run up last week as we expect, but with the Fed still expected to increase rates at least three times this year expecting much improvement is a very steep hill to climb and hard to justify.
PRICES @ 10:00 AM
10 yr note: 1.76% +6 bp
5 yr note: 1.53% +5 bp
2 Yr note: 0.94% +5 bp
30 yr bond: 2.10% +6 bp
Libor Rates: 1 mo 0.106%; 3 mo 0.239%; 6 mo 0.397%; 1 yr 0.714% (1.13.22)
30 yr FNMA 3.0: @9:30 102.48 -16 bp (-10 bp from 9:30 yesterday)
30 yr FNMA 3.5: @9:30 104.69 -8 bp (-4 bp from 9:30 yesterday)
30 yr GNMA 3.0: @9:30 102.58 -14 bp (-11 bp from 9:30 yesterday)
Dollar/Yuan: $6.3539 -$0.0060
Dollar/Yen: 113.70 -0.48 yen
Dollar/Euro: $1.1441 -$0.0014
Dollar Index: 94.90 +0.11
Gold: $1823.60 +$2.20
Bitcoin: 42,922 +330
Crude Oil: $83.12 +$1.00
DJIA: 35,940 -174 (low so far -350)
NASDAQ: 14,847 +40
S&P 500: 46534 -5
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.
All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.
MLO of record MLO.100007700 / NMLS#233568 / CHM NMLS#127716.