January 27th, 2022 9:34 AM by Richard Sardella MLO.100007700/NMLS 233568
Yesterday the FOMC did what was totally expected, confirmed a rate increase at toe next FOMC meeting in March (15th and 16th). Beginning to unwind its monthly purchases of treasuries and MBSs but on a slow path, by not reinvesting the run-offs of maturing treasuries and MBSs. The Fed still moving at a snail’s pace when more speed is necessary. “The committee is of a mind to raise the Fed funds rate at the March meeting if conditions are there to do so," Powell told a virtual press conference on Wednesday, while noting that officials have not made any decisions about the path of policy because it needs to be “nimble.” In other words, the Fed really doesn’t know what to do and is fearful of taking definitive action to lessen inflation. On the run-off of the balance sheet there still was no concrete decision, just the comments of not reinvesting the run-offs. Powell said no decision was taken at this meeting on the pace of the runoff or when it would start. Some now are speculating the Fed instead of a 025% increase in March the Fed may go 0.50%.
This morning at 8:30 am ET weekly jobless claims for last week declined 30K from the revised prior week (from 286K to 290K); forecasts were 265K; the 4 week average increased from 232K to 247K. The first look at Q4 2021 GDP was expected at +5.7%, as reported the economy grew 6.9% with personal consumption annual rate of 3.3% against estimates of 3.0%; Q1 will be weaker due to omicron. Finally, at 8:30 am Dec durable goods orders: m/m orders were thought to be -0.5%, as released -0.9%, ex transportation markets were looking for +0.4% and that was what we got. Core capital goods, thought to be +0.4% were reported unchanged. The reaction to the three releases was mute, no changes in treasuries or MBS markets from prior to 8:30 am.
Consumer inflation at +7.0% the highest since 1982 when inflation ran upwards of 15%; a tight labor market that’s pushed unemployment down faster than anticipated to almost its pre-pandemic level.
At 10:00 am Dec pending home sales; expected +0.6%, declined 3.8%.
At 1:00 pm Treasury will auction $53B of 7 year notes, Tuesday’s 5 yr auction was met with very strong and aggressive bidding.
Tomorrow markets get another more current look at inflation with the PCE reported with Dec personal income and spending; the current estimate for PCE in Dec is +0.4% down from +0.6% in November, yr/yr +5.8% frm +5.7% in November, core PCE expected +0.5% the same as November, yr/yr 4.8% frm 4.7% in November. Also, tomorrow Q4 employment cost index is expected +1.2% and yr/yr +4.1% up from 3.7% in Q3.
Yesterday the 10 yr note increased to 1.86% on the FOMC response, this morning at 10:00 am 1.80%, back to its level on Tuesday. Technically the rate markets are bearish, but we see the potential of a correction taking it back to 1.75%, if that breaks then 1.70%; fundamentally that doesn’t look likely, but the run-up has essentially discounted at least 0.5% increase of the FF rate. The volatility in MBS markets will continue at extreme levels. Already this morning MBS prices at 10:00 am are 20 bps better than 9:30 am. Lenders will likely be conservative about improving prices with this volatility and uncertainty about how quickly the Fed will move to boost rates.
PRICES @ 10:10 AM
10 yr note: 1.80% -7 bp
5 yr note: 1.65% -4 bp
2 Yr note: 1.17% +2 bp
30 yr bond: 2.09% -8 bp
Libor Rates: 1 mo 0.109%; 3 mo 0.278%; 6 mo 0.464%; 1 yr 0.809% (1/26/22)
30 yr FNMA 3.0: @9:30 101.78 +13 bp (-56 bp from 9:30 yesterday)
30 yr FNMA 3.5: @9:30 104.13 +19 bp (-31 bp from 9:30 yesterday)
30 yr GNMA 3.0: @9:30 101.84 +14 bp (-46 bp from 9:30 yesterday)
Dollar/Yuan: $6.3656 +$0.0447
Dollar/Yen: 115.30 +0.63 yen
Dollar/Euro: $1.1159 -$0.0081
Dollar Index: 97.05 +1.10
Gold: $1809.00 -$20.70
Bitcoin: 37,070 -40
Crude Oil: $88.15 +$0.80
DJIA: 34,745 +576
NASDAQ: 13,756 +212
S&P 500: 4426 +76
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.