CHM Blog

Two key reports at 8:30 am ET this morning. Dec personal income and spending; income increased 0.3% on forecasts of +0.5%, but disposable personal income, or after-tax income adjusted for inflation, fell 0.2% last month, the fifth straight decline. Spending declined 0.6% slightly weaker than -0.5% estimates. The Fed’s preferred inflation report, PCE (personal consumption expenditures) was expected at +0.4% and was right on, yr/yr +5.8% as expected. Core PCE also in line +0.5% m/m but the annual rate increased to +4.9% from 4.7% in November on expectations of +4.8%. A separate report yesterday showed personal spending grew 3.3% in the final three months of 2021, led by a pickup in services outlays.

The second release, Q4 employment cost index was expected +1.2%, it increased 1.0%; yr/yr forecast +4.1% hit at 4.0%. Costs continued to rise at the highest rate in two decades of available records. The inflation readings were in line with estimates, the initial reaction though sent the 10 yr to 1.85% before settling at 1.83% +2 bps from yesterday; FNMA 3.0 30 yr coupon declined 8 bps.

A surge in coronavirus infections due to the omicron variant likely slowed spending in December as more Americans stayed home, and high prices were probably also a deterring factor. That impact could carry over to the beginning of the first quarter as economic activity remains subdued, though most analysts expect the slowdown to be short-lived. At his press conference on Wednesday Powell said, “There’s a risk that the high inflation we’re seeing will be prolonged, there’s a risk that it will move even higher,”. “We have to be in a position with our monetary policy to address all of those plausible outcomes.”

At 9:30 am the DJIA opened +13, NASDAQ +97, S&P +16. 10 yr at 9:30 am 1.83% +2 bps FNMA 3.0 30 yr coupon -6 bps and +16 bps from 9:30 am yesterday; the 3.5 FNMA coupon -2 bps and -2 bps from 9:30 yesterday.

At 10:00 am the U. of Michigan final monthly consumer sentiment index, expected at 68.8 from 68.8 at mid-month, as reported 67.2.

Given the rather tame reaction to the data so far, it looks like we may have a quiet day for a change in the rate markets. The 10 now at 1.80% unchanged after hitting 1.85% earlier this morning. As for the equity markets, hard to guess with all the intraday volatility, but at 10:00 am, after opening slightly better at 9:30 am, the indexes resumed selling. It’s the final hour between 3:00 pm and 4:00 pm that is critical.

PRICES @ 10:00 AM

10 yr note: 1.80% unch

5 yr note: 1.63% -2 bp

2 Yr note: 1.17% -2 bp

30 yr bond: 2.10% +1 bp

Libor Rates: 1 mo 0.105%; 3 mo 0.299%; 6 mo 0.519%; 1 yr 0.922% (1/27/22)

30 yr FNMA 3.0: @9:30 101.94 -6 bp (+16 bp from 9:30 yesterday)

30 yr FNMA 3.5: @9:30 104.11 -2 bp (-2 bp from 9:30 yesterday)

30 yr GNMA 3.0: @9:30 101.98 -6 bp (+14 bp from 9:30 yesterday)

Dollar/Yuan: $6.3585 -$0.0098

Dollar/Yen: 115.17 -0.20 yen

Dollar/Euro: $1.1168 +$0.0023

Dollar Index: 97.20 -0.05

Gold: $1787. 30 -$7.70

Bitcoin: 36,817 +922

Crude Oil: $88.54 +$1.93

DJIA: 33,899 -271

NASDAQ: 13,284 -68

S&P 500: 4300 -27

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.