CHM Blog

Stock indexes not much changed at 8:30 am ET.

There are no economic releases today that will attract traders; at 1 pm Treasury will sell $59B of 7 yr. notes, yesterday both the 2 and 5 auctions were not well bid.

The news today; The U.S. and several other countries will tap their national strategic petroleum reserves, senior Biden administration officials said, in an attempt to bring down rising gasoline prices. The U.S. will release 50 million barrels, other countries participating in the release include China, India, Japan, South Korea and the U.K. Crude oil prices began the day up $0.13. Don’t look for gas prices to fall quickly, there is always a lag between the price of crude and when it hits the pumps. Global consumption is likely to average 100 million barrels a day in the final three months of the year, up 4.9% from the same period a year ago, according to Energy Department figures.

Biden’s picks for the Fed announced yesterday signals continued monetary continuity, but levels the question about what the Fed may do about additional regulations on banks. Senate progressives like Senator Warren not happy with the re-appointment of Powell. Fed watchers focusing on who Biden will appoint to succeed Randal Quarles, the departing central bank governor who served as its regulatory point man until last month. The Trump administration eased some banking regulations that Democrats want to tighten down; much of it is said to center on bank mergers. Worrying about bank regulations is beside the point; how and when will the Fed act to bring down inflation that Powell so mis-judged six month ago. Markets increasingly believing the Fed will be forced to raise rates as soon as next June or July, the anticipation of higher FF rates is slowly being discounted across the yield curve.

A few months ago, John Deere employees walked off the job to strike over wages; the strike has been settled but it was the beginning of workers standing up and pressing grievances by walking off at a time that is critical for the inflation outlooks. We noted then that wage pressures would escalate. The current star of strikes is Starbucks’ workers.  Beside workers at Deere & Co. , Kellogg Co. and Mondelez International Inc. have gone on strike at various points this year. These standoffs have also come amid a tight labor market where many businesses have struggled to grow their ranks. Most focus on inflation is about increasing prices, wage pressures are growing to add to the inflation outlook. Back in July the spread between the 5 yr. and 10 yr. note stood at 84 bps to the 10; this morning that spread is just 30 bps; pricing in Fed rate hikes.

At 9:30 am the DJIA opened +30, NASDAQ -36, S&P unchanged. 10 yr. note 1.65% +2 bp. FNMA 2.5 30 yr. coupon at 9:30 am -8 bps and -26 bps from 9:30 am yesterday (most every lender re-priced lower yesterday afternoon). Yesterday the DJIA dropped 300 bps from 2:30 pm to the 4 pm close, the dollar increased, and gold fell $31.00: a broad volatile session yesterday.

At 1 pm $59B 7 yr. note auction.

No data of consequence today but tomorrow there will be plenty to be concerned about. The main attention will be on the October income and spending that includes Powell’s favorite inflation indicator, the personal consumption expenditures (PCE), the current estimates are not encouraging (PCE m/m +1.0% from +0.6% in Sept, yr./yr. +5.0% from 4.4% in Sept.; the core PCE ex food and energy m/m +0.4% from +0.2%, yr./yr. core +4.1% up from 3.6% in Sept. Other data tomorrow; weekly jobless claims, Q3 GDP, Oct durable goods orders, Oct new home sales. U. of Michigan consumer sentiment index.

PRICES @ 10:00 AM

10 yr. note: 1.65% +2 bp

5 yr. note: 1.34% +1 bp

2 Yr. note: 0.63% unch

30 yr. bond: 2.00% +3 bp

Libor Rates: 1 mo. 0.092%; 3 mo. 0.169%; 6 mo. 0.243%; 1 yr. 0.425% (11/22/21)

30 yr. FNMA 3.0: @9:30 am 103.61 -8 bp (-23 bp from 9:30 am yesterday)

30 yr. FNMA 2.5: @9:30 am 101.94 -8 bp (-26 bp from 9:30 am yesterday)

30 yr. GNMA 2.5: @9:30 am 101.92 -12 bp (-28 bp from 9:30 am yesterday)

Dollar/Yuan: $6.3919 +$0.0065

Dollar/Yen: 115.05 +0.17 yen

Dollar/Euro: $1.1245 +$0.0011

Dollar Index: 96.53 -0.02

Gold: $1790.70 -$15.60

Bitcoin: 57,469 +1,411

Crude Oil: $78.55 +$1.80

DJIA: 35,669 +50

NASDAQ: 15,850 -5 bp

S&P 500: 4688 +5

Richard Sardella has been actively managing and providing services in the mortgage industry for over 27 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.

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