CHM Blog

January CPI shocked with the huge increase in inflation yesterday, the 10 year note increased 10 bps, MBS prices fell 25 bps. The reaction to the report, as usual panic overran the reality; this morning the 10 year note began down 6 bps to 4.58% and MBS prices began +13 bps from yesterday, half of yesterday’s decline. Powell’s reaction, “I would say we’re close, but not there on inflation,” Powell told the House Financial Services Committee. While acknowledging the reading came in above almost all forecasts, he cautioned against over-reaction. “We don’t get excited about one or two good readings, and we don’t get excited about one or two bad readings.

This morning’s January PPI (producer prices) also stronger than forecasts. Overall PPI month/month +0.4% with estimates at 0.3% and down from December revised from +0.2% to +0.5%; year/year overall estimates were +3.2%, reported +3.5%, December revised from 3.3% to 3.5%. Core PPI month/month +0.3% as expected but up from 0.4% in December, year/year core +3.6% against +3.3% forecasts and up from 3.5% in December.

Weekly jobless claims +213K, 4K lower than estimates, -7K from the week before. Recurring claims fell by 36,000 to 1,850,000 in the last week of January, firmly below market expectations of 1,880,000, to extend the drop from the over three-year high touched earlier in the month. The data continued to show robustness in the US labor market, in line with the Federal Reserve’s rhetoric that that there is no rush to continue cutting interest rates.

In other news, CNBC reporting hedge fund titan Ray Dalio issued a fresh warning about the U.S. economy, warning of dire consequences if the Trump administration does not cut the country’s debt. The U.S. gross national debt stood at approximately $36.22 trillion as of February 11th, with $28.8 trillion of that as debt held by the public.

Yesterday the 10 year yield increased 10 bps, at 9:30 am ET this morning most of the increase has been erased, the 10 year note at 4.55% -8 bps and all of the MBS decline yesterday is gone, back to levels on Tuesday. Traders and investors believing the CPI data huge increases were a one-off jump due to adjustments made in the way the data was calculated.

At 9:30 am the DJIA opened +142, NASDAQ +76, S&P +15. 10 year at 9:30 am 4.55% -8 bp. FNMA 6.0 30 year coupon at 9:30 am +24 bp from yesterday’s close and +25 bps from 9:30 am yesterday.

At 1 pm Treasury will auction $25B of new 30 year bonds; yesterday’s 10 year auction met with very weak demand mostly on the reaction to CPI.

PRICES @ 10:00 AM

10 year note: 4.55% -8 bp

5 year note: 4.41% -6 bp

2 year note: 4.33% -3 bp

30 year bond: 4.77% -7 bp

30 year FNMA 6.0: @9:30 100.57 +24 bp (+25 bps from 9:30 yesterday)

30 year FNMA 6.5: @9:30 102.40 +20 bps (+26 bps from 9:30 yesterday)

30 year GNMA 6.0: @9:30 100.82 +20 bps (+31 bps from 9:30 yesterday)

Dollar/Yen: 153.40 -1.01 yen

Dollar/Euro: $1.0395 +$0.0012

Dollar Index: 107.81 -0.12

Gold: $2,942.00 +$13.30

Bitcoin: 95,933 -1120

Crude Oil: $70.68 -$0.69

DJIA: 44,411 +44

NASDAQ: 19,746 +96

S&P 500: 6066 +14

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.