Current position: Floating
Stocks and Mortgage Bonds are higher to start the year.
Moving The Markets
Germany released its inflation reading for December, which came in much lower than expectations. Inflation in Europe is moderating, the same as in the US, and they are starting to feel the effects of tightening and supply chain easing, but they are a bit behind us. As a result, European yields are lower, and so are ours.
Additionally, there was a recession warning from the IMF (International Monetary Fund). IMF Head Kirstalina Georgieva said that 2023 will be a "tougher" year than last. She says that they expect a third of the world's economy to be in a recession, and that even for countries that are not in a recession, it would feel like a recession for hundreds of millions of people. They did not include the US in a recession, although they said it was on the verge. We believe we are headed there, if not already, and will likely get much more than a third of the globe into a recession if that's the case, as the US makes up a huge part of global GDP. This news is helping Bonds, as things slow down when the globe is in a recession, and rates come down.
Oil prices are hovering around $80 per barrel, but in 2022 China purchased the least amount of oil since 1990. If they get fully reopened and begin purchasing a more normal amount of oil, Peter Boockvar believes it may push prices back to $120 to $125 per barrel on the conservative side, which would be inflationary.
CoreLogic Home Price Index
CoreLogic released their Home Price Index report, showing that home prices declined by 0.2% in November and are up 8.6% year over year, which is a decline from 10.1%. According to CoreLogic, home prices have only declined 1.8% from their peak, even with 7% mortgage rates and all the talk of affordability.
CoreLogic forecasts that home prices will decline 0.1% in December and rise almost 3% in the year going forward. This is important - Although we are seeing some slightly negative readings month to month, they still forecast appreciation nationwide over the next year, which is in line with our expectations.
Remember that 3% appreciation can still be meaningful for wealth creation. If someone bought a $400,000 home and put 10% down, that means they would gain $12,000 in appreciation over the next year and earn a 30% return on their investment due to leverage.
Wednesday: Mortgage Apps (last 2 weeks), Fed Minutes
Thursday: Job Cuts, ADP Employment Report, Claims
Friday: Jobs Report - Estimated 200k job creations and 3.7% UR (same as last month)
We think there is a good chance these figures miss, helping Bonds.
Mortgage Bonds have broken above their 100 - Day Moving Average and are now challenging the 100.758 Fibonacci ceiling. If Bonds can get above this level, the next stop is the 25 - day Moving Average. The 10 - year has made a nice move lower, breaking beneath the 50 - day Moving Average. Yields have room to improve until reaching 3.64%. The Stochastics momentum indicators look good on both MBS and Yields, pointing to further improvement. Additionally, the jobs data later this week may be Bond friendly. Begin the year floating.