Current position: Carefully Floating
Stocks are higher and Mortgage Bonds are lower, but off their worst levels, after testing an important floor of support at the 25-day Moving Average.
The National Association of Business Economics released its January 2023 business conditions survey of 60 of its member firms.
The results showed that hiring plans fell to a negative 7, which is the first negative reading since the pandemic. Prices charged moderated significantly to 25, also the lowest reading since the pandemic... Actual and expected input costs declined, which is clearly deflationary.
Firms reported an easing of labor and material shortages, with over 50% reporting no shortages. Less shortages on labor means they don't have to hold onto their workers or hire, while less shortages on materials means that supply chains are easing. Material costs have drifted down significantly since last July, and more respondents expect falling costs in the next three months.
Capital Expenditures, or investments on the business, fell to 21, the lowest since the pandemic. Profit margins fell to -7, the third month in a row that they have been negative.
Putting this all together, businesses are seeing profits decline, planning to reduce headcount, and charging less because inflation is easing. They are also spending less on business, and this all points to a slowdown in the economy and in inflation. As a result, more than 50% were concerned about a recession this year.
Tuesday: No News
Wednesday: Mortgage Apps
Thursday: Q4 GDP, Durable Goods, New Home Sales
Friday: PCE (Personal Consumption Expenditures), Pending Home Sales
Mortgage Bonds continue to trade in a well-defined range between support at the 25-day Moving Average and overhead resistance at 101.671, which has been a tough ceiling to crack. Bonds are sitting on support, which has held since early January. If the 25 - day does not hold, the next stop is the 50 - day Moving Average, about 26bp beneath present levels.
The 10-year is trading at 3.52%, right in the middle of a wide range between support at 3.43% and a quadruple ceiling of resistance, starting at 3.62%. While in such a wide range, yields can be susceptible to whipsaws or big price movements before reaching important technical levels. With support holding on Mortgage Bonds, begin the week carefully floating.