Current position: Carefully Floating
Stocks and Mortgage Bonds are both lower ahead of an action-packed week highlighted by the Fed and jobs data.
Week Ahead
Tuesday: New Appreciation readings for November from the Case Shiller HPI and FHFA HPI
Wednesday: Mortgage Apps, ADP Employment Report, JOLTS, Fed Statement / Press Conference
Thursday: Initial Jobless Claims, Job Cuts Report, Jobs Report Strategy
Friday: BLS Jobs Report for January
Central Banks
After the Fed hikes 25bp on Wednesday, which will bring the Fed Funds Rate to a range of 3.5% to 3.75%, will they have reached their limit, or will there be more hikes to come? Their next meeting will be in March, and for now, the futures are estimating one more 25bp hike, but of course, this will depend on the data.
Other central banks are set to hike this week, with the European Central Bank and Bank of England expected to hike 50bp each, but it's less likely they have reached their limit as they are behind the US and started tightening well after we began.
While the 25bp hike on Wednesday is almost a sure thing, Powell's comments will be key for the markets. It's likely he will continue to talk tough, especially with the job market seemingly still strong.
Jobs Data Expectations
The ADP and BLS Jobs reports will be released on Wednesday and Friday, respectively, looking for around 175k job creations in January. In the BLS report, the unemployment rate is expected to climb from 3.5% to 3.6%, and average hourly earnings are anticipated to drop from 4.6% to 4.3%. A drop in hourly earnings signals slower wage pressured inflation—something the Fed is watching closely and would be Bond friendly.
Technical Analysis
Mortgage Bonds are about to test the limit at a double floor of support, formed by the 25 and 50-day Moving Averages. At the same time, the 10-year is getting close to its limit at a triple ceiling of resistance, formed by the 25 and 50-day Moving Averages, as well as the 3.64% Fibonacci level. With the limits on MBS and the 10-year still holding and yet to be broken, we can begin the week carefully floating.
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