Current position: Carefully Floating
Stocks are vacillating and mortgage bonds are slightly lower after the Consumer Price Index inflation report showed that inflation continued to move in the right direction, but not as much as expected.
Retail Sales
Retail sales rose 3% in January, which was much stronger than expectations. When stripping out automobiles and gas, it was still up 2.4%. After a negative November and December, this was a strong rebound and is applying some pressure to the bond market.
Interestingly, the majority of the gain came from department stores, where sales rose almost 18%. This was a big outlier, but it may be because January follows the December holiday month and shoppers may have returned gifts and purchased items while they were in the store. Is this the last call for the mall? We will have to see what happens in next month's report, but it is something worth keeping an eye on.
Cass Freight
Cass Freight's Index measures shipments and the cost to ship goods across the US. The shipments component was down 3.2% last month, and if this slowdown continues, it can be a recessionary indicator.
Expenditures, or the cost to ship goods, also fell by 3.2%. This is deflationary and points to supply chains coming back fully online.
Mortgage Apps
The MBA released their mortgage application data for last week, showing that purchases fell 6% last week and are now down 43% year over year.
Interest rates increased from 6.125% to 6.375%, which is 2.375% higher than this time last year. Refinances fell 13% last week and are down 76% from this time last year.
MBS Highway Housing Survey
MBS Highway's February 2023 Housing Survey evidenced a significant pick-up in buyer activity. This marked the second straight month of improvement. The percentage of respondents characterizing their market as "active" more than doubled from the prior month, and pricing pressure eased nationwide.
Auction
Later this afternoon at 1:00 pm ET, there will be a 20-year bond auction. This can be a very important auction and can have a big impact on the bond market, depending on the level of demand.
Technical Analysis
Mortgage bonds broke beneath an important floor of support at the 100-day moving average yesterday and are now testing the next floor at 100.094. If this level is broken, the next stop is 99.845. After locking again yesterday, we can begin the day carefully floating to see if support holds and if this afternoon's auction can spark a rebound.