MBS Highway Daily Updates 03/30/2023
Current position: Locking
Stocks are higher, and mortgage bonds are trading near unchanged levels so far this morning. Bonds were much lower in the early going, but have recouped all of their losses following a weaker than anticipated GDP reading.
The final reading on Q4 GDP showed further moderation to 2.6%. The first reading showed that the US economy grew by 2.9%, but that moderated to 2.7% in the second reading and further to 2.6% in today's final reading.
The markets are expecting Q1 GDP to be around 3.2%; we will get the first reading next month. Remember, the Fed's estimate is for the full year's 2023 GDP to be 0.4%, which means that if we get 3.2% Q1 GDP, they are saying they expect the next three quarters to be -2.8%, which sounds like a recession.
CoreLogic Loan Performance
CoreLogic released their loan performance insights for January, showing that overall delinquencies and foreclosure rates improved and remained near record lows. Loans 30 days or more delinquent decreased from 3% to 2.8%. Those 90 days or more remained at 1.2%. Lastly, loans in foreclosure were unchanged at a near multi-decade low of 0.3%.
For all the talk of housing being unhealthy, all the delinquency figures are at very healthy low levels. For perspective, total delinquencies were more than six times higher during the housing crash.
Initial Jobless Claims
Initial Jobless Claims, which measure individuals filing for unemployment benefits for the first time, rose by 7,000 to 198,000. Continuing Claims, or those that continue to receive benefits after their initial claim, rose by 4,000 to 1.689M. The labor market still appears to be tight; employers are trying to hold on to workers while at the same time hiring less.
The market estimates for tomorrow's inflation reading are as follows:
Headline: MOM: 0.5%; YOY: 5.4% to 5.1%
Core: MOM: 0.4%, YOY: Stay at 4.7%
We anticipate there will be some progress, but not as much as the market is expecting. And for that reason, we think that the markets may view the report as disappointing, adding pressure to the bond market.
Additionally, mortgage bonds have been in overbought territory, and there has been a negative stochastic crossover. If we get a disappointing PCE report tomorrow, bonds will likely break beneath the 100-day and 50-day moving average support levels that they have been testing the last few days. Be cautious and have a locking stance ahead of tomorrow's PCE.