Current position: Locking Bias
Stocks are lower and mortgage bonds are trading near unchanged levels to start the week.
It's a quiet news day but an important week, with the most important data coming on Wednesday with the Consumer Price Index report for March.
This is the report we have been warning you about, and one that may cause a nervous breakdown in the markets. While we know and believe inflation is coming down, the March report has an issue: the figure we are replacing from last year in the year-over-year calculation is very low at 0.3%. That means that if we get a figure above that, which is very possible, year-over-year inflation will not move lower but rather move higher. At best, we expect little improvement.
We can see the media headlines now... Inflation moves back up, the Fed has to hike more to fight inflation, etc. But a lot of this is just mechanics and how the year-over-year numbers are calculated. We do believe the next report, on May 10, will tell a different story and will really start showing meaningful progress.
While we need to be prepared for a negative bond report, the Producer Price Index report will be released the day after, on Thursday. PPI is not as important as it once was, as it measures producer inflation, but it can still have an impact. Especially when you look at the extremely high figures we will be replacing from last year, which will almost certainly show a huge drop in producer inflation year over year. Bottom line: Wednesday will likely be a tough day, but Thursday's PPI may help us claw back some of the losses.
Zillow Home Value Index
Zillow showed that home prices rose 0.9% in March, the highest monthly reading since the peak in June, as more activity and record-low new listings are pressuring prices higher.
Home prices are up 3% year over year and down a little over 3% from their peak. But things appear to have turned the corner.
-Zillow showed that home prices rose slightly in February and now, once again, in March.
-FHFA showed home values up 0.2% in January.
-Black Knight showed home values rose 0.2% in February.
-CoreLogic showed home values rose 0.8% in February.
Things are starting to pick up—imagine when inflation and rates come down further.
Tuesday: NFIB Small Business Optimism Index
Wednesday: Consumer Price Index; Fed Minutes from the March 22 Fed Meeting; Mortgage Apps; 10-year Auction
Thursday: Producer Price Index, Initial Jobless Claims, 30-year Auction
Friday: Industrial Production and Capacity Utilization, Retail Sales
Mortgage bonds are lower, testing support at the 25-day moving average, with the 50-day nearby. The negative crossover on the stochastic momentum indicator is also of some concern. With the likelihood of a tough week ahead, begin the week with a locking bias.