Current position: Carefully Floating
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Stocks are lower and mortgage bonds are trading near unchanged levels to start the day, following a surprise 25-bp hike from the RBA (Reserve Bank of Australia). After pausing in April, the RBA hiked once again this month, citing that inflation was still far too high.
This is ahead of our Fed's 2-day meeting, which kicks off today and ends tomorrow with their rate hike decision and press conference. It's widely anticipated that the Fed will hike another 25 basis points, bringing the Fed Funds Rate to a range of 5% to 5.25%.
CoreLogic Home Price Insights
CoreLogic reported that home prices rose 1.6% in March and are now up 3.1% year over year, which is down from 4.4% on tough comps. This comes after rising 0.8% in February. We are clearly at a turning point in the housing market.
CoreLogic forecasts that home prices will rise again in April by 0.8% and rise by 4.6% over the next 12 months, which is an increase from 3.7% in the previous report.
Selma Hepp, the Chief Economist for Core Logic, said, "While housing markets across the country continue to send mixed signals, prices in many large metros appeared to have turned the corner, with the U.S. recording a second month of consecutive monthly gains." At 1.6%, the month-over-month increase was twice the average seen between 2015 and 2020.
The monthly rebound in home prices underscores the lack of inventory in this housing cycle. In addition, while the lack of affordability generally weighs on home price growth, mobility resulting from remote working conditions appears to be a current driver of home prices in some areas of the country ".
JOLTs
The Job Openings and Labor Turnover report showed that there were 9.59 million job openings in March, which was well below expectations of 9.775 million and dropped by 384,000 from the previous report. Job openings are now at a 23-month low.
Leisure and Hospitality interestingly increased by 79k job openings, which is the sector that has been providing the biggest job gains of approximately 100k jobs per month. But this industry has still lost over 350,000 openings since the beginning of the year.
Layoffs and discharges increased by 248,000 to 1.8 million, the highest number in 27 months.
The sample week of Initial Jobless Claims, which gets imputed into the Jobs Report, was 245,000, which is a pretty high claims figure and would point to a weaker job number on Friday from this one component. We will get some more clues tomorrow with ADP, where the market is expecting around 150,000 job creations for the month of April. The BLS Jobs Report on Friday is expected to show 180,000 job creations, with the unemployment rate rising from 3.5% to 3.6%. Even if we got what the markets expect, it would be the least amount of job creation since December 2019, not including COVID.
Debt Ceiling
Some of you have been asking about the debt ceiling. Janet Yellen mentioned yesterday that the government could run out of money and have trouble paying its bills as early as the beginning of June. While no one knows for sure, the closer it gets, the market is going to potentially have more of a reaction.
The debt ceiling has been raised 78 times since 1960. The last three times we saw this, the Fed wasn't tightening policy at all, let alone still raising rates into an inverted yield curve. The 10-year yield minus the 3-month Treasury is at 170 bp, the deepest inversion in 40 years.
Twelve years ago, which was the summer of 2011, it came down to the 11th hour, and the market reaction was as such: stocks fell sharply, but so did yields, with the 10-year down significantly. If something like this occurs again, we may see a nice move lower in yields and a move higher in mortgage-backed securities come early June.
Technical Analysis
Mortgage bonds bounced higher off their 50-day moving average and are now up against a quadruple ceiling of resistance. This will be a touchy level to get above, but some weak job data in the days ahead could be the catalyst. Of course, we have to get past the Fed statement tomorrow, where their comments and actions will be very important.
The 10-year is down sharply, breaking beneath its 200-day moving average and 25-day moving average. Yields are now right above the important 3.43 Fibonacci level. Begin the day carefully floating.
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