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MBS Highway Daily Updates 05/26/2023

The Bond Market will be closing today at 2:00 pm ET in observation of the Memorial Day Holiday. The markets will also be closed on Monday.


Stocks are higher and Mortgage Bonds are slightly lower to start the day.


PCE (Personal Consumption Expenditures) Inflation Report.

The Fed's favorite measure of inflation, Personal Consumption Expenditures (PCE), showed that inflation rose 0.4% in April, which was hotter than estimates of 0.3%. Year over year, the index increased from 4.2% to 4.4%, which was also higher than anticipated.


The core rate , which the Fed focuses on and strips out food and energy prices, also rose 0.4% last month and increased from 4.6% to 4.7% year over year, which was hotter than forecasts.


Pressuring inflation higher was energy, which rose 2.4% last month and Used Cars, which were up 4.7%.


While we did not see any progress today and inflation moved in the wrong direction, we do anticipate some nice progress over the next two months, as the comparisons from last year get much higher. Looking at the headline, May and June of 2022 were 0.6% and 1% respectively, which means that if we continued to see 0.4% readings , we would see year over year inflation drop from 4.4% to 3.6% . And there is a good chance the monthly gains are not 0.4% as we will likely not see the pressure from energy and used cars , and shelter costs will continue to catch up . That means we could see inflation come even further to 3.4%.


We will also see some progress on core PCE, but not as much. The replacements from last year over the next two months are 0.4% and 0.6% respectively. If we got 0.3% readings, we would see year over year core decline from 4.7% to 4.3%.


Personal income rose 0.4% last month , while spending rose 0.8% , which was higher than the 0.5 % estimated. But the spending was concentrated in gasoline prices, where spending rose 1.8 %, and new vehicles , where spending rose 13%. It does not appear consumers are feeling great and spending on discretionary items, but rather spending more on their needs like gas.


Next Week

The Bond market will be closed on Monday in observation of the Memorial Day Holiday. Tuesday: Case Shiller HPI, FHFA House Price Index.

Wednesday: Mortgage Apps, JOLTS.

Thursday: Challenger Job Cuts, ADP Employment Report, Initial Jobless Claims.

Friday: BLS Jobs Report.


Technical Analysis

Mortgage Bonds are once again testing and trying to remain above support at 99.38 . The 10 - year is now around 3.83%, breaking above resistance at 3.786% yesterday. If we can get some Bond friendly news, like a weaker jobs report next week, things are set up for a reversal when looking at the momentum indicators, as Bonds are deeply oversold. Begin the day carefully floating.


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