Current position: Floating
Stocks are higher and Mortgage Bonds are trading near unchanged levels, which is a big improvement from earlier today when they were down over 30bp.
The advanced, or first reading of Q3 GDP, showed that the US economy grew by 2.6%. This was better than the 2.3% expected and follows two consecutive negative quarters in Q1 and Q2. It's important to remember that this is the first of three readings, and there can be significant revisions.
Core Durable Goods for September were also released and showed a decline of 0.7% month over month, which was much weaker than the 0.3% gain expected. Additionally, the August report was revised lower by 0.6%. Shipments also came to light - Both of these components get factored into GDP and may lead to some downward revisions in the upcoming releases of Q3 GDP.
Initial Jobless Claims, which measures individuals filing for unemployment benefits for the first time, increased from 3,000 to 217,000. Continuing Claims, or those that continue to receive benefits after their initial claim, rose 55,000 to 1.438M and has been significantly rising over the past few weeks. The bottom line, initial claims still remain quite low, as employers continue to hold on to workers. The rate of hiring is the first to slow in an economic downturn, followed by layoffs. Next week's payroll forecast is 190k, which would be the slowest since a negative print was seen in December 2020.
CoreLogic released their Loan Performance Insights for August, showing that loans 30 days or more past due decreased from 3.0% to 2.8%. Loans seriously delinquent or 90 days plus decreased from 1.3% to 1.2%, while loans in foreclosure remained at 0.3%, which is near multi-decade lows. Overall, delinquencies improved from the previous report and remain at very healthy levels, even in this high inflation and higher interest rate environment.
Tomorrow we will get the Core PCE inflation report, which is the Fed's favorite measure of inflation. Estimates are for core inflation to rise from 4.9% to 5.2% year over year, which would be a negative for the Bond market. However, we already knew that inflation went the wrong way in September after the release of the Core Consumer Price Index report two weeks ago. And since the market already reacted to that release, we don't expect too much in the way of surprises in the market tomorrow. Last month a similar picture unfolded, and the Bond market handled it pretty well.
Mortgage Bonds have had a nice rally over the past week, but are now being stopped in their tracks at the 25 - day Moving Average for the second consecutive day. If Bonds can get above this level, there is a lot of room to run until the next ceiling. We also have to remain on guard, because if they are rejected, there is a lot of room to the downside before support. The 10 - year is now beneath 4% at 3.98% and has room to improve until testing it's 25 - day Moving Average at 3.91%]. Continue Floating.