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MBS Highway - Daily Updates 11/02/2022

Current position: Floating

Stocks are slightly lower and Mortgage Bonds are slightly higher to start the day. The markets will likely continue to tread water until the Fed's statement at 2:00 pm ET and the press conference to follow at 2:30 pm ET.

We know the Fed will be hiking 75bp at today's meeting, but the question at hand is whether the Fed will follow some of the other central banks who have started to slow down the pace of their rate hikes in December. Earlier in the month, the Fed mole, Nick Timiraos, said that the Fed will likely use today's meeting to prepare the markets for a 50bp in Hike in December, which could be the first sign of a Fed pivot, as many members of the Fed showed concerned that they were doing too much, too fast, without realizing the true impact of the rate hikes.

If the Fed does pull back, it could cause a rally in the markets, as it shows they may be less concerned with inflation continuing to rise.

ADP released their employment report, which showed that there were 239,000 job creations in the month of October, which was stronger than expected. There was a negative 16,000 revision to September, which tempered a bit of the optimism.

They also reported that annual pay for job stayers increased 7.7% year over year, while changes saw an average increase of 15.2%, down from 16.2% two months ago.

For whatever reason, almost all of the job gains came from leisure and hospitality from the Pacific region, most other areas saw job losses. This means that there was weak breadth of job gains, especially in the goods sector, which showed losses.

Nela Richardson Chief Economist for ADP said, "This is a really strong number given the maturity of the economic recovery, but the hiring was not broad-based. Goods producers, which are sensitive to interest rates, are pulling back, and job changers are commanding smaller pay gains. While we're seeing early signs of Fed-driven demand destruction, it's affecting only certain sectors of the labor market."

The MBA released their Mortgage Application data for last week, showing Purchases fell 1% last week and are down 41% year over year. Interest rates moved slightly lower from 7.16% to 7.06%, which is 3.82% higher than this time last year. Refinances were flat and are down 85% year over year. ARMS made up 12% of transactions.

Technical analysis will take a back seat to the Fed meeting today, but Mortgage Bonds are continuing to battle with their 25 - day Moving Average. If we get some inflation-friendly comments from the Fed, we can see this level broken to the upside, and there is a lot of room for improvement before the next ceiling. Begin the day floating.


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