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Current position: Carefully Floating
Stocks are higher and Mortgage Bonds are lower ahead of an important news week, highlighted by inflation data.
The midterm elections are this week, and if there is a gridlock to any degree, it could make passing spending bills more difficult over the next two years, which would likely be good for inflation and the Bond market.
The MBS Highway Survey, which is comprised of roughly 3,000 Mortgage and Real Estate Professionals, was just released in November. There is certainly a slowdown in activity and pricing pressure from October to November, with only 19% of respondents still citing that their markets are active, while 81% note that it is slower. 4% of those surveyed are still seeing price increases, while 78% are seeing some degree of price decreases, although many of these are listing prices that are coming down to earth and not home value declines.
The Consumer Price Index report for October will be released on Thursday and is estimated to show headline inflation decrease from 8.2% to 8% and Core inflation fall from 6.6% to 6.5%.
And just as we have been believing that inflation would start to subside towards the end of this year, the Managing Director from the IMF (International Monetary Fund) Kristalina Georgieva said that global inflation appears to be peaking.
Shelter costs make up 39% of core inflation, and they have been lagging. But real shelter costs have been moderating in the current market - Zumper reported that Rents came down 0.7% last month and the gains are moderating on a year over year basis. After 12 straight months of double-digit year - over year jumps, the national median is up a slightly more reasonable 9.2% over October of last year. This should find its way into the Consumer Price Index report hopefully by January and add additional downside pressure.
There will also be some important auctions - On Wednesday there will be a 10 - Year Auction and Thursday we'll be getting CPI for October and a 30 - Year Bond Auction.
Mortgage Bonds continue to trade in a wide range between support at 96.89 and overhead resistance at the stubborn 25 - day Moving Average. While in such a wide range, Bonds are susceptible to big price swings, and with some big news items in store this week, we must remain on guard. The 10 - year is also in its own wide range, with support at the 25 - day Moving Average and overhead resistance at 4.279%. Begin the day carefully floating.