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MBS Highway - Daily Updates 11/14/2022

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Mortgage-Backed Securities are now down near their worst levels of the day, they're down 52 basis points. And when lenders came out with pricing, they were down anywhere between 11 and 19 basis points. Listen, we wanna be cautious here because we know last Thursday we saw a monster day in the markets mortgage bonds gained over 206 basis points.

It's natural to see a pullback like this after such a big day, but we wanna be cautious and make sure that you're locking in some of those gains. We're still breaking out of that down trend that we've been in for a very, very long time. But there's a lot of room to go until reaching the next support level at the 50 day moving average.

So the advice here is to go ahead and lock in at every potential lender reprise for the worst.

Current position: Floating

Stocks and Bonds are both lower to start the day after a big rally on Thursday, following a cooler-than-anticipated Consumer Priced Index inflation report. After seeing a 206bp rally in Mortgage Bonds, it's natural to see a bit of a pullback, but Bonds are already well off their worst levels from earlier this morning.

Something else that may help inflation - America's biggest retailer, Walmart, has a new message for its suppliers: We're not going to pay higher prices anymore. This has major implications for both inflation and profit margins. It will lead to relief in inflation and add stress to their vendors' profit margins.

Fed Governor Chris Waller spoke today in Sydney and said that it's good to see evidence of inflation coming down, but that the Fed would need to see a continued decline before the Fed thinks about taking their food off the economic brakes of rate hikes. This caused some of the selloffs in the markets this morning, and it appears the Fed wants to keep making the same mistakes. Some Fed members seemed to understand that there is a lag from when the Fed hikes to the full imp

act on the economy, and the Fed should try to take into account the cumulative impact of all of their hikes since March. Remember, Waller is the some Fed member who said he could not see a recession because the unemployment rate was so low at 3.5. It's since gone to 3.7%, but he fails to see that throughout history, in every market cycle, we get recessions when the unemployment rate reaches its lowest point and turns higher, not when unemployment is elevated.

And we know that the labor market is a major lagging indicator... but take a look at the summary of some of the layoffs announced this year that will eventually hit the unemployment numbers:

Twitter: cutting 50% of its workforce (estimated 3,700 jobs

  • Facebook ($META): cutting 13% of its staff (11,000 jobs), its largest round of layoffs ever

  • Snap ($SNAP): cutting 20% of its workforce (1,200 jobs)

  • Shopify ($SHOP): cutting 10% of its workforce (1,000 jobs)

  • Netflix ($NFLX): cut 450 jobs in two rounds of layoffs

  • Microsoft ($MSFT): cutting < 1% of the workforce (1,000 jobs) -Salesforce ($CRM): cutting 1,000 jobs

  • Robinhood ($HOOD): cutting 31% of its workforce

  • Tesla ($TSLA): cutting 10% of its salaried workforce

  • Lyft ($LYFT): cutting 13% of its workforce (700 jobs)

  • Redfin ($RDFN): cutting 13% of its workforce

  • Coinbase ($COIN): cutting 18% of its workforce (1,100 jobs)

  • Stripe: cutting 14% of its workforce (1,000 jobs)

And in addition to the cuts, these companies have made some changes on hiring:

  • Amazon ($AMZN) has announced a hiring freeze

  • Apple ($AAPL) has paused almost all hiring

  • Google ($GOOGL) is reducing new hiring by 50%

It's a busy week ahead...

Tuesday: Producer Price Index

Wednesday: Mortgage Apps, Retail Sales, NAHB Housing Market Index, 20 - year Auction

Thursday: Housing Starts and Permits, Initial Jobless Claims

Friday: Existing Home Sales

Mortgage Bonds are recouping much of their earlier losses and are trading in a range between support at the 50 - day Moving Average and overhead resistance at 100.534. Begin the day floating.


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