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MBS Highway Daily Updates 12/08/2022

Current position: Carefully Floating

Stocks are moving higher after a tough few days, while Mortgage Bonds are lower, giving back most of their gains from yesterday. They do remain above the 100 - day Moving Average, which is a positive sign. The 10 - year moved all the way down to 3.40% yesterday, testing an important support level, but has since moved back up to 3.48%. The 10 - year is still down around 90bp from the high in October, which is a big move lower.

Optimistic about Tomorrow

Tomorrow morning the PPI (Producer Price Index) inflation report will be released, and we think there is a good chance it makes a big move lower. While it does not get the respect of the CPI (Consumer Price Index) report, we think it could be dramatic enough to be a positive for Bonds.

And fast forwarding to next week, on Tuesday we have the CPI report, where we think we will continue to see headline and core inflation move lower. Additionally, on Wednesday, the Fed meeting will commence and they will release their statement and Powell will have a press conference. Even though the Fed is going to hike 50bp, we think they may have to acknowledge the drop in inflation, which could be Bond friendly. If their tone is a bit less hawkish, we could see another nice move in the Bond market.

Used Cars

When looking at the automobile market, which is an interest rate-sensitive sector, we are seeing more weaknesses. Yesterday, Manheim said wholesale used car prices fell 0.3% in November and are lower by 14.2% since last year. This trend is encouraging and will help inflation.

Initial Jobless Claims

Initial Jobless Claims, which measures individuals filing for unemployment benefits for the first time, rose from 4,000 to 230,000. It's important to note that this is still a new crop of people filing for unemployment benefits from last week.

And once they are let go, they are having a hard time finding a new job. This is evidenced in Continuing Claims or those that continue to receive benefits after their initial claims, which rose 62,000 to 1.67M. They have now risen by 325,00 over the last 8 weeks and are at the highest level in 10 months. Even with all the job openings out there, companies are clearly limiting their hiring.

Our good friend, Peter Boockvar, points out that it's interesting that we have not seen a big spike in initial claims with all of the tech sector layoffs, but many are getting severance and those highly skilled will have plenty of options for them that might keep them from filing for claims.

Technical Analysis

Mortgage Bonds are trying to hold the line at the 100 - day Moving Average once again. The 10 - year Treasury yield is testing overhead resistance at 3.50%, which is holding for now. They are also battling with their 100 - day Moving Average. Even with Bonds lower and yields a bit higher, we want to remain patient with the inflation data tomorrow. Continue Carefully Floating.


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