Current position: Carefully Floating
Stocks and Bonds are both a little lower, giving back some of their gains from yesterday, but will likely tread water ahead of the Fed statement and press conference later today.
Today's Fed Statement & Press Conference
We know the Fed is still going to hike 50bp this afternoon, and we think there are two ways this meeting can go.
The Fed acknowledges the improvement in inflation, still talks tough about inflation and their commitment to bringing it to their target, but sounds less hawkish. In this scenario, the markets rally
The Fed wants to bring the markets lower and cause pain - They look at the market performance since their last meeting, and see that the 10 - year is down 60bp, 30 - year mortgage rates are down 75bp, the Dow is up 6.3%, and Average hourly earnings rose 0.6%. And then they go over the top to jawbone a decline in the markets , talking very tough and not acknowledging inflation. In this scenario, markets sell off.
Remember, even if the statement is favorable, there is always the risk that Powell will ruin the party. We also want to hear their thoughts on future hikes, with their next meeting on February 1. For now the futures market is pricing in a 25bp hike, instead of 50bp.
Mortgage Applications
The MBA released their Mortgage Application data for last week, showing purchases rose 4% last week and are down 38% year over year. Purchase applications are now up five out of the last 6 weeks. Interest rates remained pretty stable, going from 6.41% to 6.42%. Last year at this time, rates were roughly 3.3%, which means rates are around 3 1/8% higher today. Refinances rose 3% last week and are down 85% year over year.
The media did their best to put a negative spin on the report, saying "Mortgage demand inches higher", but it was up 4% and 3% for Purchases and Refinances respectively.
Cass Freight
Cass Freight is a report that measures shipping costs across the US and can be an important sign of the economy, as all goods need to be shipped in some manner, as well as inflation.
The expenditures component of the Cass Freight Index, which measures the total amount spent on freight, rose 1.8% in November. But on a year-over-year basis, this index decelerated from +21% in September, to +11% in October, to now +4.7% in November.
The supply/demand imbalance in trucking markets has loosened significantly this year, and as a result, freight rates are leveling off and set to soften further in the months to come. Shippers are starting to see real savings, and considerable cost relief is now likely for 2023, which is positive news for the inflation picture.
MBS Highway Survey
The MBS Highway Survey, which is comprised of roughly 3,000 Mortgage and Real Estate Professionals, was just released for December. There is an increase in activity from November to December, with 23% of respondents still citing that their markets are active, while 78% note that it is slower. 2% 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.