Stocks and Mortgage Bonds are both slightly higher so far this morning.
The Strait of Hormuz is still effectively closed, with only an average of about 5 oil tankers crossing per day, but talks between the U.S., Iran, and now Israel will begin over the weekend in Pakistan. We are hopeful that some good news will come out of the meeting, as we believe it’s in everyone’s best interest. If there is good news, we will likely see oil prices move lower and Bond prices higher on Monday.
Consumer Price Index
The Consumer Price Index for March showed that headline inflation was reported at 0.9%. This is a very hot reading and mostly due to the rise in oil prices, but it was exactly as expected by the market.
Year over year, headline inflation rose from 2.4% to 3.3%, also in line with expectations. Gasoline prices rose 21%, due to the closure of the Strait of Hormuz.
The most important core reading, which strips out food and energy prices, rose 0.2% in March, which was one tenth lower than estimates. Year over year, core inflation rose from 2.5% to 2.6%, but that too was one tenth lighter than the market anticipated.
Shelter has been slowly moderating and continued to do so in this report. The monthly reading was 0.27% and now up 3% year over year. Rent prices rose 0.19%, which is 2.3% annualized and getting closer to real-time numbers that are around 1%...but there is still more catchup to do.
The Bond market took the CPI report in stride as the headline was hot but as expected and Core was a bit lighter than expected.
Scary AI News
Fed Chair Powell and Treasury Secretary Scott Bessent held an emergency meeting with Bank CEOs regarding security after news of Anthropic’ s latest AI Model.
Anthropic is thankfully holding back it’s latest model, called Mythos, because it’s too good and finding online software security weaknesses. It reportedly can crack every major operating system and web browser, and in the wrong hands, could wreak havoc on our financial system.
During safety tests, an Anthropic researcher got an email from Mythos while he was eating a sandwich in the park, which was a surprise because the model wasn’t supposed to be online. It had escaped its test environment, bragged about breaking the rules, and attempted to cover its tracks. While Mythos is more trustworthy than its predecessors, it’s not foolproof, and when things go wrong it can get ugly…scary stuff.
News Next Week
Monday: Existing Home Sales
Tuesday: ADP Weekly Employment Data, Producer Price Index
Wednesday: Mortgage Apps, NAHB Housing Market Index, Fed’s Beige Book
Thursday: Jobless Claims, Industrial Production & Capacity Utilization
Technical Analysis
Mortgage Bonds have climbed back above the 200-day Moving Average, which is a positive sign. If Bonds can maintain this move, there is roughly 20bp of room to the upside until reaching the 50-day Moving Average.
The 10-year is challenging its 25-day Moving Average as resistance. If yields can get back under this level, there is room to improve until reaching 4.20%.
Developments on the meeting between the US, Iran, and Israel will likely dictate the near term direction, and we feel there is a good chance for some progress that could help Bonds likely on Monday.
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