Stocks are sharply lower, while Mortgage Bonds are slightly positive to start the day. Yields continue to gradually move lower, with the 10-year under 4.40%.
Oil prices are also moving lower this morning after some bumpiness yesterday on reports of an attack on a Singapore ship in the Strait of Hormuz yesterday. The IRGC declared on Wednesday that all ships must use the northern route and comply with Iranian routing instruction, and yesterday the Singapore cargo ship apparently took the southern route and was attacked. Of course, this brought into question the ceasefire and whether or not the Strait would remain open, but after more ships passed through today, oil is back under $70/barrel.
Dallas Fed Trimmed Mean Inflation
The Dallas Fed Trimmed mean inflation report, which uses the PCE data but removes the top 31% and bottom 24% of inflation measures, showed that underlying annual inflation is running at 2.4% in May. This is up slightly from 2.3% in April, but shows that when removing the outliers and price shocks, the bulk of inflation out there is well behaved.
This is a measure that new Chair Kevin Warsh has mentioned he liked and may consider when benchmarking the Fed’s inflation goals. It does a good job of highlighting how much of the inflation out there is likely coming from oil, as the PCE figures earlier this week were 4.1% headline and 3.4% core.
Fed Commentary
A few Fed members have spoken since last week’s Fed meeting, showing a lot of support for Fed Chair Kevin Warsh.
NY Fed President and always voting member Williams said that he believes inflation is going to come down because tariff impacts will continue to wane, shelter inflation will moderate due to lower rental prices, and oil prices will come down so long as the war with Iran does not take a turn for the worse.
Williams said he is very happy with the current Fed Funds Rate level and does not sound like someone who wants to hike this year.
Fed President Austan Goolsbee, who does not vote this year, applauded Warsh for streamlining the Fed Statement, removing forward guidance, and not speculating about the rate path. He feels inflation is too hot, but mentioned that there has been some progress on services inflation.
News Next Week
Tuesday: Case-Shiller and FHFA Appreciation Reports, JOLTS
Wednesday: ADP Employment Report, Job Cuts, Mortgage Apps
Thursday: BLS Jobs Report, Jobless Claims
Technical Analysis
Mortgage Bonds are in a range between support at the 50-day Moving Average and overhead resistance at 100.61. Bonds tested resistance yesterday and earlier this morning, but have not yet been above to break above it.
The 10-year continues to trend lower in a range between overhead resistance at the 50-day and support at 4.33%. Yields do appear to want to eventually test support, which is 5bp beneath present levels.
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