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The Momentum Builder event will be February 20 – 22 at the Park MGM Hotel in Las Vegas. Barry will be speaking, as well as Danielle Demartino. You can sign up HERE and use code Highway for $300 off.
Stocks are higher and Mortgage Bonds are lower to start the day.
Later this afternoon at 1:00pm there will be 10-year Treasury Note Auction where the Treasury will auction off $42 billion of 10-year Treasuries, which will need to be absorbed by the market. The level of demand can have a meaningful impact on yields.
Neel Kashkari Comments
Minneapolis Fed President, Neel Kashkari, believes that the Fed is not as restrictive as it appears and that they have time to assess before cutting rates. He cites that inflation is coming down and the labor market is very strong…we agree on inflation.
Kashkari cites that PCE Inflation has fallen rapidly, with six-month core inflation coming in lower than 12-month, three-month coming in lower than six-month, and both now at or below target. But why not look at 8-months, as that is also running at the Fed’s target and should give them a lot more confidence.
He goes on to say that the labor market has remained strong with a historically low 3.7% unemployment rate…but we don’t believe he fully understands the Jobs Report.
As we have gone over, headline job creations figures have been revised to look strong, while the raw figure was extremely weak. Additionally, the unemployment rate should have risen, but there was an exodus from the labor force and people were no longer counted. We also know that hours worked is at the lowest level since 2010, excluding the depths of Covid.
In order to see if monetary policy is restrictive, Kashkari focuses in on construction employment, as he feels that it is the most interest rate sensitive. What he doesn’t understand is that it’s not reflecting current conditions, but rather much of this is projects being completed from a year or two ago. Additionally, he cites that the housing market is strong – has he seen volume levels and that 61% of mortgage professionals left the business?
Manheim Used Car Index
An important component of inflation is Used Cars, which have been moving lower in price. The reason – The cost to finance them has gotten much more expensive thanks to the Fed hiking 525bp.
The latest reading from Manheim showed that used car prices were unchanged in January and down 9.2% year over year. This report has been showing declines almost every month for the last quarter, but historically performs slightly better in January.
Car Gurus reported that used car prices fell 2.2% in January – Lower used car prices should help inflation, at least from that component, to moderate further and help to give the Fed the “confidence” they need to start cutting rates.
MBA Mortgage Applications
The MBA released their Mortgage Application data for last week, showing that purchases fell 1% last week and are down 19% year over year. Refinances rose 12% last week and are now up 1% from last year. Interest rates remained around 6.75%, roughly 0.6% higher than this time last year…but this is obviously not capturing what happened on Friday and so far this week. This will show up in next week’s data and will likely cause a drop in volume.
Technical Analysis
Mortgage Bonds continue to trade beneath the 50-day Moving Average, which is acting as a ceiling of resistance. The next floor of support, which is holding for now, is down at 100.614, which is the low from Monday and early December.
The 10-year is flat and trading just beneath the 200-day Moving Average yesterday, which is keeping a lid on yield for now. The 10-year has a triple floor of support just beneath present levels which will make it difficult to see yields move lower…but a lot will depend on the level of participation at this afternoon’s auction. Begin the day floating.
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