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Saturday’s: 9AM 1590 AM/97.9 FM KVTA
Sunday’s: 7AM K-EARTH 101 FM
MBS OVERVIEW
4:00 EST – Our benchmark FNMA MBS 6.00 April Coupon is down -3 BPS with 60 minutes left to trade.
The Talking Fed: In the New York Fed’s March Survey of Consumer Expectations, inflation expectations are on the rise once again, especially the short-term as the Median inflation expectations increased by 0.5 percentage point at the one-year-ahead timeframe to 4.7%, the first increase in the series since October 2022. Median inflation expectations for the three-year-ahead horizon edged up 0.1% to 2.8%.
On Deck for Tomorrow: 3 year Treasury note auction
After interest rate markets work through one event (Friday’s employment data), there is always the next thing traders and investors turn to. Today and tomorrow its inflation data scheduled to be released Wednesday and Thursday, CPI and PPI respectively. Quiet today with little change at the long end of the curve, at the short end the 2 year note yield increased 4 bps. There were no data points today that we or traders were interested in. Tomorrow the same, NFIB small business optimism index.
What lies ahead for interest rates, the economy, inflation? For answers you can find whatever outlook that fits your opinion; disagreement is widespread. Today the IMF is duking it out with former treasury Secretary Larry Summers. In its latest World Economic Outlook, the IMF argued that rates in the US and other industrial countries will revert toward the ultra-low levels that prevailed prior to the pandemic. IMF expects the neutral rate where it doesn’t assist or hurt the economies below 1.0% in coming years; the Fed’s projections, half of a percentage points. Summers saying two weeks ago, the neutral rate will remain between 1.5% and 2.0%, blaming increased government borrowing on increased military spending going forward.
There is a growing view the Fed is close to ending rate increases, wishful thinking, or reality? Stock analysts’ outlooks increasingly negative. Recession is a word more widely heard. Inflation data has been falling for three months, although week above what the Fed continues to desire. The March employment report last Friday was seen by markets as a stronger job market, lemmings following each other in a circle. Give investors any reason to ignore the wider employment news on job growth and wages slowing and traders all over it like ants on a sugar cube.
Once we get through CPI and PPI this week, forecasts will escalate about what the FOMC will do on May 3rd. One more 25 bp increase is the likely result. Then the Fed and other major central banks will also back down. The Fed and other banks trying to dodge recession; halting rate increases will stabilize the very unsettled interest rate markets. That would be the correct thing to do, but Jerome Powell probably won’t bite and another 25 bps is likely, although we believe it to be a mistake that will become evident over the next few months; not looking for lower rates, but believe some relief is in order. It’s a mess in the banking world with regulators and bank management working overtime; one example, over the last two weeks banks have unloaded $105B of MBSs.
For stock investors, Q1 earnings season begins this week.
No scheduled data that will move markets tomorrow.
