January 12, 2023 – Economic News

• January 12, 2023
• realestatelife
• Business & Markets, Fed, Interest Rates, Politics & Economy, Rates, Real Estate, Real Estate Finance, Recession, World News, Your Real Estate Life

MBS OVERVIEW

4:00 EST – Our benchmark FNMA MBS 6.00 February Coupon is up +24 BPS with 60 minutes left to trade.

Jobs, Jobs, Jobs: Initial Weekly Jobless Claims were lighter than expected, 205K vs. est. of 215K. The more closely watched 4 week moving average dropped to 212.5K. Continuing Claims were 1.634M vs. est. of 1.705M.

Inflation Nation: The December Headline CPI MOM decreased by -0.1% which is exactly what the market expected. YOY it increased by 6.5% which matched expectations and is down from November’s pace of 7.1%. Core (ex food and energy) CPI was up 0.3% on a MOM basis which is higher/hotter/worse than November’s pace of 0.2%. YOY, it was up 5.7% which was expected. While Goods inflation tumbled to its lowest since Feb 2021, Services inflation soared to its highest since Sept 1982. Real Wages dropped for the 21st month in a row!!

The Talking Fed: Philly Fed President Patrick Harker said that he supports only a 25BPS rate hike at the February meeting signaling the potential end of rate hikes after that.

Treasury Dump: We had an important 30 year Treasury BOND auction at 1 pm ET. $18B went off at a high yield of 3.585% and a bid-to-cover ratio of 2.45

On Deck for Tomorrow: UofM Consumer Sentiment and Import/Export Prices.

Yet another inflation reading that adds evidence that inflation has run its course, consumer prices in Dec the first monthly decline since 2020, -0.1% driven by lower energy costs the main driver. Yr./yr. 6.5% down from 6.6% in Nov, the lowest since October 2021. The services sector inflation level showed continued inflation.

Good news, inflation is working lower; leaving the continued unanswered question, what will the Fed do? The FOMC will increase the FF rate by 25 bps on Feb1st; then we will move on to the March meeting. The ever-changing swaps market today reflect the possibility the Fed won’t move at the March meeting, we wouldn’t put much faith in it, swap markets change ideas at any data twitch. Swaps shifted to show less than 50 basis points of tightening priced in across the next two meetings, February contracts suggesting that a move of at least 25 is baked in for that meeting.

KB Home stocks dropped 6.7% in Q4; heading into earnings season the outlook for builders’ stocks doesn’t look good. Demand slowed; interest rates increased. Mortgage rates have declined since 30 yr. mortgage rates peaked at 7.22%, today’s decline in rates has 30 yr. mortgage at 6.07% according to CNBC’s calculation. After months of little volume, we are hearing from clients loan applications have picked up recently. The S&P Composite 1500 Homebuilding index was hit hard in the first half of 2022 as mortgage rates soared and eroded demand, then recovered in the second half of the year as borrowing costs eased, to finish lower by 25% according to a Bloomberg report. For what it’s worth, Susan Wachter, professor of real estate and finance at the University of Pennsylvania’s Wharton School, expects home prices to fall 5% to 10% nationally in 2023 but find a floor as markets gain confidence that inflation is under control. “Housing is going to ease up,” she says. “I think 2023 will be a turnaround year.”

Another strong Treasury auction this afternoon, $18B of 30s re-opening the bond issued last Nov saw strong and aggressive bidding. In WI trading the rate was 3.609%, at the auction the yield 3.585%. the bid/cover at 2.45 compared to the average of 2.38, foreign investors took 74.6% compared to 69.2% average, domestic investors too 16.3% leaving dealers with just 9% to take down. Inflation slowing and the softening dollar encourage demand.

Tomorrow two key data points; Dec import and export prices (imports -0.9%, exports -0.7% and the mid-month U. of Michigan consumer sentiment index (60.0 from 59.7).

Tomorrow begins the earnings season with some big banks reporting.

Going into a long weekend, all markets will be closed on Monday for MLK birthday. Next Wednesday Dec PPI, Dec retail sales, NAHB Jan housing market index; several other interesting releases also next week.

There is technical support for the 10 yr. note at 3.40%. Today the note low was 3.44%. we don’t expect that support level to be broken tomorrow.