March 7, 2023 – Economic News

• March 7, 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 March Coupon is down -20 BPS with 60 minutes left to trade.

The Talking Fed:  The spotlight today was on Fed Chair Powell as he testified before the Senate Banking Committee at 10 am ET. You can read Powell’s prepared testimony here.Here are a few highlights:

• “There is little sign of disinflation thus far in the category of core services excluding housing, which accounts for more than half of core consumer expenditures.”
• “There is little sign of disinflation thus far in the category of core services excluding housing, which accounts for more than half of core consumer expenditures.”
• If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.
• The historical record cautions strongly against prematurely loosening policy. We will stay the course until the job is done.

Central Bank Palooza: The Reserve Bank of Australia increased their key rate by 25BPS to 3.60%

Treasury Dump: We kicked off three days of dumping our debt into the marketplace with our shorter term 3 year note auction at 1 pm. $40B went off at a high yield of 4.635% the bid-to-cover ratio was 2.73 which was solid

The Consumer: January Consumer Credit Change increased by $14.8B which is higher than December’s pace of $11.56B but lower than expectations of $23B

On Deck for Tomorrow: Bank of Canada Interest Rate Decision, ADP Payrolls, Trade Balance, JOLTS, 10 year note auction, Fed Chair Powell House Hearing, Fed’s Beige Book.

Mr. Powell said what we have heard from other Fed officials that have spoken recently, only with more emphasis. The Federal Reserve will likely need to raise interest rates more than expected in response to recent strong data and is prepared to move in larger steps if the “totality” of incoming information suggests tougher measures are needed to control inflation. “The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” He mentioned warmer weather than normal may be adding to the economic strength. He warned the Fed needed to do more to lower inflation. “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,”. His remarks are the first he has uttered since inflation edged higher in January. 

Given the reaction to his testimony, markets were shocked at his directness and stand on more rate hikes. On March 22nd, the FOMC policy statement and now the increasing potential of a 50 bp increase in the FF rate. Investors boosted bets to more than 70% that the Fed would approve a half-percentage-point rate hike at that meeting. But let’s take it one step at a time, on Friday the Feb employment report, next week’s economic data ((CPI, PPI, Retail sales) could flip the new 50 bp hike around. Recall job growth in Jan was three times higher than forecasts, inflation increased by 0.1% above the estimates, revisions to jobs in January is not out of the question. Current estimates for Feb jobs 200K, from 517K, private jobs 213K from 443K in Jan. Not suggesting anything, other than markets are sitting on a hot skillet.

Jan use of credit cards increased (revolving credit) increased 14.8% from Dec and 11.1% year/year; non-revolving credit increased 1.2% year/yr. In Dec revolving credit was $83.0B, in Jan $134.0B. The increase is a warning sign that consumers are now being stretched a little. 

Tomorrow Powell at the House Financial Services Committee. Weekly MBA mortgage applications. $32B 10 year note auction. Jan JOLTS job openings. The Fed’s beige Book.

The 10 year note ending the day generally unchanged from yesterday, but the 2 year note exploded, up 11 bps to 5.01%. The 1 year T- Bill increased 17 bps. The 3-month bill increased 10 bps, mortgage lenders facing increasing warehouse lines. The dollar took off with huge gains. Crude oil weakened over $3.00.