April durable goods orders slightly weaker than expected

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Published Date 5/25/2022

The 10 yr. note yield continues to fall as investors pile into safe havens as the equity markets remain under pressure, this morning in pre-opening trade the DJIA at 8 am ET -136, 10 yr. 2.72% -4 bps, MBSs started +5 bp from yesterday.

Weekly mortgage applications declined once again, down 1.2% from -11.0% the prior week. Purchase apps +0.2% from -11.0% the week before and re-finance apps -3.9% from -9.5%.

April durable goods orders were a little weaker than forecasts. Orders in April were expected +0.5%, as reported +0.4%, March orders revised from +0.8% to +0.6%. Excluding transportation orders +0.3% with estimates at +0.6%; core capital goods +0.3% with forecasts of +0.5%; core capital goods shipments, a figure that is used to help calculate equipment investment in the government’s gross domestic product report increased, pointing to a solid start to second-quarter growth. The data suggests companies are adhering to capital expenditures plans as they seek to enhance productivity to ease the burden of high inflation and a tight labor market. Q1 preliminary GDP will hit on Thursday, the estimates -1.3% after declining 1.4% in Q4; using an age-old definition for a recession (two consecutive quarters of declining GDP) the US would be in recession.

Questions about the Fed and its plans to increase the FF rate by 50 bps are increasing as equity markets continue to decline. If you have any thoughts that the Fed will abstain because of the stock market declines, forget it, the Fed will move to increase the rate by 50 bps and there is no change in the Fed’s thinking of another 50 bp increase at the following FOMC meeting in July. There is a view that the Fed will prop up equity markets by holding off the rate increases, wishful thinking, the Fed will move on June 15th and again on July 27th. Last week KC Fed president Esther George commented that the market rout was no surprise considering the central bank’s repeated caution that it will continue raising interest rates to cool the hottest inflation in decades. Powell in all his remarks recently made it clear the Fed will crush inflation by slowing the economy. “I think the Fed welcomes it. The stock market must decline a lot more -- double the current drop -- before it will get close to wiping out the stock gains during the pandemic. This sounds callous, but declining stocks will get more people to come out of early retirement.” --Anna Wong, chief U.S. economist. On home prices, B of A saying prices will increase 15% this year, Goldman Sachs estimating prices will increase 10%.

At 9:30 am the DJIA opened -136, NASDAQ -34, S&P -11. 10 yr. note 2.73%-3 bps. FNMA 4.5 30 yr. coupon at 9:30 am +14 bps from yesterday’s close and +64 bps from 9:30 am yesterday.

At 1 pm $48B 5 yr. note auction, yesterday’s 2 yr. auction was met with very strong demand.

At 2 pm the minutes from the May 5th FOMC meeting, will get attention looking for additional clues from the Fed.

Source: TBWS

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