Concerns over global stability mark the end of the Davos World Economic Forum

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Published Date 1/19/2024

Rates began unchanged this morning after increasing slightly yesterday (10 year +3 bp). Yesterday weekly jobless claims were lower than forecasts at +187K with estimates at 206K, down 16K from the prior week adding additional evidence the employment sector is still holding strong.

This week the focus has been on the World Economic Forum in Davos Switzerland where central bankers agreed lower rates from the banks isn’t likely to occur in March as was widely believed, the result, rates inched higher, as of yesterday the 10 year note yield increased 18 bps from last Friday and MBS prices down 49 bps.

Austin Goolsbee, Chicago Fed on CNBC early this morning saying inflation is slowing, as far as a rate cut in March, he reminded there is a lot of economic data coming between now and then. He commented that if inflation continues to slow that should be factored into the Fed’s decision. “We don’t want to commit ourselves before the job is done.” Yesterday, Raphael Bostic, Atlanta Fed, saying he doesn’t think the Fed should be lowering rates until the 3rd quarter. Also yesterday Cleveland Fed President Loretta Mester on market expectations of an rate cut as soon as March is too optimistic. Last Tuesday NY Fed’s Williams said U.S. rates will likely need to stay high “for some time” until senior central bank officials are confident the rate of inflation is returning to 2%.

Today, the last day at Davos, the gathering of political leaders, top executives, and celebrities. According to comments from those at the meeting, “There’s a higher-level issue than the economy, which is geopolitics,” said Christian Mumenthaler, chief executive of reinsurance giant Swiss Re. “We’re starting this year with the longest list I ever recall of potential disruptions,” said Christian Ulbrich, chief executive of real-estate company JLL, which operates around the world. “You really have to run your organization in an extremely agile way so that you can react immediately.” Gita Gopinath, the No. 2 official at the International Monetary Fund, worries about geopolitics causing trade and investments to be an issue is a reality, not a threat.

Both the House and Senate passed another continuing bill to keep the government functioning until March when it becomes another media circus. Neither Republicans nor Democrats in Congress can come to any agreement for a budget that would set the government on a longer path. The government continues to increase the US debt deficit, in the first three months of fiscal 2024 (Oct thru Dec), the budget deficit totaled $510B, following a deficit of $129B in December alone. Total government debt stands at $34 trillion, by the end of fiscal 2024 (Sept) the total will be higher. Lower rates have a hill to climb because funding the debt will require higher rates than otherwise would be possible.

At 9:30 am the DJIA opened +122, NASDAQ +69, S&P +13. 10 year at 9:30 am 4.16% +2 bps. FNMA 6.0 30 year coupon at 9:30 am -3 bps from yesterday’s close and -6 bps from 9:30 am yesterday.

Two data points at 10 am; the mid-month University of Michigan/Wells Fargo consumer sentiment index, the headline expected at 69.2 from 69.7 at the end of December increased to 78.8.Consumers all in about the economic outlook being stronger.

December existing home sales expected unchanged from November at 3.82 million, sales reported at 3.78 million, month/month -1.0 %, year/year -6.2% from -7.3%.

Source: TBWS

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