Markets will be focused on Fed Chair Powell today

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Published Date 12/1/2023

Overnight the 10 year note yield declined 3 bps to 4.31%, by 8:30 am ET back to unchanged. The keys today, Jerome Powell talking at 11 am and again at 2 pm. Expect to hear his take on recent beliefs the Fed is finished, safe to bet he will make it clear it is all data dependent, his go to comment when talking about the future of Fed actions. With increasing speculation the Fed will begin lowering rates in the spring, will he push back against that growing belief?

Not a concern, but beside Powell Chicago Fed President Austin Goolsbee is also speaking.

November was a huge month for the bond and mortgage markets, the 10 year note according to Dow Jones Market Data declined 53 bps in the month, from its high on 10.24/23 the yield has fallen 66 bps.

Looking for a good investment? Bill Gross, formerly founder of PIMCO saying mortgage REITs might be the answer. After years of being beaten down as the Fed increased rates, Gross sees value in mortgage REITS, the high-rate mortgages in these funds is going to attract investors as yields decline and REITS are required to disperse 90% of taxable income to investors. He isn’t alone in his view, UBS is on board, “With the Fed’s exit from the MBS market priced in, spreads historically wide, and significant book value damage already in the books, we see the sector set up for period of robust and sustainable total returns.”

At 9:30 am the stock indexes opened flat after the DJIA increased 520 points yesterday. The DJIA opened –6, NASDAQ -44, S&P -8. 10 year note at 9:30 am 4.34% +1 bp. FNMA 6.5 30 year coupon at 9:30 am unchanged from yesterday’s close and -6 bps from 9:30 am yesterday.

Two data points at 9:45 am and 10 am, November ISM manufacturing index expected a 47.5 from 46.7, the index increased to 46.7, still in contraction. At 10 am October construction spending expected +0.3% increased 0.6%, September revised from 0.4% to +0.2%.

Powell scheduled at 11 am and again at 2 pm; what he says at the morning commentary is likely to set the tone for the rest of the session.

Source: TBWS

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