Market Focus: Durable Goods Orders, Fed, and Coronavirus

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Published Date 1/27/2021

Stock indexes under pressure this morning, falling amid concerns about Covid-19 vaccine distribution and as investors awaited a bumper day of earnings reports and Boeing reporting its largest annual loss. Interest rates starting better with the 10 yr at 1.02% in what will be a technical test of the pivotal 1.00% after increasing to 1.16% two weeks ago.

Weekly MBA mortgage applications down 4.1% from the previous week; purchase apps -4.0% while refinance apps -5.0%.

December durable goods orders excepted to have increased 1.0% were soft, +0.2%; Nov revised from +0.9% to 1.2%. Excluding transportation, orders were better at +0.7%, with forecasts of 0.5% and November revised from +0.4% to +0.8%. Core capital goods were strong at +0.6%, with estimates at 0.4%, and Nov revised from 04% to 1.0%. Taken the two months together, orders remain quite strong.

The FOMC and Jerome Powell’s press conference defines the day today. We expect the policy statement will add additional support that the Fed will keep rates low, both at the short end and the long end of the curve. The concern will show up in the statement and Powell’s comments over the impact of COVID and the reality that many small businesses are done. Expect Powell to field questions about some of the executive orders recently signed by Pres. Biden; closing the Keystone pipeline and eliminating fracking on inflation and unemployment implications.

At 9:30 am ET, the DJIA opened -333, NASDAQ -207, S&P -52. The 10 yr at 9:30 am ET 1.01% and testing the key resistance a 1.00%. FNMA 2.0 30 yr coupon at 9:30 am ET+11 bps from yesterday’s close and +27 bps from 9:30 am yesterday.

Interest rate markets will trade in a very narrow range now until mid-afternoon when FOMC and Powell’s press conference. The equity markets looking like the over-extended rally may be easing.

The key technical resistance for the 10 yr at 0.97%, the level we believe will contain additional selling.

Source: TBWS

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