Markets get a boost on low inflation data out of England

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Published Date 12/20/2023

This morning rates began lower with the 10 year note down 5 bps to 3.88% and MBS prices starting +14 bps from yesterday. The improvement comes on a couple of news stories; the UK reported its CPI declined from 4.6% in October to 3.9% a two-year low. Secondly Iran-backed Houthi rebels in Yemen have been attacking oil tankers in the Red Sea a vital waterway for oil shipments. The conflict is escalating with the US and allies talking tough about retaliating against the Houthis militarily. The risk of any hard retaliation is high with tensions already at high levels in the region. Between the Israeli conflict, increased attacks from Hezbollah, it is pushing some safety moves to treasuries this morning.

Weekly MBA mortgage applications last week declined; the composite declined 1.5% from the prior week’s gain of 7.4%; purchase apps -0.6% from +3.5% and re-finance -1.8% after increasing 19.4%. There isn’t anything significant in the decline given the holidays, always slow. Mortgage applications last week, the first decline since the end of October. Once we get past the holidays with mortgage rates declining the mortgage business will pick up; those that resisted putting their homes on the market will subside while buyers will increase. Expect 2024 to be the antithesis of what has been the case this year.

At 9:30 am the DJIA opened -76, NASDAQ -25, S&P -9. 10 year 3.89% -4 bps. FNMA 6.0 30 year coupon at 9:30 am +7 bps from yesterday’s close and +15 bp from 9:30 am yesterday.

At 10 am November existing home sales were thought to be 3.775 million from 3.79 million in October increased to 3.82 million, month/month +0.8%, year/year -7.3%.

Also at 10 am, the Conference Board released consumer confidence data; the headline expected at 103.4 from 102.0 in November. The index increased to 110.7, November revised lower to 101.0 from 102.0. The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—rose to 148.5 from 136.5 last month. The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—leapt to 85.6 in December, up from its downwardly revised reading of 77.4 in November. This sharp increase brings expectations back to the levels of optimism last seen in July of this year.

There was no initial reaction to the strong consumer confidence or November existing home sales.

Source: TBWS

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