Markets remain calm ahead of end of week data deluge

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Published Date 1/24/2024

Yet one more day of quiet in rate markets, yesterday the 10 year note yield increased 3 bps, this morning the 10 began down 4 bps. The data today includes weekly MBA mortgage applications and FLASH.

Total applications increased 3.7% from the prior week, purchase applications +7.5% from the week before and refinance applications declined 7.0%. The holiday adjusted Refinance Index was 8 percent lower than the same week one year ago. The purchase index was 18 percent lower than the same week one year ago. The refinance share of mortgage activity decreased to 32.7 percent of total applications from 37.5 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 6.3 percent of total applications.

Prior to the 9:30 am open stock indexes were trading higher; at 9:30 am the DJIA opened +125, NASDAQ +133, S&P +28 bp. 10 year at 9:30 am 4.09% -5 bps. FNMA 6.0 30 year coupon at 9:30 am +21 bps and +21 bps from 9:30 am yesterday.

January FLASH PMI at 9:45 am, the composite index increased to 52.3, back above 50, manufacturing also strong, the index 50.3, service sector 52.9. All components beat forecasts adding to the view the economic outlook is looking ok. The reaction took the gains out of treasuries and MBS prices from 9:30 am.

At 1 pm $61B 5 year note auction.

Tomorrow weekly claims, expected at 200K from 187K, the advance Q4 GDP is expected to have declined from 4.9% in Q3 to 2.0%, December durable goods +1.0% from 5.4% in November. After little news about the economy this week the data will increase volatility. Present consensus is the US economy will continue to expand. We are not that certain, consumers are pulling back, high borrowing rate have yet to show up in the data, but the combination will eventually be seen in equity market trading.

It is the data on Friday traders are waiting for. Inflation in the PCE (personal consumption expenditures). Powell loves that data and focuses on the core PCE that excludes food and energy regardless that food prices are still increasing. Month/Month overall PCE expected +0.2% from -0.1% in November, year/year overall 2.7% from 2.6%; the core PCE month/month +0.2% from +0.1%, year/year core 3.0% from 3.2%. The decline in year/year core if it occurs will support the view inflation is slowing.

This morning MBS prices were +21 at 9:30 am, at 10 am -3 bps driven by PMI data at 9:45 am.

Source: TBWS

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