Markets start the day with little volatility

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Published Date 3/13/2024

Yesterday in reaction to the slightly higher inflation reported on the February CPI the 10 year note yield increased 6 bps, at 8:30 am ET this morning up another 3 bps to 4.19%. MBS prices yesterday down 15 bps, early this morning down another 5 bps.

Inflation inched higher yesterday but in a mixed picture, this morning the thoughts remain that it didn’t change the idea the Fed will begin lowering rates at the June FOMC meeting, that is two meeting from next Wednesday’s FOMC meeting. Powell continued to stress recently that he wants to see a pattern of continual inflation declines, he didn’t get that yesterday. In futures trading this morning it’s a 70% chance of a June rate cut, don’t make much out of it though, the odds swing with every key inflation reading. Next week’s FOMC meeting will have the Fed’s quarterly outlook for employment, growth and inflation extending out two years.

In case you missed it, yesterday February CPI was a little hot. The Index increased 0.4% in February, faster than the 0.3% rise in January and 3.2% higher than a year ago, according to the Bureau of Labor Statistics. The core CPI, which excludes food and energy components, also increased 0.4%, matching the January pace. The annual change fell to 3.8%, from 3.9%. Housing price increases also showed some improvement but remained too high in February, at 0.4%, versus a 0.6% rise in January. Goods prices turned positive after declining for eight straight months. Volatile energy prices jumped 2.3% last month, driven by a 3.8% surge in gasoline prices.

This morning the only news was better weekly MBA mortgage applications. The second week in a row application increased. Overall apps increased 7.1% after increasing 9.7% the week before, purchase apps +4.7% from +10.6%, refinance apps +12.2% from +8.1%.

There are no first-tier economic releases today. Treasury will finish this week’s borrowing with $22B of 30 year bonds. Yesterday’s 10 year note auction didn’t see strong demand, the 30 is also likely to meet with mediocre interest.

A curious comment from an ECB member today, saying that the central bank will need to lower borrowing costs without having certainty that inflation will return to target.

At 9:30 am the DJIA opened +78, NASDAQ -44, S&P -1. 10 year note +2 bps to 4.18%. FNMA 6.0 30 year coupon at 9:30 am -2 bps from yesterday’s close and -8 bps from 9:30 am yesterday.

Today with no key data rate markets are likely to be quiet. Tomorrow another inflation release, February PPI. The present estimates month/month +0.3% unchanged from January, year/year +1.2% from +0.9%; core month/month +0.2% from +0.5% in January.

Source: TBWS

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