The market will be focused on FOMC this week

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Published Date 9/19/2022

The 10 yr. broke above its technical resistance at 3.47%, at 8 am ET 3.50%; MBA prices at 8 am -37 bps from Friday. US stock indexes under pressure, at 8 am DJIA -247, NASNAQ -103, S&P -32. The 10-year yield jumped as much as 6.6 basis points to 3.516%, breaking above a psychological level that held in mid-June. Selling pressure was focused more on the policy sensitive two-year note, with the benchmark rising as much as 7.5 basis points to 3.94%, marking a fresh high since October 2007. The UK markets were closed today to honor Queen Elizabeth.

The dollar can’t be stopped and unless it does its strength will add the woes affecting the world as the dollar is the reserve currency and most international transactions are settled in US dollars; one easily observed impact can be seen in gold’s prices continuing to decline. In times past when inflation began to increase gold went up with it; not now though. Dollar stronger again today, gold down another $10.00 at 8:30 am. Crude oil down again this morning with increasing concerns the global economy is headed toward world-wide recession and again the strong dollar.

Inflation so far has not only not subsided but is increasing around the world. Central banks so far haven’t succeeded in lowering in. The Fed on Wednesday will increase the FF rate by 75 bps, the question is, what will the FOMC policy say about the future of even higher rates? What happens if the Fed does go 100 bps? The 10 yr. will increase 60 to 70 more basis points, the stock market, already declining will crater, and recession won’t be debated anymore. Powell and the Fed should stay at 75 and see what the current interest rate increases have done to the economic outlook. As usual, between the policy statement and Powell’ press conference there will numerous interpretations of Fedspeak that will carry on until late October before the November FOMC meeting.

Wall Street firms beginning to warn of Q3 earnings declines. Both Morgan Stanley’s Michael J. Wilson and Goldman Sachs Group Inc.’s David J. Kostin said headwinds to profitability are building, highlighting tighter monetary policy and pressure on company margins as key concerns.

At 9:30 am the DJIA opened -250, NASDAQ -102, S&P -34. 10 yr. at 9:30 am 3.49% +4 bp. FNMA 5.5 30 yr. coupon at 9:30 am -52 bps from Friday and -42 bp from 9:30 am Friday. (Its price at 10 am -33 bps)

At 10 am Sept NAHB housing market index, expected at 48.0 from 49.0 in August, the index dropped to 46.

Stocks at 10 am improving from the 9:30 am open, MBS prices also better than at 9:30 am. FOMC on Wednesday; US financial markets may hold steady until then. What isn’t likely though is interest rates will decline or stocks launch into strong gains.

This Week’s Economic Calendar:

Monday,

10 am Sept NAHB housing market index (48 from 49, as reported 46)

Tuesday,

FOMC meeting begins

8:30 am August housing starts and permits (starts 1.440 mil from 1.4456 mil; permits 1.621 mil from 1.674 mil)

1 PM $12B 20 yr. bond auction

Wednesday,

7 am weekly MBA mortgage applications

10 am August existing home sales (4.700 mil from 4.81 mil in July)

2 pm FOMC policy statement

2:30 pm Jerome Powell’s press conference

Thursday,

8:30 am weekly jobless claims (220K from 213K the previous week)

Q2 current account deficit (-$259.5B from -$291.4B in Q1)

10 am August leading economic indicators (0.0% from -0.4% in July)

Friday,

9:45 am Sept Flash PMI index (47.0 from 44.6, manufacturing 51.3 from 51.5, services 45.0 from 43.7)

Source: TBWS

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Wymac Capital, Inc.

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