Markets will be focused on consumer data and inflation ahead of the holidays

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Published Date 12/19/2022

The 10 yr. note began higher this morning at 3.57% +8 bps after increasing 3 bps last Friday. MBSs -48 bps from Friday, stock indexes slightly lower. This week begins the last two weeks of the year, always funky with end of year positioning and thin trading. This week’s economic data primarily on the housing sector. Friday markets get the next inflation read with Nov PCE; forecasts are for a decline in Powell’s favorite inflation report.

Last week markets were rocked when Mr. Powell came down hard against the view the Fed was about done increasing rates. Powell made it clear that the Fed would not let up until inflation is back toward 2.0%, even at the risk if economic slowing. This morning BlackRock, the world’s largest asset manager, is saying markets are too relaxed about inflation slowing. BlackRock agrees inflation is slowing faster than it expected but is recommending being underweight on government bonds in favor of inflation-linked debt and investment-grade credit next year. Scott Thiel, its chief fixed-income strategist, sees US inflation only easing to 3.50% toward the end of 2023 amid persistent labor shortages, higher wages and falling inventories. If you want an outlook that matches your personal opinion there is one out there that will fit your comfort zone.

The yield curve is fully priced for two more 25 bp increases in the FF rate. The 10 yr. note has huge technical support at 3.40%, the level that we believe will hold any improvements.

At 9:30 am ET the DJIA opened +5, NASDAQ +8, S&P +2. 10 yr. 3.57% +8 bps. FNMA 5.5 30 yr. coupon at 9:30 am -44 bps from Friday and -13 bps from 9:30 am Friday.

At 10 am Dec NAHB housing market index expected at 34 from 33 in Nov, as reported the index fell to 31 (the high in January 84)

This Week’s Calendar:

• Today,

10 am Dec NAHB housing market index (34 from 33, as reported 31)

• Tuesday,

8:30 am Nov housing starts and permits (starts 1.40 mil from 1.425 mil; permits 1.495 mil from 1.526 mil)

• Wednesday,

7 am weekly MBA mortgage applications

10 am Dec consumer confidence index (101.0 from 100.2)

Nov existing home sales (4.200 mi from 4.43 mil)

1 pm 20 yr. bond auction

• Thursday,

8:30 am weekly jobless claims (225K from 211K)

Q3 final GDP (+2.9%, personal consumption annual rate 1.7%)

10 am Nov leading indicators (-0.5%)

• Friday,

8:30 am personal income, spending and PCE (income +0.3% from +0.7%, spending +0.2% from +0.8%; PCE m/m +0.2% from +0.3%, yr./yr. 5.5% from 6.0%; core PCE m/m +0.2% from +0.2%, yr./yr. +4.6% from 5.0%)

Nov durable goods orders (-0.7%, ex transportation 0.0%)

10 am Nov new home sales (600K)

U. of Michigan consumer sentiment (59.1 unch)

Source: TBWS

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Wymac Capital, Inc.

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Wymac Capital, Inc.

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