Markets will be focused on inflation data this week

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Published Date 1/9/2023

At 8:30 am ET this morning the 10 yr note unchanged at 3.57%, overnight the note increased to 3.61%. MBS prices at 9 am +20 bps from Friday’s close. There isn’t much data this week but what there is doesn’t happen until Thursday with Dec CPI and Friday Dec import and export prices. Treasury will auction 3s, 10s, and 30s Tuesday, Wednesday, and Thursday; the 10 yr on Wednesday is key.

A couple of Fed speakers today; Atlanta President Raphael Bostic is due to speak at 12:30 pm, as is San Francisco Fed President Mary Daly in a separate event.

Last Friday’s BLS employment data pushed the 10 yr note down 15 bps and MBS prices +67 bps. Decline in average hourly earnings m/m and yr/yr. Dec employment rate was thought to be 3.7% unchanged from Nov, as released unemployment declined to 3.5%. Non-farm jobs increased 233K against 200K expected; private jobs +220K better than 175K expected. Average hourly earnings estimates +0.4% m/m dropped to +0.3%, yr/yr 4.6% with estimates at 5.0%. The labor participation rate at 62.3% from 62.2%. Wage inflation slowing, unemployment declining and jobs stronger than expected. The unemployment rate the lowest since 1969.

Employment data positive for lower rates, it wasn’t until the Dec ISM services index was released at 10 am that the strong rally in treasures really took off. The service sector has been the strongest component in the economy but for the first time since the pandemic the index fell into contraction. Dec ISM services sector index expected at 55.0 from 56.5; the index hit at 49.6, a contraction, employment 49.8 from 51.5, prices paid 67.6 from 70.0, new orders 45.2 from 56.0.

Last week Amazon announced 11K job cuts, a huge number but just 1.0% of its payroll. Over the weekend Goldman Sachs is embarking on one of its biggest job reductions, 3,200.

At 9:30 am the DJIA opened +90, NASDAQ +103, S&P +22. 10 yr note 3.58% +2 bps. FNMA 5.5 30 yr coupon at 9:30 am +17 bps from Friday’s close and +69 bps from 9:30 am Friday.

At 12:30 pm San Francisco Fed President Mary Daly joins Nick Timiraos, The Wall Street Journal’s chief economics correspondent, to discuss her outlook for the economy, inflation and interest rates in 2023.

The dollar is continuing its decline after months of increasing.

Near term technicals on the 10 yr and MBSs are positive now. Looking for the 10 yr note to work its way to 3.40% where there is a lot of resistance.

This Week’s Economic Calendar:

Tuesday,

6 am Dec NFIB small business optimism (91.3 from 91.9)

9 am Chairman Powell At the Sveriges Riksbank International Symposium on Central Bank Independence, Stockholm, Sweden

1 pm 3 yr note auction

Wednesday,

7 am weekly MBA mortgage apps

1 pm 10 yr note auction

Thursday,

8:30 am Dec CPI (0.0% from +0.1%, yr/yr +6.6% from 7.1%; ex food and energy +0.3% from +0.2%, yr/yr 5.7% from 6.0%)

Weekly jobless claims (215K from 204K the prior week)

1 pm 30 yr bond auction

Friday,

8:30 am Dec import and export prices (imports -0.9% from -0.6%; export prices -0.7% from -0.3%.

10 am U. of Michigan consumer sentiment index (60.0 from 59.7)

Source: TBWS

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