Published Date 9/9/2022
At 8 am ET the 10 at 3.25% -7 bps and FNMA 5.0 30 yr. coupon +30 bps, yesterday the coupon was down 33 bps. Marking time ahead of inflation reports next Tuesday and Wednesday. Yesterday for most of the session the 10 and MBS prices were quiet with not much change until about 3 pm when the 10 yr. note after sitting at 3.27% unchanged all session began to increase, and MBS prices declined. Between 3 pm and 4 pm the 10 increased 5 bps and MBS prices declined 15 bps. Unlikely we will see any significant changes until at least next Tuesday.
Yesterday the ECB increased its rate by 75 bps, the most in its history. Today the dollar weakened after its recent historic increase against most major currencies. Buying the dollar (selling other currencies) has been one of best trades this year. The dollar’s drop offers a reprieve to currencies that have been pummeled by its recent strength. The dollar’s surge had rattled policy makers and prompted authorities in South Korea and India to intervene to curb the risk of capital outflows. There is a degree of dollar bids having been dominant for a while, and some are squaring up positions as other central banks other than the Fed hike aggressively to tame inflation. Higher-for-longer US interest rates and fears of a global recession sent investors flocking to the greenback. The dollar index has gained more than 10% this year. “With FOMC Chair Jerome Powell not adding to the Fed’s hawkishness, the ECB meeting the market’s expectations and Japan’s MoF warning of intervention against further yen weakness, the dollar has lost reasons for the markets to drive it higher for now,” said David Forrester, strategist at Credit Agricole CIB in Hong Kong. Is this the beginning of a dollar retreat, or just wind after the ECB increased its rates yesterday?
The Bank of England was set to increase rates at its meeting next Thursday but will delay its meeting a week to allow a period of mourning after the death of Queen Elizabeth II. Like here in the US, investors are divided about whether the BOE will raise its benchmark lending rate a half-point at the next meeting or three-quarters of a point from the current 1.75%. With inflation at a 40-year high of 10.1%, pressure is building on policy makers to act forcefully, just like the Fed and now the ECB.
The soft dollar today pushing crude oil and gold higher; gold has been pummeled the last three months as the dollar continued to gain. If the dollar does back down then gold prices will benefit.
There are no economic releases today that will move markets, the only scheduled data, preliminary wholesale inventories for July, expected at +0.8% from Junes +1.8% gain.
At 9:30 am the DJIA opened +157, NASDAQ +101, S&P +26. 10 yr. note 3.26% -7 bps. FNMA 5.0 30 yr. coupon +11 bps from yesterday’s close and +7 bps from 9:30 am yesterday.
Source: TBWS
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