Published Date 9/23/2022
The 10 yr. note increased 18 bps, MBS prices down 100 bps. After the Fed increase on Wednesday central banks around the world also increased rates, one of the most prolific and wide range increases in many years. Since the beginning of August, the 10 yield has increased 1.25%, since the beginning of Sept up 66 bps.
After the FOMC and chairman Powell on Wednesday, the extremely tough talk about curtailing inflation, the outlook now is another 125 bps from the Fed this year. Another 75 bps in Nov and 50 bps more in Dec. The economy will suffer, a recession is more plausible now than on last Tuesday. The European Central Bank, Bank of Japan and Bank of England all set to move rates higher over the next month.
Yesterday for the first time in 24 years the Bank of Japan intervened in the currency markets buying yen. The yen has weakened significantly over the last few months as have most currencies against the dollar. Treasury commented today that it understood why the Bank of Japan had to step in to slow the yen’s decline.
Overnight the 10 yr. note increased from 3.715 yesterday to 3.83%, by 9 am this morning back to unchanged from yesterday. MBS prices started the day -45 bps, by 9 am +13 bps from yesterday. Markets in the very near term were extremely over-extended; without the global increases yesterday rate markets would have held Wednesday’s levels.
At 9:30 am the DJIA opened -331, NASDAQ -134, S&P -47. 10 yr. at 9:30 am 3.71% unchanged. FNMA 5.5 30 yr. coupon -3 bps and -62 bp from 9:30 am yesterday.
At 9:45 am the Sept PMI FLASH composite index was expected at 47.0 as released 49.3; the manufacturing index 51.8 on forecasts of 51.3, the service sector index was expected at 45.0, as reported 49.2.
More global data:
Australia’s flash September Manufacturing PMI ticked up to 53.9 from 53.8 and flash Services PMI rose to 50.4 from 50.2.
New Zealand’s Q3 Westpac Consumer Sentiment rose to 87.6 from 78.7.
Eurozone’s flash September Manufacturing PMI fell to 48.5 from 49.6 (expected 48.7) and flash Services PMI fell to 48.9 from 49.8 (expected 49.0).
Germany’s flash September Manufacturing PMI fell to 48.3 from 49.1, as expected, and flash Services PMI fell to 45.4 from 47.7 (expected 47.2).
U.K.’s flash September Manufacturing PMI rose to 48.5 from 47.3 (expected 47.5) and flash Services PMI fell to 49.2 from 50.9 (expected 50.0). September GfK Consumer Confidence fell to -49 from -44 (expected -42) and September CBI Distributive Trades Survey fell to -20 from 37 (expected 10).
France’s flash September Manufacturing PMI fell to 47.8 from 50.6 (expected 49.8) and flash Services PMI rose to 53.0 from 51.2 (expected 50.5).
Crude oil falling as the economic outlook is worsening. Gold continues to decline as the dollar remains strong. On gold, if you have seen all the ads and commercials from gold sellers referring to it as an inflation hedge, while that has been true in past inflation spikes, the decline in gold is because of the dollar’s strength. Gold prices are set in dollar terms globally, strong dollar keeps gold from improving.
Source: TBWS
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