Published Date 6/24/2022
At 6 am ET this morning the 10 yr. note traded down 4 bps to 3.05%, by 8 am at 3.13% +4 bps, at 9 am 3.11% +2 bp. MBSs opened down 20 bps but improved to -16 bps at 9 am. Stock indexes continue to gain this morning, at 10 am the DJIA +202.
Financial markets leaning toward the end of higher rates and inflation next year; a pullback in commodities and the prospect of easing price pressures prompted traders to price in a peak for Fed rate hikes by the end of the year. If the Fed does what is currently expected, by the end of this year the FF rates will have increased 350 bps; 25 bps in April, 75 at the June meeting, 75 bps expected at the July meeting, 50 bps at the Sept, November, and December meetings. Yesterday Jerome Powell added additional emphasis that the Fed is serious about ending inflation even if it means an economic recession. Traders are starting to price out any Fed action on rates beyond the December meeting, scaling back the additional tightening they expect and flirting with the possibility of cuts by in 2023. In the meantime, investors continued to yank cash from equity funds, which recorded their biggest outflows in nine weeks amid rising recession risk. About $16.8 billion exited global stock funds in the week through June 22, with US equities seeing their first outflow in seven weeks at $17.4 billion, Bank of America Corp. said, citing EPFR Global data.
The decline in commodity prices adding to the idea inflation may have topped. Raw materials prices have contributed to a moderation in market-based measures of inflation expectations. Oil headed for its first back-to-back weekly loss since early April amid a broader selloff in commodities markets. Lumber prices falling. Copper slipping, aluminum, gold, silver, tin, nickel, all lower today. Next Thursday, the May PCE will be reported, if it indicates inflation has ebbed markets will see it as confirmation inflation increases have flat-lined at present levels, leading traders and investors to expect the Fed may reduce its present plans for tightening. Inflation since March hasn’t declined, but not increasing. Commodities sliding on recession concerns.
At 9:30 am the DJIA opened +252, NASDAQ +118, S&P +35. 10 yr. at 9:30 am 3.10% +1 bp. FNMA 5.0 30 yr. coupon -12 bps and -13 bps from 9:30 am yesterday.
At 10 am May new home sales, expected at 587K from 591K in April, sales reported sales increased to 696K.
Also, at 10 am the final June U. of Michigan consumer sentiment index, expected unchanged from mid-month at 50.2, reported at 50.0.
Yesterday the 10 yr. tested and rejected 3.00%; not expecting the 10 will fall below 3.00% if the Fed is expected to push the FF rate higher at levels currently expected.
Source: TBWS
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