After solid 2 yr and 5 yr auctions the past two days, today’s 7 yr was pretty good. The yield of 1.769% was about spot on with the when issued. The bid to cover of 2.36 was just above the one yr average of 2.28. Lastly, the level of direct and indirect bidders was the best since January 2018, leaving dealers with the least amount since then. Bottom line, the back …
Home sales
Pending home sales fell 3.8% m/o/m in December, worse than the estimate of down a slight .4%. All four regions saw m/o/m declines but there was an outsized decline out West with its 10% fall. The NAR is blaming the lack of inventory but we can’t discount also the spike in home prices that in turn dissuades some possible buyers. And now we have the rise in mortgage …
Claims/Durable Goods/GDP
Initial jobless claims after last week’s spike to 290k (revised from 286k), moderated back to 260k vs the estimate of 265k. Smoothing this out has the 4 week average at 247k vs 232k last week. Delayed by a week, continuing claims rose 51k after last week’s 69k increase and vs the January 1 print of down 198k. It stands at 1.675mm which is about where it was in January …
Double Tightening 2.0 coming our way
While noncommittal on timing and pace, the most noteworthy thing yesterday from Powell was his expression that they will be double tightening monetary policy again. Again, because they did it in 2018 (see chart) and we know how that ended. So, ending QE begins the process of tightening financial conditions and QT then intensifies it as after all, QE was meant to …
Post Powell presser
Message from Powell: “We’re winging it. Wish us luck.” The yield curve went from slightly steepening initially to the FOMC statement to now flattening post press conference with the 2s/10s narrower by 4 bps to 71 bps, the tightest spread since November 2020. The 5s/30s is tighter by 6 bps to 49.5 bps, last seen in January 2019. …
The path to drain the punch bowl of grain alcohol
As boldness and monetary policy symmetry (hiking as quickly as they cut) are just not in the DNA of the members of the Federal Reserve, they have decided not to surprise the markets, repeating that QE will end in March (thus they are still buying assets by another $30b in February which “will continue to foster smooth market functioning and accommodative financial …
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The BoC punts
We have tough acting central bankers in many emerging markets because of their historical experience with inflation and then we have the crop of developed world central bankers that are so quick to ease and so slow to tighten. Who knows if this is a precursor ahead of what the Fed will do where some think they will at some point hike 50 bps at one meeting (I don’t …
New home sales
New home sales in December totaled 811k, 50k more than expected but partially offset by a downward revision of 19k to 725k. As this number is volatile each month, we’ll smooth it out to see a 3 month average of 728k vs the 6 month average of 714k and the 2021 average of 765k. The increase was driven by ‘homes not started.’ The availability of labor and materials will …
Net, net, should lead to lift in Q4 GDP est
The US trade deficit for goods only in December rose to a record high of $101b, $5b more than expected. The 1.4% m/o/m increase in exports driven by auto’s and consumer goods was offset by a 2% rise in imports, also led by our desire for auto’s and consumer goods. This will trim Q4 GDP estimates but that will be more than offset by the wholesale inventory data also …
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The 3 doors to choose from
Chair Powell really has three doors to choose from today. Door #1, confirm the markets expectations of 4 rate hikes this year with the process beginning in March when QE ends. Right now the fed funds futures are pricing in just under a 100% chance of 4 this year. The December contract is priced as of this writing at 1.025% and the January 2023 is at 1.08% vs the …
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor.