Good morning everyone! Today’s market opened with Mortgage Backed Securities (MBS) down by 20 basis points, not aided by this morning’s retail sales figures. Waller’s prudence, coupled with the retail data, has led to a cautious start to the trading day.
Fed Governor Waller’s Comments Shape Expectations
The financial landscape is buzzing with the latest remarks from Fed Governor Chris Waller. His insights come as a crucial indicator, especially given his permanent voting status. Waller hinted at the Federal Reserve’s growing confidence in nearing the elusive 2% PCE core target. However, he calls for more substantial evidence before advocating for rate cuts. His cautious tone suggests that February’s revisions could sway the Fed’s hand—a lesson learned from the less-than-favorable 2022 revisions.
The Retail Sales Conundrum
Retail sales this morning provided a mixed bag. While the numbers outpaced estimates, reflecting a robust holiday shopping season, the underlying health of these figures is under scrutiny. The surge in credit-based purchases raises questions: Is this a sign of consumer confidence or a precursor to a future economic slowdown as today’s credit becomes tomorrow’s debt?
Rate Cuts and Economic Health
The market has been abuzz with the anticipation of six Federal Reserve rate cuts this year. Waller’s statements, however, throw a shroud over such expectations. He stresses the need for a measured approach, diverging from the rapid rate adjustments seen in the past. Upcoming inflation and employment data, notably the PCE report on January 26th, will likely be key determinants in this complex equation.
Housing and Inflation: What’s Next?
As we look towards the future, updates in the housing sector and the catch-up in rent data could provide a clearer picture. And while Waller acknowledges the economy’s current strength, there are whispers of recession risks that cannot be ignored.
Interest Rates and Bond Auctions
Interest rates have seen a slight downtick, moving from 6.8% to 6.75%, though they remain higher than last year’s figures. Today at 1:00 PM Eastern, the market will watch the 20-year bond auction, followed by housing starts and permits data, and closing the week with existing home sales updates.
Technical Analysis: Understanding the Chart Damage
A glance at the charts shows the impact of Waller’s comments and the retail sales data. MBS prices have slipped, causing yields to rise above the 200-day moving average—a technical level closely watched by market participants. Yesterday’s alert for locking in rates seems well-timed as we now face resistance at the 50-day moving average around 4.20%.
Strategic Considerations for Investors
Our strategy moving forward will hinge on the day’s closing figures. If MBS remain below the 25-day and the 10-year Treasury stays above the 200-day moving average at closing, it may be time to consider locking in rates. Investors should remain vigilant, watching for any potential reversals that could impact this strategy.
With the economic winds blowing uncertainly, the advice for today is caution. The market is delicately poised, and today’s decisions will need to be as informed as they are nimble. Stay tuned for updates, and ensure you’re ready to pivot as the market dictates.
