As we enter a week filled with critical economic data and Fed commentary, let’s unravel the mixed signals from the financial landscape. Today, we focus on mortgage-backed securities, Treasury yields, and the upcoming PCE report’s anticipation.
Dovish Comments vs. Reality Checks from Fed Officials
The market witnessed some dovish comments influencing mortgage-backed securities and Treasury yields. However, there’s a twist in the tale. John Williams attempted to recalibrate expectations on Friday, and now we’re hearing echoes of caution from Goolsbee and Mester. Although Goolsbee won’t be voting in 2024, his opinions hold weight. Mester, set to be a voting member in 2024, suggests the market might be overly optimistic about imminent Fed rate cuts.
The PCE Number: A Key Focus This Week
All eyes are on November’s Personal Consumption Expenditures (PCE) data, eagerly awaited despite its delayed release. Market hopes are pinned on a tenth reduction in both headline and core PCE, potentially bringing the headline number below 3% for the first time in over a year. This would be a significant milestone, potentially impacting market sentiment.
Housing Data: A Week of Revelations
This week is also crucial for housing data, with reports on new construction and existing and new home sales. These insights will offer a clearer picture of the housing market’s current state, a key sector in the broader economic landscape.
Analyzing the Charts: MBS and the 10-Year Treasury
Mortgage-Backed Securities (MBS) is currently down by three basis points; MBS is showing signs of resistance at the upper bound of a rising trendline. While there’s support at the Fibonacci level, a break below could signal further downside risk.
The 10-year Treasury Yield is below 4% at 3.95%; the yield has pleasingly broken beneath its 200-day moving average. We’re in a range with the 200-day mark serving as resistance and support, potentially around 3.76%.
Strategy for the Week: Float with Caution
Given the current market dynamics, the prudent approach is to begin the week floating, keeping a close eye on developments. If market conditions shift, be ready to adjust strategies accordingly.
This week presents a blend of cautious optimism and vigilance. Each element could sway market directions from Fed governors’ tempered tones to pivotal housing data and the much-anticipated PCE report. Staying informed and agile will be vital to navigating these potentially turbulent financial waters.
