Market Feeling Better This Morning After Rough Week

Market Feeling Better This Morning After Rough Week

• The week opens with the market in a better mood than when we left it on Friday after the disappointing inflation read from the Personal Income and Spending Report. Both stocks and bonds are finding some green this morning with nothing much to account for it other than perhaps investors got too negative last week. Currently, the 10yr is yielding 3.90%, up 8/32nds in price, and the 2yr is at 4.78%, up 2/32nds in price.

• One of the last major reports for January is out this morning with the preliminary read on durable goods orders and the overall fell more than expected dipping -4.5% vs. -4.0% and 5.1% in December. A reversal in large aircraft orders was mostly responsible for the negative flip in January as the orders ex-transportation was a solid 0.7% gain vs. 0.1% expected and -0.4% in December. Orders non-defense ex-air (a proxy for business investment) were even better at 0.8% vs. 0.0% expected and -0.3% in December. Shipments of those business investments rose 1.1% vs. 0.2% and -0.6% in December. This figure is used in GDP calculations for business investment so it’s a sign that despite higher rates businesses continue to invest and add to equipment purchases.

• We’ll get a first look at February activity this week with tomorrow’s release of the ISM Manufacturing Index which is expected to increase slightly to 48.0 vs. 47.4. So, still in contractionary territory but slightly improving. The ISM Services Index is due on Friday and is expected slip just a bit after a solid pop in January, 54.6 expected vs. 55.2 the prior month. The service-side of the economy has been leading the hotter inflation reads of late and the solid activity in the sector certainly coincides with that.

• Consumer confidence for February is due tomorrow and is expected to improve from 107.1 to 108.5 while the S&P CoreLogic 20-City Home Price Series for December is also due on Tuesday. The home index is expected to show the sixth straight monthly decline in prices, this time falling -0.40% vs. -0.54% the prior month. The YoY gain is expected to dip to 4.70% vs. 6.77% in November. The YoY rate peaked at 21.2% in April, so the impact of higher mortgage rates, limited inventory, and those previous price gains continue to provide severe headwinds to the housing market, which perversely is what the Fed is after.

• You may think that with Friday being March 3 we’ll get the February jobs report, but you would be wrong. The actual rule from the BLS on release dates is they fall on the fourth week after the week that contains the 12th, ^, which is the survey week. As February has only 28 days that makes next week the fourth week, so we won’t see the payroll numbers until March 10^th. So, when your clients ask, “where are the jobs numbers?” you can give them that little factoid.

• Expectations for February jobs is for an increase of 200 thousand after January’s surprising 517 thousand gain, so a return to the prior trend of slowing but still solid job gains. The unemployment rate is expected to be unchanged at 3.4%.

• Fed speak will likely garner some headlines this week coming on the heels of the hotter-than-expected inflation read from the PCE series of the Personal Income and Spending Report. Seven different Fed speakers (but not Powell) will address the topic of rates and the economic outlook so expect more thoughts on how high the terminal rate will need to be,  and for how long. The market continues to align with the Fed’s view of a higher terminal and for longer time (see graph below).

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  Agency Indications — FNMA / FHLMC Callable Rates

  Maturity (yrs)	2 Year	3 Year	4 Year	5 Year	10 Year	15 Year
  0.25	5.63	5.40	5.32	5.30	5.29	5.75
  0.50	5.61	5.37	5.26	5.18	5.15	5.64
  1.00	5.61	5.34	5.23	5.14	5.06	5.51
  2.00	–	5.33	5.17	5.06	4.94	NA
  3.00	–	–	–	5.02	4.88	NA
  4.00	–	–	–	–	4.83	NA
  5.00	–	–	–	–	4.80	NA
  10.00	–	–	–	–	–	NA