August 25th, 2022 - Market Update
Current position: Carefully Floating
Stocks are slightly higher and Mortgage Bonds are trading near unchanged levels so far this morning.
The second of GDP (Gross Domestic Product) showed that the US fell an annualized 0.6% in Q2, following a 1.6% contraction in Q1.
The figure is unexpectedly better than the first estimate of a 0.9% decline, however, the US still has two consecutive quarters of negative QDP and is still considered a technical recession by many.
The decrease in second-quarter real GDP was revised up 0.3 percentage point from the "advance" estimate, primarily reflecting upward revisions to consumer spending, private inventory investment, and state and local government spending that were partly offset by downward revisions to residential fixed investment, federal government spending, and exports. Imports were also revised lower.
Initial Jobless Claims, which measures individuals filing for unemployment benefits for the first time, decreased by 2,000 last week, and with the 5,000 lower revision to the prior week, claims are now at 245,000. Continuing Claims, which measures those who continue to receive benefits after their initial claims, decreased 19,000 to 1.4M.
Later this afternoon at 1:00pm ET there will be a 7-year Treasury Note Auction, which can impact the markets, depending on the level of demand.
Tomorrow, Jerome Powell will be speaking at 10:00am ET at the Jackson Hole Economic Symposium. Powell has the power in his hands to turn the markets around if he can calm them and lay out a plan to curb inflation.
Mortgage Bonds continue to trade in a wide range between support at 99.28 and overhead resistance at the 50-day Moving Average. There is still a lot of rom to the downside before reaching support, but Bonds do appear to be trying to turn around, especially with the Stochastics being in deep oversold territory.
When a security is in oversold territory and there is a crossover to the upside out of the oversold region, it shows momentum to the upside and often times there can be follow through higher. We saw this back around mid June, which led to a strong rally in Mortgage Bonds. The 10-year is still battling with overhead resistance at 3.10%, which has held the last few days.
If this level is broken, the next ceiling is all the way up at 3.25%. Similar to Mortgage Bonds, yields, which are the inverse of price, are in deep overbought territory and are ripe for a reversal.
As previously mentioned, Powell can change things tomorrow morning, if he is able to calm the markets. Begin the day carefully floating.
Source: MBS Highway
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