September 8th, 2022 - Market Update
Current position: Locking Bias.
Stocks and Mortgage Bonds are both lower to start the day.
Fed Chair Jerome Powell continued to talk tough on inflation today, saying that it is still far too high and he is committed to do the job of reducing it. The Bond market is reacting negatively, which can come as a surprise - If the Fed sounds too worried that they so far behind the curve, if can scare the markets.
On the other hand, if they Fed were to talk like they have the job in hand and have it under control, the markets could then look forward to lower inflation.
We are seeing the previous currently. The European Central Bank hiked rates 75bp, meaning that their Fed Funds Rate is finally positive. They have a lot of heavy lifting to do themselves and are way behind the curve. This is pressuring European yields higher, and in turn, having an impact on our yields.
Initial Jobless Claims, which measures individuals filing for unemployment benefits for the first time, decreased by 6,000 last week to 222,000, which is the lowest level since May. Continuing Claims, which measures those who continue to receive benefits after their initial claims, increased 36,000 to 1.473M, the highest level since April.
Bottom line, it appears that layoffs and in turn initial claims have been slowing, but those that have been laid off are remaining that way and are continuing to receive benefits. It should also be noted that this includes the labor day holiday, and often times holiday weeks are not as reliable, so we will play close attention to next week's figure.
Mortgage Bonds tried to break above the rising trend line this morning, but were unable to do so. In the absence of any news, it will be difficult for Bonds to get above this level, and if they are turned lower, they will likely test support at 99.64.
Be cautious and begin the day with a Locking Bias.
Source: MBS Highway
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