Expect a lot of volatility this week

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Published Date 12/11/2023

Ahead of a very busy week markets opened higher, the 10 year note +4 bps to 4.27% at 8:30 am ET, MBS prices -13 bps.

The bond market faces a lot this week, inflation data with November CPI and PPI on Tuesday and Wednesday. FOMC policy statement and Powell’s press conference on Wednesay headline the issues. Weekly jobless claims on Thursday another key as claims is a window to employment, whether increasing or weakening as data recently is indicating employers are not hiring at the levels of a few months ago.

No rate increases now and likely the Fed is finished, but the expected cuts that escalated recently to four cuts next year may be too optimistic. The FOMC and Powell will continue to push that the Fed remains diligent and prepared to respond if inflation turns higher or the employment sector increases. Both CPI and PPI forecasts are expected to confirm inflation has slowed, confirming what markets have already discounted to some extent. Last Friday’s jobs report showed the job market created 199K jobs, the forecasts were for 180K; the unemployment rate expected unchanged at 3.9% declined to 3.7%.

The last three months there has been a continual debate between bulls and bears whether the economy will slow into a hard or soft landing, you could fill a book with quotes from pundits and economists pushing back and forth on the outlook. Even the Fed is into it, Powell thinks the Fed has avoided a hard landing but couches that view with uncertainty. Presently with markets convinced the Fed and other central banks are finished increasing rates, with that as a forecast according to a new Bloomberg survey a median of 518 respondents expect the S&P 500 to climb to 4,808 points next year (4600 now) — topping its previous closing peak of 4,797 hit in January 2022 — and the 10-year Treasury yield to drop to 3.8% (4.27% now). More than two thirds of respondents indicated they don’t see a hard economic landing as the top risk to markets and majority expects Federal Reserve rate cuts to begin before July.

At 9:30 am the DJIA opened +69, NASDAQ -69, S&P -7. 10 year 4.26% +3 bps. FNMA 6.5 30 year coupon at 9:30 am -12 bps from Friday’s close and +2 bps from 9:30 am Friday.

At 11:30 am Treasury will auction $50B of 3 year notes; at 1 pm $37B of 10s.

Deflation in China? November CPI was down 0.5% month/month and year/year, representing the sharpest year/year decrease in three years.

This Week’s Economic Calendar:

Monday,

11:30 am $50B 3 year note auction

1 pm $37B 10 year note auction

Tuesday,

6 am Nov NFOB small business optimism index (90.9 from 90.7)

8:30 am Nov CPI (month/month 0.0%, year/year +3.1% from 3.0%; ex food and energy +0.3% from +0.2%, year/year +4.0% unch)

10 am FOMC meeting begins

1 pm $21B 30 year bond auction

2 pm Nov treasury budget statement

Wednesday,

7 am weekly MBA mortgage applications

8:30 am November PPI (month/month +0.1% from -0.5%, year/year +1.0% from +1.3%; ex food and energy month/month +0.2% from 0.0%, year/year +2.2% from 2.4%)

2 pm FOMC policy statement

2:30 pm Powell’s press conference

Thursday,

8:30 am weekly jobless claims (223K from 220K)

Nov retail sales (-0.1%, ex vehicles -0.1%)

Nov import and export prices (imports -0.7%, exports -1.0%)

Friday,

8:30 am Dec Empire Sate manufacturing index (+3.7 from 9.1)

9:15 am Nov industrial production (+0.3% from -0.6%)

Source: TBWS

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