Stocks are higher and Mortgage Bonds are lower to start the day. 10-year yields are moving higher, up 5bp to 4.43%.
Pressuring yields higher were reports out of the UK, showing that their CPI inflation rose more than expected. As a result, global yields are being pressured higher.
Nvidia’s earnings will be in focus after the bell – They have been the leader in the AI craze and as we have seen Stock prices rise, a lot of that money comes from the Bond market. It’s been a “risk on” trade, which means things like Stocks and Crypto have been in favor. Often times Bonds suffer during those times on the opposite end of the metaphorical seesaw. Nvidia the largest Stock in the S&P 500 and NASDAQ 100 and they have some high expectations to meet. If they beat estimates again, it could help the risk on trade and hurt Bonds…but the opposite is also likely true.
During Powell’s last speech, he said that the Fed is seeing strength in the economy and they are not getting any signals that they need to be in a hurry to lower rates…but the consumer is certainly not feeling that way.
The New York Fed’s survey of consumer finances showed that for the second month in a row, the mean probability of the household sector not being able to stay current on their debt obligations was around 14%, which hasn’t happened since March-April 2020. Almost 40% of those in the survey claimed that their financial situation today is worse than it was a year ago, despite the ripping stock market and ongoing home price appreciation. That is close to double the 23% share saying their financial position is stronger. The 90-day delinquency rate for auto balances is at the highest level in almost fifteen years, while seriously delinquent credit cards is at the highest level in 14 years.
Looking at earnings - Lowe’s continues to struggle to move big-ticket durable goods, and Walmart’s earnings report revealed 75% of its market share gain came from households making over $100k per year. This is typically a bellwether countercyclical stock and shows that even wealthier consumers are “trading down” to shop at Walmart. This doesn’t sound like the consumer is feeling good, the economy is ripping, or that inflation is a big concern.
Mortgage Applications
The Mortgage Bankers Association (MBA) reported that mortgage rates remained around 6 7/8% and were 3/4% lower than this time last year.
Purchase applications rose 2% last week and are up 1% year over year. Refinances rose 2% and are now up 43% from this time last year.
Technical Analysis
Mortgage Bonds are still in a wide range between overhead resistance at the 200-day Moving Average and support at 100.43, but Bonds are now testing support. It will be important for Bonds to remain above this level, as they have not closed beneath it yet in this downturn, but if they were to, lookout below.
The 10-year is right in the middle of the range between resistance at 4.50% and support at 4.33%, which was tested and held yesterday. While in such a wide range yields are susceptible to big swings, which we must remain cautious of.
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