Buenos dias a todos. I had to get that out since I am sending this report from Madrid, Spain. I hope everyone is enjoying the rollercoaster ride bonds have been on as it will likely continue for a while. We are certainly in one of those long drops with the occasional hump to keep you guessing what’s next.
I am sure you are all aware by now that the recent rise in mortgage rates has been one of the fastest in history and things are not likely to get better this week as we face more inflation related reports. With the fear tug of war siding toward inflation right now, I fully expect bonds to at least retest their 200-day moving average, if not break right through it.
Last week’s movements showed the tug of war in full swing. Inflation took over, sending bonds lower, then came some data to swing the fear factor over toward recession and bonds got a little bounce. Just as you may have thought things could be looking OK, Dallas Fed head Fisher had to open his big mouth and send pull fears back to the inflation side. Mortgage rates ended about another .25% higher last week as a result.
This week has got the big enchilada in it, the Fed’s favorite gauge on inflation, the Personal Consumption Expenditures Index (PCE). With the CPI data ticking higher, this number will likely move higher as well, and keep the inflationary fires burning, potentially sending mortgage bonds crashing through that important floor of support, the 200-day MA. Of course, there are plenty of other reports that could do damage (or help) bonds along the way.
Here is a breakdown of this week’s scheduled attacks on bonds:
- Monday: Existing Home Sales (10:00)
- Tuesday: Producer Price Index (PPI) (8:30), Consumer Confidence (10:00)
- Wednesday: Durable Goods Orders (8:30), New Home Sales (10:00), Crude Inventories (10:30)
- Thursday: GDP (8:30), GDP Chain Deflator (8:30), Initial Jobless Claims (8:30)
- Friday: Personal Consumption Expenditures Index (PCE) (8:30), Personal Income (8:30), Personal Spending (8:30), Chicago PMI (9:45), Consumer Sentiment (10:00)
As the week goes along, expect volatility to continue. The big day to watch is clearly Friday, but data and other news could keep bonds from failing, so stay alert to “mood swings”. To start the week, I suggest locking as I have been. Pasa un buen dia.
