How many of you wanted to pull the rip chord last week? As we saw, inflation again took the markets and sent bonds into a virtual freefall, sending rates about 1/4 point (0.25%) higher.
As I mentioned mast week, shortened trading weeks usually bring extra volatility to the markets and we saw it. Inflation was at the forefront right out of the starting gate with Consumer Confidence showing everyone is fearful of its effects on their own financial situation.
As the week continued, bonds pushed to test and eventually break through the solid floor of support, their 200-day moving average. Even with a relatively tame PCE report, bonds could not muster enough strength to climb back above this level, even falling from their Friday highs. Part of the reason could be a tame PCE right now does not show recent "inflation" trends resulting from multiple new highs in oil, etc.
As we move into this week, inflation could take a back seat. Unless there is a lot of talk about inflation in the media, or from the Fed, data is almost exclusively economy driven this week. Without a doubt the Jobs Jamboree will be the main event, but even today’s ISM Index could get the markets moving.
Here’s the breakdown…
- Monday: ISM Index (10:00)
- Wednesday: ADP Employment Report (8:15), Productivity (8:30), ISM Services Index (10:00), Crude Inventories (10:30)
- Thursday: Initial Jobless Claims (8:30)
- Friday: Non-farm Payrolls (8:30), Unemployment Rate (8:30), Hourly Earnings (8:30), Average Work Week (8:30)
Throughout the week, we will be seeing numbers on a growing or shrinking economy, culminating with the jobs data. So, until Friday, inflation may not be in the driver’s seat, but remember that good economic news is bad for bonds as well. Since most recent data has been better than expected, showing the economy is not doing as bad as people have been led to believe, bonds may not see much light.
On the technical side, bonds have clearly broken away from their sideways pattern and as sometimes happens in the charts, good patterns turn ugly. The only thing that looks "technically good" is that bonds are nearing an oversold condition. If they are unable to find the strength to get back above their 200-day moving average, you can expect mortgage rates to continue to rise.
Robert,
I enjoy your posts and also follow your blog on rates. I know of the usual places to get MBS quotes for $50 a month subsciptions and all the other bells and analysis that they offer with it. Do you know of any type of site(larger financial site) cheaper than that, where I can just get the live quotes and not deal with the analysis?
Ok I am an idiot. I never thought of how inflation should push up interest rates. That totally makes sense. It would be nice to get your ideas on where you think mortgage rates are going to be headed this summer.
Jason – I do not know of any others. I still use MMG to get my rate quotes, but I am going to be seeking alternatives as I don’t care about the rest of it and don’t follow their “updates” much. I keep them only because they are the only ones I know who offer stochastics as well as candlesticks and I think it is worth a little extra coin for that feature.
Ki – Yes, inflation kills bond prices, sending rates higher. As for my predictions, I believe rates will being higher, possibly even significantly higher long term if things continue as they have been.
As always great post Robert! Look forward to your next one.