October 19, 2017
October 13, 2017
Stocks have ended the day higher. The Dow closed up 30.71 at 22,871.72 and the S&P 500 closed up 2.24 at
2,553.17. Mortgage Bonds ended the session near their highs and above the 100-day Moving Average.
The Consumer Price Index (CPI), which measures inflation on the consumer level, increased 0.5% in
the monthly of September. On a year over year basis, headline CPI rose from 1.9% to 2.2%, which was slightly
lower than the 2.3 expected. The Core CPI Rate, which strips out food and energy prices, remained unchanged at
1.7%, which was lower than expectations of 1.8%. Both of these numbers being beneath expectations and Core
Inflation remaining unchanged and beneath 2% helped push Bonds higher.
Retail Sales for September were up 1.6%, which was weaker than the 1.8% gain expected. The Control Group,
which strips out autos, gas, and building materials, was up 0.4%. This was stronger than expectations looking for a
0.2% gain. Overall, this number is really market moving, but Sales minus autos and the control group were
stronger than expectations.
Consumer Sentiment was reported at 101.1, coming in over expectations of 95.4 and last month’s 95.1. Today’s
reading was nearly a 14 year high.
Economic Data
Consumer Price Index: Actual = 2.2%; Previous = 1.9%
Consumer Price Index Core: Actual = 1.7%; Previous = 1.7%
Retail Sales: Actual = 1.6%; Consensus = 1.8%; Previous = negative 0.1%
Consumer Sentiment: Actual = 101.1; Consensus = 95.4; Previous = 95.1
Upcoming Events
Next week is highlighted by Housing Data – We will be receiving the NAHB Housing Market Index, Housing Starts,
and Existing Home Sales.
Technical Picture
Mortgage Bonds have broken above the 103 resistance level and 100-day Moving Average that they were
battling with earlier in the day. Bonds are now just beneath the next ceiling at the 25-day Moving Average. The
10-year Treasury Note Yield has broken beneath the 200-day Moving Average and is now just above the 25-day
Moving Average, which is the next floor. The technicals are looking favorable.
Position
Continue Floating
October 12, 2017
October 12, 2017
Stocks have ended the day lower. The Dow closed down 31.88 at 22,841.01 and the S&P 500 closed down 4.31 at
2,550.93. Mortgage Bonds ended the day higher, just beneath overhead resistance at 103.
Boston Fed President, Eric Rosengren, spoke today and said that a December rate hike was likely…reinforcing our
thoughts that a December rate hike is almost certain.
Today’s 30-year Treasury Note Auction was met with outstanding demand. CNBC’s Rick Santelli grades the
auction an A-. The Yield awarded was 2.87% and the bid to cover was 2.53.
In economic news, The Producer Price Index, which measures wholesale inflation, was up 0.4% in September,
which was in-line with expectations. On a year over year basis Headline PPI moved up from 2.4% to 2.6%, which is
the biggest gain in over five and a half years. Core PPI, which strips out food and energy prices, was stronger than
expectations, rising by 0.4%. The year over year figure increased from 2.0% to 2.2%, which was also the highest
print since 2012. Most of the gains were due to the price of gasoline, which recorded its biggest increase in more
than two years, due to the disruptions at oil refineries in Texas caused by Hurricane Harvey. These wholesale
figures do not typically impact the market and do not always translate to the consumer.
Initial Jobless Claims, which measures individuals filing for unemployment benefits for the first time, was reported
at 243,000 for last week. This represents a drop of 15,000 from the previous report, which was revised slightly
lower from 260,000 to 258,000. This was a nice snap back from the higher Claims figures we have been seeing
due to the Hurricanes.
Economic Data
Producer Price Index: Actual = 2.6%; Prior = 2.4%
Producer Price Index: Actual = 2.2%; Prior = 2.0%
Initial Jobless Claims: Actual = 243,000; Consensus = 252,000; Prior = 258,000
Upcoming Events
Tomorrow morning’s Consumer Price Index report, which has been stubbornly low, will be important for the Bond
market. The last Headline and Core readings of CPI were at 1.9% for the Headline and 1.7% for Core. The market
is expecting the Headline figure to increase to 2.3% and the Core figure to increase to 1.8%. A higher inflation
reading could pressure Bonds lower, but we have not been seeing much inflation as of late.
Technical Picture
Mortgage Bonds are still trading in the middle of the range between support at 102.806 and overhead resistance
at 103…but Bonds are just beneath 103 after testing it earlier in the day and failing to break above it. The 10-year
Yield closed directly on the 200-day Moving Average – As we said this morning, if Yields can break beneath the
200-day Moving Average it would be a strong sign.
Position
Continue Floating
October 5, 2017