Good Thursday AM,
Bonds are flat again this morning, just as we expected. We are likely in this pattern until tomorrow’s inflation numbers hit. Let’s hope that they come in nice and cool giving some additional credence to the notion of transitory inflation. Even if tomorrow’s data is not great for bonds (weak reading), I am confident we are at that turning point and inflation has peaked. As for the economy, we are continuing to see signs of weakness. Today Durable Orders were released and they missed their mark by a long shot. This is a great indicator to forecast the future. You see, when we stop spending on big ticket items, we are in the early stages of fear and this often leads to us backing off on consumption. Consumption is 70% of the economy. We should also look at housing starts and new home sales as forward looking indices. Sure, the numbers tell us what has already happened, but they also have predictive powers. The last housing start and new home sales numbers were mildly concerning.
For now, we should stay fairly flat throughout the day. There is always a risk of investors selling their treasuries and MBS ahead of the inflation number, but right now it is unlikely. You must ask yourself if it is worth the risk of floating your borrowers into tomorrow’s numbers. We could see a big sell off if inflation comes in hot. I am not saying it will come in hot, I simply do not know. If I had to be bold and guess, I suspect the numbers will come in near expectations and have little impact on price.
Please remain safe and healthy, make today great.