Good Monday AM,
Bonds are up again this morning. Not a lot, but what is important is the bounce that mortgage bonds have taken since testing the bottom of the range last week. Price has been moving up and down the range as it normally does and this leads one to believe that the next stop is to touch the top. The 10-year treasury is in the middle of the range but also facing some light resistance. We are sitting at 1.32% and if we can improve to 1.30 or below, we do have some room to run. The challenge is that we have some bigger data on the way. Tomorrow is CPI (inflation at the consumer level). Often times, PPI leads CPI because PPI is the wholesale rate of inflation. It is what manufacturers pay for the goods they need to produce products that are sold in the market. The prices these items sell for are contained within the CPI number. So, if I pay more to make stuff, I will have to either experience lower margins or pass along the prices to the consumer. So, as PPI goes, so goes CPI… usually. If this holds true, we will see a hot CPI number, and this will tank bonds. Thursday then brings Retail Sales reports to the headliners. Data is merely a “potential” market mover though. Next week’s Fed announcement is an “almost certain” source of volatility, for better or worse. In addition, by this time next week, markets will have a better sense of whether Covid numbers actually turned a corner last week or if it was merely a byproduct of the holiday weekend. That leaves this week as a sort of prologue to next week’s main events, but data and corporate bond supply could still make things interesting.
Not to lose site of the congressional budget and tax proposals, House Democrats have drafted a package of tax proposals which falls short of President Biden’s hopes (don’t shed any tears yet folks). The lower increases in corporation tax, to 26.5%, and capital gains tax, to 25% (rut row), reflect the difficulty in keeping party moderates on board the ambitious spending plan. In the Senate, where one defection would derail the president’s $3.5 trillion economic package, lobbying is focusing on Joe Manchin. The senator from West Virginia has already cast doubts on the timeline Democrats are pushing, saying he doesn’t see the urgency. Let’s hope we see some more moderate democrats step up.
And last, from Black Knight (huge data hog) real estate investors purchased 67,943 U.S. homes in the second quarter of 2021, the highest quarterly figure on record. That’s up 15.1% from the prior quarter, and up 106.7% from the second quarter of 2020, when activity in the housing market was stalled due to pandemic restrictions.” Additionally, “tappable” home equity is up to $9.1 trillion, The average mortgage holder has $173k in tappable equity,
Please remain safe and healthy, make today great!