Learn from the Past
Domestic Flavor
Inflation Nation: October Producer Prices showed no threat of any inflationary pressure. The Headline YOY PPI data was just 0.5% vs. estimates of 0.4%, the Core (ex-food and energy) YOY PPI dropped to 1.1% vs. estimates of 1.2%, well below the 2% threshold that impacts yields.
Consumer Sentiment: The Preliminary November reading was a big miss to the downside with a very meek 77.0 vs. estimates of 82.0. This is the weakest reading since August.
Across the Pond
Eurozone: GDP 12.6% vs. estimates of 12.7%.
What’s on the Agenda for this Week?
Three Things
The three areas that have the greatest ability to impact backend pricing this week are: (1) Coronavirus, (2) Geopolitical and (3) Domestic Flavor.
(1) Coronavirus: Last week, mortgage backed securities sold off on Monday and Tuesday due to the announcement of a vaccine and a treatment that were both >90% effective. This week, we start off with another vaccine, this one from Moderna and it’s about 95% effective and, unlike the Pfizer version, does not require it to be as cold during shipping which makes it more attractive from a logistics perspective. That’s the good news. Now the bad news: over 1 million brand new infections in the U.S. over the past 6 days. That means those people plus a multiple of family members and people that they a have been in contact with are now locked in their homes…probably at least 3 to 5 million people not going to the office, shopping, etc. That is a huge blow to our economy.
(2) Geopolitical: Of course, our presidential election is still going to take center stage as recounts and lawsuits crowd the headlines. Of importance to the financial markets is the Georgia Senate seat more than who the eventual President will be. The soonest that we will definitively know who the President is will be December 14th and not before then as that is when the actual electoral votes are cast by the states…there is no other official way of selecting a President.
(3) Domestic Flavor: There will be a ton of housing related news this week (Home Builder’s Sentiment, Weekly Mortgage Applications, Housing Starts and Building Permits, Existing Home Sales) but these do not impact pricing. Retail Sales on Tuesday and Wednesday’s 20 year bond auction are the two biggest events for the bond market.
Market Wrap-up
Domestic Flavor
Manufacturing: The November NY Empire State Manufacturing Index was weaker than expected but it was at least in positive territory (6.3 vs. estimates of 13.5).
On Deck for Tomorrow: Import and Export Prices, Retail Sales, Industrial Production and Capacity Utilization and the NAHB Housing Market Index.