What Happened Last Week
Covid Variant Caused Massive Market Reaction
The market immediately took a “guilty until proven innocent” approach in reaction to the Omicron variant. Bonds surged significantly and stocks swooned. Holiday-light trading conditions greased the skids to some extent, but even on a normal trading day, this was big news. It will likely continue to be treated as such for a few weeks at the very least.Source: Matthew Graham, Mortgage News Daily 11/26/21)
What’s on the Agenda for this Week?
Three Things
The three areas that have the greatest ability to impact mortgage backed securities backend pricing this week are: (1) Covid, (2) Jobs, Jobs, Jobs and (3) The Talking Fed.
(1) Covid: There was a huge (+74BPS) gain on Friday due to news of the new Omicron variant. Besides the obvious health concerns, the markets are focused on the potential for renewed lockdowns, travel restrictions and overseas factory closures which could provide a very strong headwind to our economic recovery.
(2) Jobs, Jobs, Jobs: There is a large plate of job and wage related data to digest this week which will culminate in Big Jobs Friday with the Unemployment Rate, Non-Farm Payrolls and most importantly, Average Hourly Earnings.
(3) The Talking Fed: Several major Central Bankers will speak this week. Our own Fed Chair Powell will speak on Tuesday and the Beige Book will be issued on Wednesday. The bond market will continue to struggle with trying to handicap what the Fed may or may not do to the pace of the Taper at the December FOMC meeting.
Market Wrap-up
Domestic Flavor
Taking It to the House: The October Pending Home Sales Index increased on a MOM basis of 7.5% to an index reading of 125.2.
On Deck for Tomorrow: Fed Chair Powell, FHFA Home Price Index, Case Shiller HPI, Chicago PMI, Consumer Confidence.
Covid
While there is much speculation and debate over the Omicron variant’s threat, global economies are taking precautions. Japan has announced that it will close its borders to ALL new foreign visitors effective November 30th. Meanwhile, Biden said that he did not expect any lockdowns in the U.S. As far as confirmed cases of the new variant, it has been detected in South Africa and Botswana, as well as in travelers to Australia, Austria, Belgium, Britain, Canada, Czech Republic, Denmark, Germany, Israel, Italy, the Netherlands and Hong Kong. The variant officially arrived to North America late Sunday as public health officials in Ontario confirmed two cases. It’s unclear whether the variant has arrived in the US.