What Happened Last Week?
All Eyes on CPI
After the November 3rd jobs report, there wasn’t anything on the event calendar that demanded obvious attention until this week’s CPI. The Treasury auction cycle was the thing that traders/analysts talked about because that’s the only thing that was remotely worth talking about. To be fair, there was obviously a pop after the 30-year auction, but it was a stunningly bad auction. Moreover, it was traded back out by the next morning (last Friday). Bonds drifted sideways to slightly weaker on Friday for no particular reason and no need in trying to fabricate any reasons in light of the entire week’s trading range remaining inside a single day’s trading range from the previous Friday.
Source: Matthew Graham, Mortgage News Daily 11/10/2023)
What’s on the Agenda for this Week?
Three Things
The three areas that have the greatest ability to impact MBS backend pricing this week are: (1) Inflation Nation, (2) Retail Sales and (3) The Talking Fed.
(1) Inflation Nation: There will be key inflationary readings with CPI and PPI this week with CPI getting more attention from bond traders. Headline CPI is expected to expand at a much slower pace on a MOM basis from the prior month but Core CPI is expected to still remain under pressure. The lower these readings are, the better it will be for pricing.
(2) Retail Sales: On Wednesday will be Retail Sales and it is projected to contract on a MOM basis which would be favorable for bonds. However, if it surprises to the upside (like it has done the last two releases) then that would be negative for bonds.
(3) The Talking Fed: There were definitely some reactions to last week’s Fed speakers which pressured pricing. This week we will hear from Mester, Goolsbee, Williams and Daly.
Geopolitical
There is a potential government shutdown on Friday but there is also a potential extension on Friday. China’s President Xi will meet with President Biden in San Francisco now that they have moved the massive homeless camps and sprayed down the streets. Bond markets will be sensitive to any announcements on trade/oil/dollar.
Market Wrap-up
Overview
There were no major domestic economic events today.
On Deck for Tomorrow
CPI, Core CPI, Small Business Optimism, Fed Speakers Jefferson, Barr, Mester and Goolsbee