UMBS were up 16 bps on the open.

Markets are still digesting yesterday’s data.

M/M Core CPI = 0.3 vs 0.3 f’cast   [0.3 prev]

Y/Y Core CPI = 3.9 vs 3.8 f’cast    [4.0 prev]

Jobless Claims = 202k vs 210k f’cast   [203k prev]

Even though the month over month core number was as expected, the unrounded number was higher than expected.  The closely watched shelter inflation category also ticked up to 0.5 m/m, which is not going to facilitate a drop to target inflation.  Top it all off with Jobless Claims remaining very strong and bonds are moving back up toward unchanged levels.

The CPI excluding food and energy rose 0.3% in December from a month earlier. On an annual basis, the so-called core measure increased 3.9%. Economists favor the core metric as a better gauge of the trend in inflation than the overall CPI.

The increase in shelter accounted for about half the increase, and has been the dominant factor in the price indices for some time. Another notable increase was car insurance, which was up 20% year-over-year.

Then today we got PPI to add to it

MoM Core PPI =  0.0 vs 0.2 f’ cast,   [0.0 prev]

YoY Core PPI = 1.8 vs 1.9 f’cast,  [2.0 prev]

Where CPI may have failed to inspire with tales of disinflation, PPI is at least giving it a try.  Unfortunately, this report doesn’t punch nearly as hard as the other one, but at least there’s a modest response underway.

Cleveland Fed President Loretta Mester said that a March rate cut is probably too early

The bond market traded about as well as anyone could have expected on a week where core monthly CPI came out at 0.3 vs 0.3.  If anything, the level of bullishness and resilience was a bit higher than the average market participant probably expected relative to the available data.  Part of the reason is speculation that we’re about to receive some sort of confirmation that the Fed is willing to remain friendly despite the big drop in rates at the end of 2023.  There’s specific speculation that Tuesday’s appearance by Waller will contain clues about the Fed’s road map.  We can’t know if it will or won’t… only that it would make for an interesting start to the holiday-shortened week.

MBS 6.0 closed down 11 bps.  The 5.5 actually picked up 19 bps.

JP Morgan reported earnings per share that just topped Street expectations. The stock is up 2% pre-open.

On the state of the economy, Jamie Dimon was cautious. The markets expect a soft landing, but a soft landing might be a euphemism for stagflation.  We saw an uptick in provisions for credit losses in consumer lending to $2.2 billion compared to $1.4 billion in Q3 and $1.8 billion a year ago.

Citi missed earnings expectations due to a lot of special items. Book value per share fell about 1% on a QOQ basis. We did see a big uptick in credit losses, which rose 22% on a QOQ basis and 69% on a YOY basis. Mortgage origination fell 4% YOY to $2.7 billion. They also announced 20,000 job cuts.