Tuesday – December 10, 2024

UMBS opened down 14 bps this morning.  Stock futures up 2 points.

Small business optimism improved markedly in November, according to the NFIB Small Business Optimism Report. The index rose by 8 points to hit the highest level since June 2021, and breaking through the 50 year average for the first time in 34 months. The labor market remains tight, with 36% of small businesses reporting they had jobs they were unable to fill. Labor costs remain the biggest concern for small businesses.  Sales remain challenged, however optimism for the future improved.

The Federal Reserve is approaching a critical inflection point in its monetary policy because Fed officials are increasingly indicating that interest rates may be near the upper end of the so-called “neutral rate” (i.e., the level at which monetary policy is neither stimulating nor restraining economic activity). And that means the plan of possibly slowing the pace of rate cuts or not changing them at all after the expected cut next week

Productivity increased 2.2% in the third quarter, according to BLS. Unit labor costs were revised downward from 1.9% to 0.8%. A downward revision to compensation accounted for the change.

We saw a spike in rate / term refis in October, which is something that has been non-existent for the past few years. Rate / term refis actually exceeded cash-out refis. Much of the activity came from loans originated in 2023, when mortgage rates were closer to 8%.

Bonds were arguably consolidating ahead of last Friday’s jobs report with the reaction representing a bit of a bullish breakout.  Since then, there’s been a quick and obvious re-consolidation back in line with last week’s M-Th levels. Today added to that process with most of the selling taking place by the start of the US trading session. Perhaps some of the selling has been an attempt to make room for this week’s Treasury auctions, but there’s no question that Wednesday morning’s CPI data is the last significant piece of the puzzle that the Fed will receive before deciding “to cut or not to cut” next week.  The market knows this, of course.  As such, a big deviation from forecasts would definitely be enough to get things moving.

UMBS closed the day down 2 bps at 100.01

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