UMBS up 2 bps on the open.

Futures on the S&P 500 and Nasdaq 100 are pointing to a down day when Wall Street reopens after Monday’s public holiday. Nvidia Corp. declined in pre-market trading ahead of its widely anticipated earnings report due Wednesday. Discover Financial Services surged after Capital One Financial Corp. agreed to buy the credit card issuer in a $35 billion deal. Capital One declined.

Traders have in recent weeks moved Federal Reserve rate-cut expectations out to June, from March, as a phalanx of Fed officials warned against over-exuberant expectations of policy easing, and economic data continued to surprise to the upside.

Some have even raised the possibility of further tightening: former US Treasury Secretary Lawrence Summers said on Friday “there’s a meaningful chance” the next move is up.  That will make investors wary ahead of the Fed January meeting minutes to be released Wednesday

The upcoming week won’t have much in the way of market-moving data, however we will get the FOMC minutes on Wednesday. This should give us more insight into when the Fed is going to start cutting rates. The CPI report last week caused traders to pare back their bets on rate cuts this year, although shelter inflation was the big driver.

Shelter accounted for about 2/3 of the increase in the CPI last month,

Consumer sentiment in February is mostly unchanged from January, according to the University of Michigan Consumer Sentiment Survey. Consumers are generally getting more constructive about the economy, although there remains a partisan gap.

Year-ahead inflationary expectations ticked up from 2.9% to 3.0% which is still within the pre-pandemic 2.3% – 3.0% range. Longer-term inflationary expectations remained at 2.9%, which is still above the pre-pandemic range of 2.2% – 2.6%.

Some encouraging data for the Spring Selling Season, which is more or less underway. New listings were up 9.5% compared to a year ago, while median prices were more or less flat. Active inventory was up 13.9%.

Bonds got off to a slow start despite the holiday-shortened week.  Yields began in slightly higher territory in Asia, but rallied back to ‘unchanged’ by the start of U.S. trading and to slightly stronger levels by the end of European trading.  The 2nd half of the U.S. trading day brought better selling, but not enough to take bonds into weaker territory as of the 3pm CME close.  More importantly, all of the above took place in a narrow enough range to argue against any deep analysis.

UMBS ended the day up 11 bps at 100.34

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