UMBS 5.5 up 17 bps on the open.  Mostly trades in prediction of CPI coming tomorrow.

Federal Reserve Chair Jerome Powell in remarks Tuesday refrained from commenting on the outlook for monetary policy

before the December consumer price index figures. Signs of cooling could support a move toward slower rate increases, even

as some officials say it’s too early to declare victory over inflation.

Market expects inflation to drop from 7.1% to 6.5%. Core expected to drop from 6% to 5.7%.

Powell also acknowledged that the Fed is getting pressure to “act on climate.” This means he is getting pressure from activists to use the Fed’s supervisory authority to discourage investment in fossil fuels.

Airline stocks recovered from declines in premarket trading after the failure of a key pilot notification system operated by

the Federal Aviation Administration disrupted morning air travel.

Big news yesterday from Wells Fargo, a behemoth in the mortgage lending industry — it will stop all its correspondent lending relationships and look to reduce its massive servicing portfolio. This change in focus has been telegraphed and, as Bloomberg puts it delicately, their mortgage business has “entangled Wells Fargo in regulatory probes and lawsuits.”

According to CoreLogic, October rents were up 8.8% Y-o-Y, down from 10.2% in September and a peak of 13.9% in April. Zillow’s index has November rents up 8.4% Y-o-Y, down from 9.6% in October, and a peak of 17.1% in February. Lastly, Apartment List has December rents up 3.9% Y-o-Y, down from 4.5% in November, and a peak of 17.1% in February. Rents will soon be reducing inflation.

According to Curinos, December 2022 funded mortgage volume decreased 67% YoY and 3% MoM. In the Retail channel, funded volume was down 71% YoY and 3% MoM. Average 30-year conforming retail rates dipped slightly from November but are 319bps higher than the same month last year.

In other news, demand is dropping in a big way for the super expensive homes. Bloomberg had this piece out earlier detailing the $10 million-plus market. The number of signed contracts dropped much more than expected in the second half of 2022. The article notes that sales figures are strong given the elevated prices, but contract activity is really dropping off. It was also noted that “super-prime is usually one of the last tiers to collapse but the first to recover” as the big wallet buyers will see opportunity in a soft market.

Our focus this week has been on the notion of consolidation after last week’s strong gains and ahead of this week’s CPI (the all-important Consumer Price Index due out at 8:30am ET on Thursday, Jan 11). Friendly comments from Fed’s Collins (favors 25bp hike) helped modestly in the afternoon, as did a well-received 10yr Treasury auction.  But the potential movement following the CPI data is in an entirely different league.  It has been the most important monthly economic report for almost a full year now

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