MBS up 30 bps early. 10y down 8.

Nice Rally Overnight. The most notable scapegoats arrived in the overnight hours with several weaker PMIs in Europe as well as a much lower Producer Price Index for the entire Eurozone. After a brief pull back heading into domestic hours, US trading is adding to the gains with 10yr yields down 8bps

This morning’s improvement is mainly due to stocks rallying on signs of underlying strength in the world economy. It is likely to be short lived though, and reprice risk on the day is high… especially for lenders that are quick to pass along the gains and quick to take it back (generally on the wholesale side). This is especially true since it is Friday, and lenders don’t want to leave themselves exposed to losing money on new loans over the weekend if Monday morning we wake up to a bad day.

  • ISM Non-Manufacturing
    • headline 55.1 vs 54.5 f’cast, 55.2 prev
    • prices 65.6 vs 67.8 prev
    • jobs 54.0 vs 50.0 prev

Anything over 55.0 in today’s ISM was likely to cause a bit of selling and here we are with a bit of selling (but only a bit so far).

The supplier deliveries index hit the fastest level since 2009, indicating that supply chain issues are mainly in the rear view mirror. The prices index declined, however it is still elevated. That said, since we’re not able to reduce cost to maintain margins, we have to reduce the employee base more aggressively to achieve margins

22Q4 GDP came in at 2.7%, down from 3.2% in 22Q3, primarily due to softening consumer spending, suggesting weakening. However, in January the Fed’s favorite inflation measure meaningfully rose, with December’s reading being revised upwards. Consumer spending jumped 1.8% M-o-M, the largest rise in two years, probably aided by mandated minimum wage increases, annual pay raises, and Social Security inflation-adjustments of 9%. All that said, let the rate hikes continue.

Fed Governor Christopher Waller sounded hawkish in remarks yesterday: “I would be very pleased if the data we receive on inflation and the labor market this month show signs of moderation,” Fed governor Christopher Waller said in remarks posted on the Fed’s website. “But wishful thinking is not a substitute for hard evidence in the form of economic data. After seeing promising signs of progress, we cannot risk a revival of inflation.”

Nonfarm productivity rose 1.7% in the fourth quarter, according to BLS. This is a big downward revision from the initial 3% estimate. Unit labor costs rose 3.2%, which was driven by a 4.9% increase in compensation and a 1.7% increase in productivity. Manufacturing sector productivity declined 2.7%.

Today’s trading action flew in the face of the prevailing reaction function for the bond market.  Specifically, an important economic report was stronger than expected, but bonds rallied nonetheless.

Venture-capital firms raised a grand total of $20.6 billion in 22Q4, a 65% decline from a year ago, the lowest fourth-quarter amount since 2013, and returns fundraising to levels last seen in 2015. It was also less than half the amount raised in 22Q3, and the first time fundraising levels declined from Q3 to Q4 since 2009. Investors put money into 266 venture-capital funds compared to 620 funds in 21Q4.   via econ70.com

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