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Technical Picture on Bonds Shows Encouraging Signs

January 16, 2025
Floating
Stocks are mixed and Mortgage Bonds are lower to start the day following the release of Retail Sales and new Jobless Claims data.

Stocks are mixed and Mortgage Bonds are lower to start the day following the release of Retail Sales and new Jobless Claims data.

Philadelphia Fed Manufacturing Index

The Philadelphia Fed Manufacturing Survey for the month of January was reported at 44.3, which was much higher than last month’s -11 and also far higher than estimates of -5. This is the highest reading since April 2021 and may be explained by manufacturing pulling orders forward and stockpiling inventory ahead of potential tariffs.

Beige Book

The Fed released their Beige Book yesterday, which provides an economic health update on each of the Fed's twelve districts.  This can be important because the Fed has indicated that they are not just looking at the BLS jobs data or other published reports, as they can be somewhat unreliable and have been susceptible to huge revisions.  Instead, they check that data against what their business contacts are saying.  Though not usually market moving, the Beige Book provides an important check on the strength we have been seeing in recent economic data releases.

  1. Economic activity increased slightly to moderately
  2. Consumer spending exceeded expectations for the holiday season
  3. Manufacturing is stockpiling inventory in anticipation of tariffs
  4. On labor, 6 districts reported no change in job creations, while the other 6 reported minor gains
  5. Wage growth was described as moderate

Retail Sales

Retail Sales rose 0.4% in December, which was weaker than estimates of 0.6%. Additionally, last month’s figure was revised higher by 0.1%.

The most important reading, which is Core Retail Sales and gets factored into GDP, rose 0.7%, which was higher than the 0.4% estimate. 

Jobless Claims

Initial Jobless Claims, which measures individuals filing for unemployment benefits for the first time, rose 14,000 last week to 217,000.

Continuing Claims, which measures individuals continuing to receive benefits after their initial claim, fell 18,000 to 1.86M.

Technical Analysis

Mortgage Bonds are trading in the middle of a wide range with 99.89 as a floor and a ceiling at the 100.43 Fibonacci Level. 

The 10-year is also trading in the middle of a range between a ceiling at 4.735% and a floor at the 4.588% Fibonacci Level.  We'll need to be on guard for whipsaws while both MBS and Treasury Yields are in such wide ranges.

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