All Things in Moderation

Vital Statistics:

Stocks are lower this morning on no real news. Bonds and MBS are down.

Bonds sold off hard yesterday after Lael Brainard gave a speech and said that balance sheet reduction will be much faster than before: “It is of paramount importance to get inflation down. Accordingly, the Committee will continue tightening monetary policy methodically through a series of interest rate increases and by starting to reduce the balance sheet at a rapid pace as soon as our May meeting. Given that the recovery has been considerably stronger and faster than in the previous cycle, I expect the balance sheet to shrink considerably more rapidly than in the previous recovery, with significantly larger caps and a much shorter period to phase in the maximum caps compared with 2017–19. 

The Fed Funds futures continue to get even more hawkish.

Mortgage applications fell by 6.3 last week as purchases fell 3% and refis fell 10%. “Mortgage application volume continues to decline due to rapidly rising mortgage rates, as financial markets expect significantly tighter monetary policy in the coming months,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “As higher rates reduce the incentive to refinance, application volume dropped to its lowest level since the spring of 2019.”

The services economy improved in March, according to the ISM. “The Prices Index registered 83.8 percent, up 0.7 percentage point from the February figure of 83.1 percent and its second-highest reading ever, behind December 2021 (83.9 percent). Services businesses are continuing to replenish inventories, as the Inventories Index expanded for a second straight month; the reading of 51.7 percent is up 0.9-percentage point from February’s figure of 50.8 percent. The Inventory Sentiment Index (40.2 percent, down 15.1 percentage points from February’s reading of 55.3 percent) returned to contraction in March, indicating that inventories are in ‘too low’ territory and not meeting current business requirements.”

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