Rate Watch for the End of January

We made it through the first month of 2023!

Last week gave us some contradicting data. The US manufacturing services and goods PMI (Purchasing Managers' Index) came in higher than expected (which is good!) but still lower than 50, which shows a contracting economy. Both were higher than last month, so that is promising moving forward.

Initial jobless claims were lower, proving the labor market is still strong. New home sales came in slightly higher than expectations and pending home sales jumped to the upside. PCE (Personal consumption expenditures) also came in at expectations.

I interpret the data as weak but improving. The pending home sales don’t surprise me as rates have come down 1.5%-2% since their October highs and we are out of the holiday season.

This week is a very big week with the Fed meeting taking place on Tuesday and concluding on Wednesday. The market expects a rate hike of 25bp. Anything higher will cause panic and anything lower will create a party. I think the Fed doesn’t want to surprise markets right now. I expect the 25bp rate hike with a hawkish Powell speech to follow.

I’ll be listening to Powell’s speech on Wednesday and writing a breakdown of it in next week’s Rate Watch.

We also get the unemployment rate this week. The Fed has been very clear about them wanting a weaker labor market.

Here is what is in store for this week

Monday

• Nothing

• Employment Cost Index
• S&P Case-Shiller Home Price Index
• FHFA Home Price Index
• Consumer Confidence Index
• Rental Vacancy Rate

• ADP Employment Report
• Job Openings & Quits
• Construction Spending
• Federal Funds Rate
• Fed Chairman Powell News Conference
• Motor Vehicle Sales

• Initial and Continuous Jobless Claims
• Unit Labor Costs

• Nonfarm Payrolls
• Unemployment Rate
• Average Hourly Earnings
• Labor-Force Participation Rate
• ISM Service Index

Chart Check
It looks like a double bottom is forming. If the 10yr bounces up and crosses the trendline above, higher rates will be coming in the confirmed uptrend. However, if it breaks down lower then we will see some good relief in the markets.

We will be reaching that fork in the road soon.

 
That’s it for now. Let's have a great week!