“It’s Deja Vu All Over Again”, said Yogi Berra…and that is what is happening again today with wild swings and high volatility for both Stocks and Bonds.
Global markets fell overnight on increasing concern that central banks around the world will not have enough ammo in their arsenals to ward off a deep recession. Stocks have now traded lower 15 out of the last 19 trading days in October. Mortgage Bonds are trading lower as large investors and hedge funds continue to unload positions ranging from Stocks to Mortgage Backed Securities in order to meet margin calls and raise cash in the wake of customer redemptions, and to keep creditors at bay.
The upcoming week is full of economic reports, but the main focus will be the Fed Meeting and Interest Rate decision on Wednesday afternoon at 2:15pm ET. At the moment, the Fed Funds Futures are pricing in the probability of a 50bp cut at 100%, however, there are rumors swirling that the Fed may even cut 75bp, bringing the Fed Funds Rate under 1%.
New Home Sales came in 2.7% higher in September than in August at 464,000 new units versus expectations of 455,000. The inventory of unsold homes fell a record 7.3% in September to 394,000, the lowest in four years. In the past year, inventories have fallen 25.4%, the biggest drop since the government began tracking the data in 1963. The median sales price fell to $218,400, down 9.1% in the past year.
Mortgage Bonds are now trading below the 100-day MA, and a Fed rate cut on Wednesday seems to be a sure thing.