Safe play is to lock here

The Consumer Price Index for the month of January came in at -.07%.  This put the year over year numbers for headline inflation at -0.1%.  This means that we actually had deflation in our economy over the past 12 months!  However, this is clearly due to the sharp drop in oil prices.  When you strip out food and energy, the Core CPI number showed an increase of 0.2% for the month of January and a 1.6% increase over the last 12 months.  However, with oil prices as low as they are this will continue to add downward pressure to prices.  This will put the Fed in a difficult situation where if they move short term interest rates higher they could further exaggerate the downward pressure in prices.  Although most economists are certain we will see a rate increase in 2015, we don’t see that happening unless we see oil and consumer prices move higher.

Initial Jobless Claims for last week jumped by a whopping 31,000 up to 313,000. This was much higher than analysts’ expectations and represents the second week in a row where we have seen 300k+ claims.  We have talked a lot about the impact of lower oil prices and the job losses that will result.  It is likely that we are now seeing some of these losses reflected in unemployment claims.  With the significant number of oil rigs continuing to be taken offline, the job losses continue to mount.  It will be interesting to see how next Friday’s Bureau of Labor Statistics Jobs Report turns out for the month of February.  It is likely we will see a slowing in the growth of the US job market.

Mortgage bonds are still fighting with overhead resistance.  When trading in a sideways channel, the general rule is to lock when at the top and float when at the bottom.  With bonds still unable to break through resistance, even with very bond friendly economic news, locking is the safe play.  Tomorrow we will receive a report on Gross Domestic Product (GDP).  That is likely to be a market mover.