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Will Omicron variant stop first Fed rate hike?

What does news about the spread of the new Omicron variant mean for mortgage rates? Lead Analyst Logan Mohtashami lays out what to watch.
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Life comes at you fast. During this Thanksgiving week, we went from higher yields and the first Fed rate hike storyline to a big drop in bond yields and scary headlines on a new COVID variant, Omicron. How do we make sense of all this? In this type of economic environment is it even possible for mortgage rates to get to 4% and can the Federal Reserve really hike rates in an aggressive fashion?

Let’s take a look at all these topics together.

Federal Reserve first rate hike?

Those who follow me on social know of my take on the first Fed rate hike and what needs to happen for this conversation to really take place. My rule of thumb has always been when working from a zero interest rate policy, the 2-year yield needs to be above 0.56% to have an honest discussion about this. Recently, that milestone was finally reached — only to be taken off the table with this new news about Omicron.

Here is the 2-year yield before the headline on the new variant:

Currently, the 2-year yield has fallen and is 0.50%. Expect a lot of volatility with bond yields. However, if the 2-year yield is above 0.56% and can rise toward 80 basis points, the first rate hike is on. The other data line to know when the first rate hike is legit is that typically the U.S. dollar makes its biggest percent move higher within the new economic expansion before the first Fed rate hike and it is making a move currently.

The dollar has been making a move higher, but nothing too spectacular yet. I know some are in the camp that would believe that if the dollar gets too strong then it can crush commodity prices, much as it did in 2014-2015 with oil prices.

As we can see below, oil prices got rocked as the dollar was getting stronger before the first Fed rate hike. The reality is that world economies don’t like the U.S. dollar getting too strong. 

Currently, oil prices are down roughly $15 from the recent peak. For me personally, I wouldn’t put any weight on the first Fed rate hike until we can clearly get above 0.56% and stay above there with duration.

10-year yield and mortgage rates

Regarding the 10-year yield and mortgage rates, this is where the conversation gets interesting for housing. My 2021 forecast was that the 10-year yield should be in a range between 0.62%-1.94%, with an emphasis that I made going back to April 7, 2020, that when the economy is OK, we should have created a range between 1.33%- 1.60%. Before the new variant news hit us just as hard as that third serving of pumpkin pie, the 10-year yield was trading at 1.64%.


Let me remind everyone that even In 2021, we had the hottest economic and inflation data in a long time, along with the most flaming year-over-year inflation data. Also, even with the talks about the taper, near $30 trillion in federal debt and rate hike discussion; the 10-year yield has not had a day in 2021 even to attempt to challenge my critical 1.94% level yet. I recently wrote an article about why rates have been hard to get to 4%; the trend is your friend, son! 

In a recent podcast with Sarah Wheeler — called The Rundown, it will be a weekly event — I talked about how I might be the one person in America talking about lower rates in 2022. It’s a bit of a tease of my 2022 forecast, coming at the end of December. Listen here.

Currently, the 10-year yield is at 1.48%. With one virus headline, bond yields that weren’t trading above 1.60% are back in between that range of 1.33% -1.60%. If you believe that the downtrend since 1981 is your friend, then this shouldn’t be a surprise.

Two things I’m keeping an eye on that haven’t happened concern the financial markets and the 10-year yield.

1. We still haven’t had a stock market correction of 10% plus in the S&P 500.

This typically would lead money into the bond market and send yields lower. We have had times when the market does pull back because of higher yields. However, to this point, we haven’t had a market correction, which was common in the previous expansion, which was the longest economic and jobs expansion in history. The markets will eventually act normal at some point, so money can still go into bonds and even take it below 1%.

2. The St. Louis Financial Stress Index has been bored out of its mind, and this also can’t last forever.

The black line of zero is considered normal stress. We have had times that the markets acted up and got us above zero without a recession. However, as you can see, not much is happening lately. 2021 reminds me a lot of 2017 when the financial markets were fine, only to get a lot of drama in 2018-2019 due to the trade war tap dance discussions.

We have one more month left in 2021, but you get where I am going with this. We just had the best economic growth in a very long time, the hottest inflation data in a very long time and no real market drama as well. Even with all that, the 10-year yield has not been able to even test 1.94%. The economic rate of growth has peaked in 2021 and inflation data won’t stay this hot unless wage growth takes off and we consistently have supply issues for a long time. Knowing this, do you still believe rates are going to go significantly higher in 2022?

The economy with a new COVID wave and omicron variant

One thing that I have stressed during the U.S. economic recovery is that we have learned to consume goods and services with an active virus infecting and killing us. This is might sound very strange, but it’s an important factor to remember. The initial fear of the virus can no longer be replicated because we went from a normal calm state with the longest expansion ever into a free-fall dive because as an economy we froze. The multiple surges in cases, while not optimal for a full fluid economy, did not stop the recovery from happening.

As you can see below, retail sales have taken off in a fashion that not even I thought could be possible for this long duration without moderation.

While I still expect to see a moderation in this data line, the fact that retail sales are still on fire shows how well the U.S. consumer is doing. I touched on this recently in an article on why mortgage debt in America is great again. The cash flow of American homeowners with the nested equity built-in is the best ever on record. 

The American consumer is in good shape and household formation demographics mean we have enough people to keep this expansion going. However, two things are different going into 2022 than what we had in 2020-2021:

1. Personal savings:

While the personal savings data is still very healthy currently, the excess savings have been drawn down, and as you can see with retail sales, people have been spending. The excess dollars in the economy from disaster relief are no longer in the system.

2. Disposable personal income

Also, while disposable personal income is at very healthy levels as well, the excess from the disaster relief is also gone from this data line. It doesn’t look like there is any more appetite for additional disaster relief with midterms just around the corner.

It’s evident that Americans’ excess savings have been spent; however, don’t forget that millions of American jobs have returned. The jobless claims data is now back to levels we last saw in 1969.

With over 10 million ob openings!

We are still working our way back to get all the jobs lost to COVID-19, which I still believe we can get back to by September of 2022 or earlier. 

As you can see above, even though the disaster relief has already been spent in the economy, we are on much better footing today than what we experienced in March of 2020. When the economy is getting noticeably weaker we do have way to track this, I wrote about this recently on HousingWire.

For now, enjoy your Thanksgiving holiday weekend, be smart and have fun! When the 2-year yields get above 0.56% with duration heading toward 0.80%, then we can have a real first Fed rate hike talk. The 10-year yield hasn’t been able to go above 2% for a very long time and mortgage rates over 4% seem like a distant memory. We will cross all these bridges together, one day at a time, and now with a weekly podcast on HousingWire, I can provide weekly updates.

The post Will Omicron variant stop first Fed rate hike? appeared first on HousingWire.

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About 35% of People Who Received Placebo in Vaccine Trials Report Side Effects and More COVID-19 News

According to a recent study conducted by researchers at Harvard Medical School and Beth Israel Deaconess Medical Center, 76 percent of the adverse side effects (such as fatigue or headache) that people experienced after receiving their first COVID-19…

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About 35% of People Who Received Placebo in Vaccine Trials Report Side Effects and More COVID-19 News

The placebo effect is where a person who received a placebo instead of a drug or vaccine shows clinical signs, positive or negative, associated with the actual treatment. Much has been made about the side effects of the COVID-19 vaccines, but a new study found a startlingly high number of adverse events associated with people who received placebos in clinical trials. For that and more COVID-19 news, continue reading.

COVID-19 Vaccine Side Effects: Real or Placebo Effect?

A recent study out of Harvard Medical School and Beth Israel Deaconess Medical Center evaluated 12 COVID-19 vaccine trials with a total of 45,380 participants. The study found that 76% of the adverse side effects reported, such as fatigue or headache, after the first shot were also reported by participants who received a placebo. Mild side effects were more common in people receiving the vaccine, but a third of those given the placebo reported at least one adverse side effect. The statistics from the study showing that 35% of placebo recipients reported adverse side effects is considered unusually high. Several experts suspect that there’s such a high report of adverse events because of the amount of misinformation found on social media about the dangers of the vaccines and the amount of media coverage.

This is not to say that the adverse side effects felt by people who received the vaccines are all in their heads. People do have side effects to vaccines, but this study reports on an unusually high level of the placebo effect. Nocebo is used to describe a negative outcome associated with the placebo.

Source: BioSpace

“Negative information in the media may increase negative expectations towards the vaccines and may therefore enhance nocebo effects,” said Dr. Julia W. Haas, an investigator in the Program in Placebo Studies at Beth Israel Deaconess and the study’s lead author. “Anxiety and negative expectation can worsen the experience of side effects.”

Four Factors for Long COVID

A study published in Nature Communications identified specific antibodies in the blood of people who developed long COVID. Long COVID is not well understood and has a range of up to 50 different symptoms, and it is difficult to diagnose because there is no one test for it. The study, conducted by Dr. Onur Boyman, a researcher in the Department of Immunology at University Hospital Zurich, compared more than 500 COVID-19 patients and found several key differences in patients who went on to present with long COVID. The most obvious was a significant decrease in two immunoglobulins, IgM and IgG3. The study found that a decrease in these two immunoglobulins, which generally rise to fight infections, combined with other factors, such as middle age and a history of asthma, was 75% effective in predicting long COVID.

75% of COVID-19 ICU Survivors Show Symptoms a Year Later

A study out of the Netherlands found that a year after being released from an intensive care unit (ICU) for severe COVID-19, 75% of patients reported lingering physical symptoms, 26% reported mental symptoms, and up to 16% noted cognitive symptoms. The research was published in JAMA. The research evaluated 246 COVID-19 survivors treated in one of 11 ICUs in the Netherlands. The mental symptoms included anxiety (17.9%), depression (18.3%), PTSD (9.8%). The most common new physical symptoms were weakness (38.9%), stiff joints (26.3%), joint pain (25.5%), muscle weakness (24.8%), muscle pain (21.3%) and shortness of breath (20.8%).

Pennsylvania Averaging Most COVID-19 Deaths Per Day in a Year

In general, COVID-19 deaths are dropping across the country. However, in two states, Pennsylvania and New Jersey, the numbers are increasing. Pennsylvania is averaging 156 COVID-19 deaths per day over the past seven days, which is a 17% uptick compared to two weeks ago. The number of deaths per day in Pennsylvania is below what was hit in January 2021, largely due to the availability of vaccines. New Jersey averages 111 deaths from COVID-19 per day, an increase of 61% over the last two weeks and the highest since May 2020. Similarly, New Jersey cases and hospitalizations are declining.

Omicron Surge: Shattering Cases and Hospitalizations, but Less Severe

According to the CDC, although the current Omicron surge is setting records for positive infections and hospitalizations, it’s less severe than other waves by other metrics. Omicron has resulted in more than 1 million cases per day in the U.S. on several occasions, and reported deaths are presently higher than 15,000 per week. However, the ratio of emergency department visits and hospitalizations to case numbers is lower compared to COVID-19 waves for Delta and during the winter of 2020–21. ICU admissions, length of stay, and in-hospital deaths were all lower with Omicron. They cite vaccinations and booster shots as the likely cause. Although the overall result is that Omicron appears less severe, it’s not completely clear if that’s because the viral variant doesn’t infect the lower lung as easily as other variants, or because so much of the population has either been vaccinated or exposed to the virus already. It is clearly far more infectious than other strains, which is placing a real burden on healthcare systems. The number of emergency department visits is 86% higher than during the Delta surge.

J&J Expects Up to $3.5 Billion in COVID-19 Vaccine Sales This Year

Johnson & Johnson projected annual sales of its COVID-19 vaccine for 2022 to range from $3 billion to $3.5 billion. This was noted during the company’s fourth-quarter 2021 report. In December 2021, the U.S. Centers for Disease Control and Prevention recommended the PfizerBioNTech or Moderna shots over J&J’s due to a rare blood condition observed with the J&J shot. By comparison, Pfizer and BioNTech project their vaccine will bring in $29 billion in 2022, after having raked in almost $36 billion in 2021. Moderna expects approximately $18.5 billion this year, with about $3.5 billion from possible additional purchases. Although final figures for Moderna aren’t in yet, they projected 2021 sales between $15 and $18 billion.

BioSpace source:

https://www.biospace.com/article/about-35-percent-of-people-receiving-placebo-in-vaccine-trials-report-side-effects-and-more-covid-19-news

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Economics

Oil Could Be The Haven Stocks Traders Need To Shelter From Fed

Oil Could Be The Haven Stocks Traders Need To Shelter From Fed

By Nour Al Ali, Bloomberg Markets Live commentator and analyst

Oil is starting to look like an unlikely haven from the stocks selloff in the run-up to anticipated Fed tightening.

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Oil Could Be The Haven Stocks Traders Need To Shelter From Fed

By Nour Al Ali, Bloomberg Markets Live commentator and analyst

Oil is starting to look like an unlikely haven from the stocks selloff in the run-up to anticipated Fed tightening.

Traders are pricing lower volatility in the commodity than in the Nasdaq and S&P 500. Barometers of market anxiety for both indexes have shot up recently, suggesting trader sentiment is souring. Meanwhile, the CBOE Crude Oil Volatility Index, which measures the market’s expectation of 30-day volatility of crude oil prices applying the VIX methodology to USO options, shows that oil prices are expected to remain relatively muted in comparison.

With a producer cartel to support prices, the outlook for oil is more sanguine, even if the Fed raises rates. The commodity has ample support, with global oil demand expected to reach pre-pandemic levels by the end of this year. The U.S. administration has been pushing oil-producing nations under the OPEC+ cartel to ramp up output, while the group has stuck to a modest production-increase plan and is expected to rubber-stamp another 400k b/d output hike when they meet next week. This means that oil is likely to stay a lot more stable than in recent years.

The relatively low correlation between the asset classes provide diversification benefits. The relationship between the S&P 500 and the global oil benchmark is weak and lacks conviction; it’s even weaker between the Nasdaq 100 and Brent crude contracts. The divergence in price action this week could indicate that stocks have been tumbling in fear of a hawkish Feb, more so than geopolitical risk alone. That would perhaps offer traders an opportunity to seek shelter amid stock volatility in anticipation of the Fed’s next move.

Oil might have tracked the decline in stocks at the beginning of this week, but the commodity is back to its highs now. It’s up close to 15% this year, while the S&P 500 is struggling to reclaim its footing after plunging as much as 10%.

Tyler Durden Wed, 01/26/2022 - 13:45

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Economics

AT&T down 10% despite topping estimates

AT&T (NYSE: T) has revealed that Q4 results indicated continued users for the HBO MAX, wireless and fiber segments. In addition, the company gained more postpaid phone users for the whole year than the last ten years adding one million fiber subscribe

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AT&T (NYSE: T) has revealed that Q4 results indicated continued users for the HBO MAX, wireless and fiber segments. In addition, the company gained more postpaid phone users for the whole year than the last ten years adding one million fiber subscribers. Similarly, the company beat its high-end outlook for international HBO Max and HBO users with almost 74 million subscribers as of December 31, 2021.

CEO John Stankey said:

We ended 2021 the way we started it – by growing our customer relationships, running our operations more effectively and efficiently, and sharpening our focus. Our momentum is strong and we’re confident there is more opportunity to continue to grow our customer base and drive costs from the business.

Q4 2021 revenue dropped 10% YoY

Consolidated revenue in Q4 2021 was $40.96 billion beating consensus estimates $40.68 but dropping 10% YoY, which reflects the impact of divested segments and low Business Wireline revenues. In the third quarter, the company divested US Videos, and in Q4, it divested Vrio. The drop was partially offset by high Warner Media revenues, recovery from pandemic impacts, and high Consumer Wireline and Mobility revenues. Stankey commented:

We’re at the dawn of a new age of connectivity. Our focus now is to be America’s best connectivity provider and also ensure our media assets are positioned to grow and truly become a global media distribution leader. Once we do this, we’ll unlock the true value of these businesses and provide a great opportunity for shareholders.

AT&T reported Q4 net income (loss) attributable to $5 billion or $0.69 per diluted shared share. On an adjusted basis, including merger-amortization fees, a share of DirecTV intangible amortization, gain on benefit plans, and related items, the company had an EPS of $0.78 topping consensus estimate of $0.76 per share.

AT&T had total revenue of $168.9 billion in 2021

AT&T’s consolidated revenues were $168.9 billion in 2021, compared to $171.8 billion a year ago, reflecting the split of the U.S Video division in Q3 2021, as well as the effects of other divested operations. However, higher revenues in WarnerMedia and Communications somewhat offset these declines.

For the full-year, net income (loss) attributable to commons shares was $19.9 billion or $2.76 p were per diluted share. On an adjusted basis, FY 2021 earnings per share were $3.4.

La notizia AT&T down 10% despite topping estimates era stato segnalata su Invezz.

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