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Current Position: Carefully Floating

Stocks are lower and mortgage Bonds are higher, recovering most of Friday’s losses, so far this morning. It’s a quiet new day and relatively quiet news week, highlighted by the Producer Price Index, Retail Sales, several Fed speakers, and a 10-year Treasury Note Auction and 30-year Bond Auction. The Mortgage App and Initial Claims reports will likely be skewed due to the New Year’s holiday last week, so they will hold little relevance. Additionally, the Producer Price Index report is rarely market moving, as we watch the Consumer Price Index much more closely. And we know Retail Sales is going to be a big miss after the reports of a disappointing holiday season from several big name retailers. What does this mean for us? The technical will play an especially important role this week. The auctions on Wednesday and Thursday will also be of significance. The rest of the week looks something like this:

Tuesday: NFIB Small Business Optimism Index

Wednesday: Mortgage Apps and a 10-Year Note Auction

Thursday: Jobless Claims and a 30-Year Bond Auction

Friday: PPI and Retail Sales

Speaking of the Fed, below are two images showing the changing of the guard within the Fed. Each year the Fed Chair, Janet Yellen, vice chair, Fed Governors, and NY Fed president always vote. But there are 5 rotating voting members. If we look at last year, there were 5 doves, 2 centrists, and 3 hawks. Doves are more accommodative and less likely to hike, centrist are in the middle, and hawks believe more in tighter policy and are more likely to hike rates. Looking at the first image below, its no wonder we only had one hike last year. The Fed is forecasting 3 hikes this year, while several market analysts are forecasting as much as 4. But looking at the second image, you can see that the Fed is losing 2 hawks, which are moving to centrists. This means the Fed will lean even more dovish. It will be difficult for the Fed to hike this year, which is why we think 1-2 hikes is more probable.