"It's not so easy to control (pressure) There's always an easy way to make it better." White Knuckle Ride by Jamiroquai.

Ukraine and Russia Escalation

Unfortunately, this past week saw an escalation of tensions between Ukraine and Russia. Ukraine fired Western missiles into Russia for the first time during this conflict. In response, Russia announced that the country would lower the threshold to deploy nuclear weapons. This uncertain news created a "safe haven" trade into the U.S. Dollar and U.S. Dollar-denominated assets like bonds.

However, the price gains and rate improvement were limited as this news also caused a spike in oil prices, which bonds do not favor. Let's hope things do not escalate further in the region.

Mixed Economic Signals

The Philadelphia Fed Manufacturing Index, which measures manufacturing in the region, came in well below expectations. The news highlights the weakness and economic contraction in our manufacturing sector—one that also continues to shed jobs every month. Weak economic data like this gives the Federal Reserve reason to consider cutting rates again in December.

However, Initial Jobless Claims, a weekly reading that shows how many people file for first-time unemployment benefits, remains at historically low levels, suggesting the labor market remains resilient.

Since the Fed has said that "further cooling in the labor market would be unwelcome," they must like seeing people not being laid off.

Housing News

This past week, both Housing Starts and Permits came in below expectations. However, this weakness was offset by the National Association of Home Builders (NAHB) showing new optimism looking out 6 months due to a new government, which will likely decrease regulatory hurdles and costs to build new homes.

To get a sense of what the NAHB is thinking, here's the blueprint they just provided to help with the housing affordability crisis.

With policymakers at all levels of government looking for ways to provide more affordable homeownership and rental housing opportunities for all Americans, NAHB is offering a plan that outlines initiatives that can be taken at the local, state, and federal levels to address the root of the problem: the impediments to increasing the nation's housing supply.

1. Eliminate excessive regulations.
2. Promote careers in the skilled trades.
3. Fix building material supply chains and ease costs.
4. Pass federal tax legislation to expand the production of affordable and attainable housing.
5. Overturn inefficient local zoning rules.
6. Alleviate permitting roadblocks.
7. Adopt reasonable and cost-effective building codes.
8. Reduce local impact fees and other upfront taxes associated with housing construction.
9. Make it easier for developers to finance new housing.
10. Update employment policies to promote flexibility and opportunity.

Wide Sideways Range

For the past month, mortgage rates have fluctuated within a wide sideways range but have resisted reaching new highs as the 10-year Note continues to trade below 4.50%. The 10-year Note yield range for the past month has been 4.30% to 4.50%. If the yield exceeds 4.50%, mortgage rates will increase. The opposite is also true.

Bottom line: Interest rates are trying to stabilize after the spike that started back in September. With a new administration still weeks away, we may continue to see bonds and rates move in a volatile sideways fashion as we await clarity.

Looking ahead

Next week is an important news week as we get the Fed's favored gauge of inflation, the Core Personal Consumption Expenditure Index (PCE). This year-over-year reading is expected to rise to 2.8% from 2.7%, which is the wrong direction and still well above the Fed's target of 2.00%. There will be several auctions that could move the market. All of this news will happen in a holiday-shortened week as we celebrate Thanksgiving next Thursday.