What’s Happening?
•DeepSeek LLM (good for rates): On Monday, Jan 27th, the Chinese DeepSeek LLM (large language model) sent shockwaves through the market and caused NVIDIA’s stock to drop by about 11% which has held all week. When stocks sell off, often the money moves to bonds (like mortgages) which pushes mortgage rates down and we saw that happen on Monday. DeepSeek is a direct competitor to ChatGPT and the reason it’s caused such a reaction is the claim that it’s performing close to ChatGPT’s performance but with far fewer hardware resources, which means it would be FAR cheaper to operate. More efficiency projects less demand for the NVIDIA hardware that powers LLMs like ChatGPT and is a big driver in the stock price drop. There is a lot to question about both the performance and efficiency of DeepSeek as Chinese data often lacks transparency, and this is no exception. The S&P500 is up 1% on the week despite NVIDIA being the 3rd ranked company in the S&P500 by weight, so it seems only NVIDIA was affected.
•Jobs Report (bad for rates): The BLS December Labor Report released on Jan 10th showed stronger-than-expected jobs numbers. In December there were 256,000 new jobs added, 100k more than were forecast. Unemployment dropped slightly too, dropping from 4.2% to 4.1%, and hourly earnings were up by 0.3% from November. This data points to a slightly stronger labor market which is bad for mortgage rates.
•Federal Reserve Meeting (neutral for rates): The Fed met on Wednesday, Jan 29th, and did little to change future rate expectations. There was no change to the Fed funds rate, and the first cut of 2025 is expected in June.
•Inflation Reports (neutral for rates): The December CPI and PCE (inflation) reports both came in Jan 31st as expected at +2.9% and +2.6%, respectively, Y-O-Y. Hitting their marks means there was no surprise news for markets to adjust to and inflation isn’t scary yet, so it isn’t hurting mortgage rates.
