Learn from the Past
Overview
Mortgage backed securities (MBS) lost 29 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move slightly higher compared to the prior week.
It was a week of very solid economic data with continued expansion in the Services sector (2/3 of our economy), Jobs and Consumer Sentiment. All of which painted a good economic picture which pressured mortgage rates higher. Rates also were responding to news, reports and tweets that trade negotiations with China were progressing which is also somewhat negative for rates.
Domestic Flavor
Consumer Sentiment: The preliminary UofM Consumer Sentiment reading came in at 95.7 vs. estimates of 95.9. This is the best reading since July and a nice improvement from October’s final read of 95.5.
Services: The October ISM Non Manufacturing National PMI continued to show expansion with a reading of 54.7, the market was expecting 53.5. This marks a trend of expansion in the Services sector that began in 2009.
What’s on the Agenda for this Week?
Overview
This is a holiday-shortened week that will be focused on “Towell” (Trump-Powell). The trade speech by Trump on Tuesday will set the tone for the entire week. If he puts a positive spin on trade talks, look for pricing to take it on the chin; if his tone is more combative towards trade then MBS at least have an opportunity for some small gains but will not have the velocity to break above the channel.
Three Things
The three areas that have the greatest ability to impact your backend pricing this week are: (1) Trade Wars, (2) The Talking Fed and (3) Inflation Nation.
(1) Trade Wars: MBS lost some ground last week due (in part) to perceived positive momentum in trade discussions between the U.S. and China. This week kicks off with President Trump giving a speech today at the famed NY Economic Club about trade.
(2) The Talking Fed: Fed Chair Powell speaks twice this week: before a Congressional Joint Committee on Wednesday and the House on Thursday. But a lot of governors and presidents will speak this week as well. Here is the full schedule:
11/12 Richard Clarida, Tom Barkin, Patrick Harker, Neel Kashkari
11/13 Jerome Powell
11/14 Randall Quarles, Charles Evans, Jerome Powell, Mary Daly, John Williams, James Bullard, Robert Kaplan.
(3) Inflation Nation: There will be several key measures of inflation this week and long bonds are very reactive to inflationary (or deflationary) data. The Core Consumer Price Index YOY reading on Wednesday will carry the most weight among bond traders. There will also be PPI, Atlanta Fed Business Inflation Expectations and Import Prices.
Market Wrap-up
Domestic Flavor
Small Business Optimism: The October NFIB Survey moved higher to 102.4 which edged out expectations of 102.0
On Deck for Tomorrow: Weekly Mortgage Applications. CPI, Fed Chair Powell.
Trade War
President Trump was the keynote speaker at the NY Economic Club luncheon today. He mainly went over the economic progress and gains in the stock market but did take a moment to address the trade negotiations with China, South Korea, Europe, Canada/Mexico and others. Regarding China, he said that they are “close” to a deal and that “China wants a deal more than we do.” But there was really nothing new in his speech that would cause bond traders to move their expectations one way or another.
Across the Pond
Great Britain: Unemployment Rate 3.8% vs. estimates of 3.9%.