Learn from the Past
Overview
Mortgage backed securities (MBS) gained 31 basis points from last Friday’s close which caused fixed mortgage rates to move lower compared to the prior week.
Domestic Flavor
Deflation Nation: The headline June Producer Price Index (PPI) YOY dropped by -0.8% vs. estimates of -0.2%. The Core (ex food and energy) YOY reading was only 0.1% vs. estimates of 0.4%.
Jobs, Jobs, Jobs: Initial Weekly Jobless Claims hit only 1.314M vs. estimates of 1.375M. The four week moving average is now 1.437M. Continuing Claims were 18.062M vs. estimates of 18.950M. The May Job Openings and Labor Turnover Survey (JOLTS) showed unfilled jobs increased to 5.397M vs. estimates of 4.85M.
Services: The national ISM Non-Manufacturing Index (2/3 of our economy) for June broke into expansionary territory with a reading of 57.1 vs. estimates of 50.1. Prices Paid were 62.4 vs. estimates of 53.9 but the Employment Index was very low at 43.1.
Economic Optimism: The July IBD/TIPP Economic Optimism Survey slumped from 47 in June to 44 in July.
What’s on the Agenda for this Week?
Three Things
The three areas that have the greatest ability to impact backend pricing this week are: (1) Coronavirus, (2) Central Bank Palooza and (3) Stimulation Nation.
1) Coronavirus: Last week’s pricing gains were directly attributed to increases in the Covid-19 cases in the U.S. and its long lasting impact on our economy. This week, the news is more of the same, increased cases globally and domestically and more counties/states announcing pauses or reversals of opening phases. ICU and hospital bed usage continue to rise although the death rate continues to fall.
(2) Central Bank Palooza: This is a very big week for Central Banks as there are very key interest rate decisions and policy statements from The Bank of Japan, the Bank of Canada and the European Central Bank. The Fed’s Beige Book will also be issued (which is prepared in advance of the next Fed Meeting).
(3) Domestic Flavor: There are several big economic reports this week that will get the attention of traders, like CPI and Retail Sales, but it’s the weekly Initial Jobless Claims data that will get the most weight.
Market Wrap-up
The Talking Fed
The Federal Reserve announced their latest schedule of purchases. They will buy an average amount of $4.60B daily for the next 10 days with about the same amount again for Treasury purchases.