Learn from the Past
Mortgage backed securities (MBS) lost just 3 basis points from last Friday’s close which caused fixed mortgage rates to move sideways compared to the prior week.
Taking it to the House: June Housing Starts were stronger than expected, 1.186M vs. estimates of 1.169M, plus May was revised upward significantly from 974K to 1.011M. Building Permits hit 1.241M vs. estimates of 1.290M. The NAHB Housing Market Index jumped to a very robust 72 vs. estimates of 60. Weekly Mortgage Applications increased by 5.1%. Purchases tanked by -6.0% but Refinances jumped by 12.0%.
Consumer Sentiment: The Preliminary July reading hit only 73.2 which is a large pullback from June’s level of 78.2.
Jobs, Jobs, Jobs: Initial Weekly Jobless Claims were higher than expected, coming in at 1.30M vs. estimates of 1.25M. Continuing Claims are at 17.338M vs. estimates of 17.6M.
Manufacturing: The Philly Fed Manufacturing Survey was better than expected, 24.1 vs. estimates of 20.0. The July NY Empire Manufacturing Index made it back into positive territory with a respectable reading of 17.2 which was much stronger than expectations of 10.0.
Retail Sales: June Headline Retail Sales hit 7.5% vs. est. of 5.0%. Retail Sales ex-autos were 7.5% vs. estimates of 5.0%
Inflation Nation: The June headline Consumer Price Index (CPI) YOY increased by 0.6% vs. estimates of 0.6%. The Core (ex food and energy) CPI YOY gained 1.2% vs. estimates of 1.1%.
Central Bank Palooza
The European Central Bank kept their key interest rate at 0.0%. The Bank of Japan kept their key interest rate at -0.1%. The Bank of Canada kept their interest rate at 0.25%.
What’s on the Agenda for this Week?
The three areas that have the greatest ability to impact backend pricing this week are: (1) Stimulation Nation, (2) Central Bank Palooza and (3) Coronavirus.
(1) Stimulation Nation: Both sides of the aisle are in “full press” mode as the end of month is rapidly approaching. The size and scope of the next (and most likely last) “stimulus” package will have a big impact on long bond yields.
(2) Central Bank Palooza: The People’s Bank of China has decided to keep their key interest rate at 3.85% already this week. But it’s the EU that is getting all of the attention this week as they work a stimulus deal that will include a heavy dose of grants.
(3) Coronavirus: The bond market is on watch to see which states further pull back on re-openings as it will have a tremendous impact on the timing of any possible economic recovery. While politicians at the state and national levels still are expecting some sort of “v” shaped recovery by the end of this year, economists and central bankers are pegging that recovery into 2021 at the earliest.
Stimulation Nation: Congress has returned to Washington D.C. just before their August break to work out the next leg of a stimulus Bill. Treasury Secretary Mnuchin will address Congress tonight.
On Deck for Tomorrow: Chicago Fed National Activity Index.
Across the Pond
The European Union appears to have moved past some key member states’ objections and are “near” a 390B Euro stimulus package.
Central Bank Palooza: The Peoples Bank of China kept their key interest rate at 3.85%.