Learn from the Past
Overview
Mortgage backed securities (MBS) lost 70 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move higher compared to the prior week.
Domestic Flavor
Retail Sales: The July Headline Retail Sales MOM reading came in at 1.2% vs. estimates of 1.9% but it’s not really a miss considering June was revised upward from 7.5% to 8.4%. Ex-Autos, Retail Sales saw a monthly gain of 1.9% vs. estimates of 1.3%
Jobs, Jobs, Jobs: Initial Weekly Jobless Claim were much lighter than expected and came in under a million for the first time since early March at 963K vs. estimates of 1.120M. Continuing Claims fell to 14.486M vs. estimates of 15.898M.
Inflation Nation: The July Headline Consumer Price Index YOY was hotter than expected as food and medical expenses jumped, hitting 1.0% vs. estimates of 0.8%. On a MOM basis, they were double the market expectations (0.6% vs. estimates of 0.3%). Core CPI YOY (ex food and energy) increased by 1.6% vs. estimates of 1.1%. On a MOM basis, they increased by triple the market expectations (0.6% vs. estimates of 0.2%).
Productivity: The 2nd quarter Non Farm Productivity showed a large improvement of 7.3% vs. the 1st quarter, estimates were in the 1.5% range. Unit Labor Costs for the same period increased by 12.2% vs. estimates of 6.2%.
Manufacturing: Industrial Production in June increased by 3.0% which matched forecasts. Capacity Utilization was 70.6% vs estimates of 70.3%.
What’s on the Agenda for this Week?
Three Things
The three things that have the greatest ability to impact backend pricing this week are: (1) Stimulation Nation, (2) Coronavirus, and (3) The Talking Fed.
(1) Stimulation Nation: There is still no deal between the two sides on a stimulus package. The markets will be very reactive to any official agreement or date set for talks.
(2) Coronavirus: As the pandemic continues to expand the prolonged effect on the economy, economists are watching the headlines closely.
(3) The Talking Fed: The Minutes from the last FOMC meeting will be released on Wednesday.
Market Wrap-up
Domestic Flavor
Manufacturing: The August Empire State (NY) Manufacturing Index was much weaker than expected (3.7 vs. 15) dashing hopes of a “V” shaped recovery for the region.
Taking it to the House: The August NAHB Housing Market Index tied its best reading ever with a 78 vs. 73 reading. Any reading above 50 is positive.
On Deck for Tomorrow: Housing Starts, Building Permits, Fed’s Brainard.