What’s on the agenda for this week?
Mortgage Backed Securities (MBS) Overview
This is a big week for economic data with the long-bond market squarely focused on two events: Thursday’s ECB meeting and Friday’s Non-Farm Payroll report.
Eyes are on Mario Draghi (ECB President) on Thursday to see what he will spell out in his latest attempt to steer the Eurozone away from the prospect of damaging deflation.
There is a slew of jobs data with ADP Private Payroll, Initial Weekly Claims, Challenger Job Cuts, Non-Farm Payrolls (NFP) and the Unemployment Rate. The key will be Friday’s NFP report. The market expects this reading to once again be above that important 200K mark. But the real story won’t be this reading, it will be the revision to the prior reading which came in at 142K. Everyone expects the 142K to be revised upward; the question is…just by how much? The bigger the revision, the more impact this can have on pricing and will need to be closely watched.
There is also lots of manufacturing news this week with Chicago PMI, ISM Manufacturing, and Factory Orders to name a few. These are all expected to have strong readings. Traders will be looking closely at some of the internal costs (inflation) pieces and hiring as well to try to game Friday’s NFP report.
Early A.M. News
Talking Feds: Chicago Fed President Charles Evans weighed in this morning stating that in his opinion he would wait longer, even past 2015, before raising interest rates.
Today’s Economic Data
PCE: This is the measure of inflation that the Federal Reserve uses as their 2.0% trigger. And both Headline (1.5%) and Core (1.5%) came in well-below that 2.0% market and were about the same as their prior reading. So, from this report – it seems that there is no reason for the Fed to be worried about inflation in the near term.
International Flavor
MBS are up in early trading as fears over Catalan (Spain) independence and Hong Kong (China) protests spark safe-haven buying around the world. Russia and their sanction-induced gas threats will be key to watch as well.
Talking Feds
Chicago Fed President Charles Evans weighed in this A.M. stating that in his opinion – he would wait longer, even past 2015 before raising interest rates.
What happened last week?
MBS Overview – Learn from the Past
MBS gained +31 basis points (BPS) from last Friday’s close which caused 30 year fixed mortgage rates to improve slightly from the prior week. We saw the best rates on Thursday and the worst rates on Monday.
Trading for Fannie Mae 3.50% September MBS was confined to a very well-defined trading channel. While it bounced around within that channel, there was no economic or global news that was strong enough to break out of that range.
On the housing front, Existing Home Sales missed (5.05M units vs estimate of 5.20M) but the pull-back was mostly in investment properties and not owner-occupied, which is the meat of the market. New Home Sales were stronger than expected and hit their best levels since 2008.
The two biggest reports of the week were Durable Goods Orders and GDP. Durable Goods Ex-Transports were right on the money with a reading of +0.7% vs estimate of +0.7%, and the final revision to the 2nd quarter GDP rose from 4.2% to 4.6%. Neither report had a significant impact on rates or pricing though.