What Happened Last Week?
Mortgage backed securities (MBS) lost -27 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move slightly higher from the prior week.
The difference between the highest price (lowest rate) and lowest price (highest rate) of FNMA was only 55 basis points which is extremely “thin” for an entire week of trading. MBS had plenty of support due to strong technical moving averages just below the week’s trading levels and also saw strong support due to continued concern over the potential Greek exit from the Euro.
It was a very light week for economic data. There were some very good readings with ISM Non-Manufacturing (2/3 of our economy) with a reading of 56.5, and some growth with Wholesale Inventories (+0.3%) as well.
The two biggest events of the week were the release of the minutes from the last FOMC meeting and the 30-year Treasury auction. Probably the biggest mover of the week was the 30-year Treasury auction which saw a pull-back in demand as measured by the bid-to-cover ratio.
FOMC Minutes: This was a mixed bag and quite frankly if you were a bear…you found what you were looking for in these minutes. But if you were a bull….well, you still found what you were looking for in these minutes. Essentially, the minutes made it clear that the Fed is still data dependent and that voting members had some very different opinions (and opinion is the key word) on when the Fed should tighten…but all the various and sundry Fed presidents and governors have been “chatty Cathies” with speeches galore making their opinions known to the market place. So..really there was nothing really new in this. Federal Reserve members found themselves at a crossroads during their pivotal March meeting, torn between hiking rates in June, September—or even waiting until 2016, according to meeting minutes.
They also expressed concerns over:
– The Dollar’s drag on exports and growth
– Most saw risk to the outlook and job market fairly balanced
– Cited low oil prices
What’s On the Agenda for This Week?
Unlike last week, we have a lot of economic data that will hit. The biggest report of the week will be Tuesday’s Retail Sales report. Retail Sales have been very lackluster the last three readings and has not shown any real correlation between the big increase in Consumer Confidence levels and lower gas pump prices…they simply have not shown up in Retail Sales yet. The key for our economy is…at what point do they start to show up in Retail Sales? Because then that starts to offset the huge drag on our economy from massive job losses and reduced capital investment caused by low oil prices. The consensus estimates are calling for a very large increase of 1.0%. We will need to see if our economy is finally getting some traction in this area. Basically, the higher this reading is….the worse it is for rates.
There aren’t any major Treasury auctions this week.
There will be some more housing data with the Home Builder’s Index and Housing Starts and Building Permits. On the manufacturing front will be several regional reports such as the Philly Fed MFG and the Empire (NY) Manufacturing Index. We also get a nice dose of inflation data with the release of PPI and CPI.
The “Talking Feds“
04/14 – Kocherlakota
04/15 – Bullard
04/16 – Lockhart, Mester, Rosengren, Fischer
Across the Pond:
G20: Thursday, the Finance Ministers from the G20 member nations will get together.
China: On Wednesday they will issue their 1st quarter GDP data as well as Industrial Production and Retail Sales. These reports have the gravitas to really move international bond prices and will need to be closely watched.