Learn from the Past
Overview
Mortgage backed securities (MBS) gained 13 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move sideways for the week.
Sideways movement continued in long bond yields throughout the month of March as the market is awaiting the first Fed rate hike of the year. Overall, last week had very strong labor market data and both small business and consumers had some of the highest sentiment readings on record. Inflation was tame but above 2.00% on headline CPI.
For the month of March, MBS are down 11 BPS net of last week’s 13BPS gain and have been trapped below the 25 day moving average.
Domestic Flavor
Jobs, Jobs, Jobs: January JOLTS (Job Openings and Labor Turnover Survey) showed over 6 million vacant jobs….just waiting for the right person (that can pass a drug test, and has experience/skills). This was a much stronger than expected reading (6.312M vs estimates of 5.890M) and is at a record high.
Consumer Sentiment: The University of Michigan’s Consumer Sentiment Index Preliminary March reading hit 102.00 vs estimates of 99.3 and is one of the hottest readings on record.
Small Business Optimism: The February NFIB index moved higher from January’s level of 106.9 to February’s reading of 107.6. It’s the 2nd highest level in 45 years!
Manufacturing: The February Industrial Production figures were almost three-times stronger than expected with a 1.1% vs an estimated 0.2% reading. Capacity Utilization was also a beat (78.1 vs estimates of 77.6). There was strength in mining, business equipment and building supplies.
Inflation Nation: Across the board, the Consumer Price Data matched market expectations with the closely watched YOY headline reading rising to 2.2% in February from 2.1% in January. The Core YOY remained at the 1.8% level. Producer Price Data matched also market expectations with the closely watched YOY Headline reading rising to 2.8% in February from 2.7% in January. The Core PPI YOY rose from 2.2% to 2.5%.
Atlanta Fed: Their Year Ahead Inflation expectations rose from 2.0% in February to 2.1% in March. However, their GDPNow forecast model dropped the 1st quarter GDP expectations down to 1.9%. If you recall, this was 5.2% in January, dropped to 4.3% and then 2.5% and now 1.9%.
What’s on the Agenda for this Week?
Overview
Until the Federal Open Market Committee (FOMC) release on Wednesday, MBS are expected to trade in the same relative range that they have been stuck in for the last couple of weeks. When the Fed raises rates, it’s simply not good for MBS. While they do not directly control mortgage rates via their Fed Fund Rate (they do control mortgage rates via MBS purchases which will decrease again on April 1), their growth outlook (dot plot chart) can have an impact as well as comments from Powell.
Three Things
The three items that have the greatest ability to impact your backend pricing this week are: (1) The Talking Fed, (2) Across the Pond and (3) Geo-political.
(1) The Talking Fed: Tuesday starts two days of meetings for the FOMC which will culminate with Wednesday’s policy announcement. This meeting will be closely watched as it is widely expected to be the first rate hike of the year. But equally important is the release of their Economic Projections which includes the famous “dot plot chart’ which shows the market what the mean expectations are from all of the Fed members (both voting and non-voting) of the Fed Fund Rate from now through 2020. This is where the market gets the expected number of rate hikes for this year and the next year. This will also be Fed Chair Powell’s first live press conference following a Fed meeting and rate hike and his comments will drive the markets.
(2) Across the Pond: The G20 Finance Ministers meeting among the world’s 20 largest economies will get a lot attention Monday and Tuesday. But it is news/rumors of the ECB announcing new policy to end their QE soon that will drive markets the most.
(3) Geo-Political: The focus is on Brexit with EU leaders meeting in Brussels to sign off on the new Brexit guidelines. Also, the bond market will continue to react to news out of the U.S. regarding tariffs.
Market Wrap-up
Overview
Enjoy the calm. There were no major economic releases today that could impact pricing. As a result, MBS could not go up so they just traded sideways for the day. Nothing to see here folks, move along.
Domestic Flavor
There were no economic releases today.
On Deck for Tomorrow: FOMC Meeting Begins, G20 meeting.