Learn from the Past
Mortgage backed securities (MBS) gained 10 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move sideways compared to the previous week.
Once again, there was some moderate to very strong domestic economic data that would normally be a force that causes MBS to sell off and cause mortgage rates to rise. But geo-political concerns provide enough global fear to keep demand levels for bonds at very lofty levels which kept rates at very low levels. Great Britain couldn’t get their Brexit plans passed and the best they could do after two failed votes last week was to delay their divorce from the Eurozone.
Jobs: Wow…another new record! The January Job Openings and Labor Turnover Survey (JOLTS) showed 7.581M unfilled positions which beat out estimates calling for a very high level of 7.310M. Per the BLS, the number of Unemployed is 6.2M…so there are 1.381M MORE JOBS THAN THERE ARE PEOPLE LOOKING FOR JOBS.
Inflation Nation: The Feb Headline Consumer Price Index YOY was lighter than expected (1.5% vs. estimates of 1.6%). Core (Ex Food and Energy) YOY hit 2.1% vs. estimates of 2.2%. Prices fell in prescription drugs and auto prices but shelter costs moved up 3.4% YOY.
Consumer Sentiment: The Preliminary March University of Michigan’s Consumer Sentiment Index was much higher than expected (97.8 vs. estimates of 95.3) and a big improvement over Feb’s final reading of 93.8.
Taking it to the House: New Home Sales for January hit 607K vs. estimates of 620K. But December was revised upward from 621K to 652K. Weekly Mortgage Applications rose by 2.3%. Purchases increased by 4.0% but Refinances fell by -0.2%.
Central Bank Palooza
The Bank of Japan kept their key interest rate at -0.1%.
What on the Agenda for this Week?
Look for MBS to continue to trade in a very elevated range for another week of very low rates. However, holding out for a big run where MBS break above our current channel is very risky.
The three areas that have the greatest ability to impact backend pricing this week are: (1) Central Bank Palooza, (2) Brexit and (3) Trade Snore.
(1) Central Bank Palooza: Wednesday will be the latest interest rate decision and policy statement from our Federal Reserve. While the bond market is not expecting any action at this meeting, this is one of those meetings where they do release their Economic Projections and Dot Plot chart. While the FOMC has been trying to downplay the value of the dot pots lately, the bond market will be paying very close attention to see if the number of “dots” (FOMC members) have 0, 1 or even 2 rate hikes for this year and next compared to the last dot plot chart. There will also be a very important Bank of England interest rate decision and information from the Swiss National Bank as well.
(2) Brexit: There is a possibility that PM Theresa May could bring a 3rd version of her Brexit deal to Parliament on Tuesday. Regardless, there is a two-day EU policy meeting in Brussels starting on Thursday that will be focusing on Brexit. Any movement that can give the markets less uncertainty would be negative for pricing.
(3) Trade Snore: The markets seem to have “trade war fatigue” and you really can’t blame them. Now, it looks like a summit may be pushed back to June. However, any major (and official) announcements on real policy agreements can have a major impact on pricing.
A real “snooze-fest” today without a single domestic or foreign economic release with any type of gravitas to move pricing. There was also no real change in any of the major geo-political situations. As a result, MBS have just treaded water and have moved sideways as the markets away from Wednesday’s FOMC decision.
Taking it to the House
The March NAHB Housing Market Index remained at 62, the market was expecting 63. Any reading above 50 is positive and above 60 is very strong.
Across the Pond
Japan: Industrial Production YOY 0.3% vs. estimates of 0.0%.
Eurozone: Trade Balance 17B vs. estimates of 13.2B.
Brexit: PM Theresa May has been blocked from resubmitting the exact same deal through Parliament as there are laws in place to keep the same bill/legislature from being crammed down their throat over and over again. So, in order for May to get her vote Tuesday, she has to make some material changes to the last deal that she submitted for approval (called a “meaningful” vote).
On Deck for Tomorrow
FOMC begins two days of meetings; Factory Orders.