Learn from the Past
Overview
Mortgage backed securities (MBS) lost 34 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move higher compared to the previous week.
While rates were very similar at the end of the week compared to the prior week, there actually was a little volatility during the week with mortgage rates rising due to strong economic news and some positive sentiment on the progress of the U.S./China trade talks. However, on Friday MBS rebounded which caused rates to move back to their starting position at the beginning of the week due to a smaller than expected rise in wages and more turmoil that is the soap-opera of Brexit.
Inflation Nation
- The March Import Prices were much higher than expected with the MOM at 0.6% vs. estimates of 0.4% and February revised upward from 0.6% to 1.0%.
- YOY Import Prices came in at 0.0% but that is a huge beat considering the estimates called for a decline of -1.3%. The majority of the increase is attributed to energy costs.
- The March Producer Price Index (PPI) was a littler hotter than expected. The Headline PPI YOY moved upward from 1.9% in February to 2.2% in March, the market was pricing in another 1.9% reading.
- The Core PPI YoY remained at 2.4%. PPI was a littler hotter than expected. The Headline PPI YOY moved upward from 1.9% in Feb to 2.2% in March, the market was pricing in another 1.9% reading.
- The March Consumer Price Index (CPI) was a mixed bag. The Headline CPI YOY moved upward from 1.5% in February to 1.9% in March, which is a large move. However, it was largely expected with expectations in the 1.8% rang. Meanwhile the Core (Ex Food and Energy) CPI YOY hit 2.0% vs. estimates of 2.1%.
Jobs
The February Job Openings and Labor Turnover Survey (JOLTS) continued to show very high levels of unfilled jobs and once again topped 7 million. It was lighter than expectations (7.087M vs. estimates of 7.550M) but January was revised upward from 7.581M to 7.625M which is a new and all-time high record.
The Talking Fed: The Minutes from the last FOMC meeting were issued. They seemed to tilt more to the “dovish” side of policy on Wednesday. You can read the official release here.
Here some key takeaways:
• Fed majority saw risks warranting rates on hold through 2019
• Some Fed officials saw further modest increase later this year
• Fed officials saw `significant uncertainties’ around outlook
• Several Fed officials concerned yield curve was quite flat
• Several Fed officials pointed to increased debt, leverage
Central Bank Palooza
The European Central Bank kept their main interest rate at 0.0% and announced no real policy changes. They did say that they would keep rates the same throughout 2019.
What’s on the Agenda for this Week?
Overview
This is a holiday-shortened trading week with an early close on Thursday at 2:00 and the bond market will not reopen until Monday. Basically after 10:00 EST on Thursday, bond traders will be gone. Last week, MBS lost ground but look to remain relatively flat this week as they are in a very narrow channel. A rebound to recover last week’s loss of 30BPS is not likely at all. Look for a weekly range with a max upside of only +12 but a downside of -21. For today, look for little downside in the -6 to -15 range.
Three Things
The three areas that have the greatest ability to impact your backend pricing this week are: (1) Trade Snore, (2) Across the Pond and (3) The Talking Fed
(1) Trade Snore: Speculation, leaks and any actual announcements of progress (meeting dates set, etc.) can have a big impact on pricing.
(2) Across the Pond: We have a lot of big economic releases that will hit this week which will give a better understanding of global growth (or lack thereof), which include GDP data out of China and preliminary PMI data out of Germany and the Eurozone.
(3) The Talking Fed: The highlight of the week will be Wednesday’s release of the Fed’s Beige Book which is prepared ahead of their next FOMC meeting. But we also will hear from a few key voting members this week.
Market Wrap-up
Overview
Today was a light day with no major economic releases and no major changes in trade talk. MBS did move lower to about -12 but have since been treading water.
Domestic Flavor
Manufacturing: The April NY Empire State Manufacturing Index was higher than expected (10.1 vs. estimates of 6.0) and three times as high as the March reading.
On Deck for Tomorrow: Industrial Production, Capacity Utilization and the Home Builders Index.
The Talking Fed
Chicago Fed President Charles Evans said Monday during a television interview on CNBC, “I can see the funds rate being flat and unchanged into the fall of 2020. For me, that’s to help support the inflation outlook and make sure that it’s sustainable at two or a little bit above; that would be fine too.”