Learn from the Past
Mortgage backed securities (MBS) lost 36 basis points from last Friday’s close which caused fixed mortgage rates to edge up compared to the levels of the prior week.
Taking it to the House:
• Weekly Mortgage Applications dropped by -2.6% overall. It was a mixed bag with Purchases jumping by +6.0% but Refinances falling by -6.0%.
• April Existing Home Sales fell from an annualized pace of 5.27M units in March down to a 4.33M unit pace in April.
• The median Sales Price is now $286,800.
• April Building Permits were a little better than forecast (1.074M vs. estimates of 1.000M) but were lower than March’s pace of 1.356M. As far as actually starting the builds, these trailed off with Housing Starts dropping from 1.276M in March down to only 891K in April.
Jobs, Jobs, Jobs: Initial Weekly Jobless Claims were close to expectations with 2.438M new filings. Continuing Jobless Claims are now the highest ever on record with 25.073M.
The Talking Fed
The Minutes from the last FOMC meeting on Wednesday were issued. Here a few highlights:
• Participants noted that the Coronavirus outbreak was causing tremendous human and economic hardship across the United States and around the world. The virus and the measures taken to protect public health were inducing sharp declines in economic activity and a surge in job losses.
• A few participants also noted that the balance sheet could be used to reinforce the Committee’s forward guidance regarding the path of the federal funds rate through Federal Reserve purchases of Treasury securities on a scale necessary to keep Treasury yields at short-to medium-term maturities capped at specified levels for a period of time.
• The Committee could adopt outcome-based forward guidance that would specify macroeconomic outcomes – such as a certain level of the unemployment rate or of the inflation rate – that must be achieved before the Committee would consider raising the target range for the federal funds rate.
Central Bank Palooza
The People’s Bank of China kept their key interest rate at 3.85%. The Bank of Japan kept their key interest rate unchanged at -0.1% vs. estimates of 2.400M.
What’s on the Agenda for this Week?
The three areas that have the greatest ability to impact backend pricing this week are: (1) Coronavirus, (2) Trade War and (3) Domestic Flavor.
(1) Coronavirus: Is this a pause before a big second wave? That’s what economists and bond traders are eager to find out as they monitor data from states and countries that have been opened for a little while vs. all the new states that have partially reopened this weekend. So far, it’s a mixed bag with states like Virginia seeing a record amount of new cases. We likely won’t really know how the new states will fare for a week or two though.
(2) Trade War: It’s back and its getting a lot of attention from traders even though it’is not grabbing the main headlines as both sides lob accusations over the COVID-19 virus, as well as the ability to even get commerce flowing back between the two economic juggernauts.
(3) Domestic Flavor: There is an action-packed release schedule this week with all eyes on Friday’s Core PCE YOY data.
Taking it to the House:
• The April Pending Homes Sales report was much better than expected with an annualized pace of 623K vs. estimates of 490K.
• The lagging indicator Case Shiller Home Price Index showed a sharp increase in YOY prices in their 20 metro index, rising 3.9% vs. estimates of 3.4% in March.
• The FHFA Home Price Index showed a small MOM increase of just 0.1% vs. estimates of 0.3% in March.
Consumer Confidence: The index was very light with a 86.6 reading; the market was forecasting a little better level at 88.3.
On Deck for Tomorrow: Weekly Mortgage Applications, 5 year Treasury note auction, Fed’s Beige Book.