Learn from the Past
Mortgage backed securities (MBS) lost 9 basis points from last Friday’s close which caused fixed mortgage rates to remain at the same levels of the prior week
Jobs, Jobs, Jobs: Initial Weekly Jobless Claims were higher than forecasts (1.508M vs. estimates of 1.300M). Continuing Jobless Claims remains above 20M, 20.544M vs. estimates of 19.8M. Almost 46M have applied/filed for unemployment claims since the lockdowns began.
Retail Sales: The Headline May reading hit 17.7% vs. estimates of 8.0%. Ex Autos, it gained 12.4% vs. estimates of 5.5%.
Taking it to the House:
• Purchase Applications gained 4.0%.
• May New Housing Starts came in at an annualized pace of 974K units vs. expectations of 1.095M.
• Building Permits were 1.220M vs. estimates of 1.228M.
• The June NAHB Housing Market Index broke back into positive territory and surprised to the upside with a 58 vs. 45 reading.
Manufacturing: The June Philly Fed Manufacturing Survey and Business Outlook surged to 27.5, far outpacing the estimates of -23 and May’s reading of -43.1. May Industrial Production was 1.4% vs. estimates of 2.9%, which is a large rebound from April’s pace of -12.5% (lowest on record). Capacity Utilization came in at 64.8% vs. estimates of 66.9%
Central Bank Palooza
The Bank of England kept their key interest rate at 0.1%, adds 100B pounds in bond buying program. The Bank of Japan (the world’s third largest economy) kept their key interest rate at -0.1%.
The Talking Fed
Federal Reserve Chair Jerome Powell testified in front committees in the Senate and House but did not provide any new Fed policy nor content that was not already previously disseminated by the Fed.
What’s on the Agenda for this Week?
The three areas that have the greatest ability to impact backend pricing this week are: (1) Coronarivus, (2) Central Bank Palooza and (3) Domestic Flavor.
(1) Coronarivus: The non-stop media coverage and positing of the “second wave” of COVID 19 is the primary focus of bond traders as more and restrictions are being eased (NYC moves to Phase 2 of reopenings today). With very real and staggering data out of FL, CA, TX, AZ and others showing major increases in both the number of new cases and hospitalization rates, the possibility of states freezing, or even reversing some openings is of paramount interest among economists and long bond traders.
(2) Central Bank Palooza: China and New Zealand will issue key interest rate decisions, and the European Central Bank will hold their Non-Monetary meeting. The IMF will also their updated forecasts. From our own Fed, Charles Evans and James Bullard will speak. But the focus this week will be on the results of the Bank Stress Tests on the major financial institutions and the rollout of the Main Street Lending Program.
(3) Domestic Flavor: There will be some big name economic releases such as revised GDP and Durable Goods, but main focus will be on Initial Weekly Jobless Claims on Thursday, and on Friday the Fed’s key measure of inflation – Core PCE YOY.
Taking it to the House
May Existing Home Sales were lighter than expected (3.91M vs estimates of 4.12M) but time on the market dropped, median sales price increased and there was a little more inventory available.
Central Bank Palooza
The Peoples Bank of China kept their key interest rate at 3.85%.
The 2nd Wave theme continues to gain momentum.
On Deck for Tomorrow
Richmond Fed, New Home Sales, 2 year Treasury Auction.