Learn from the Past
Mortgage backed securities (MBS) gained 24 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move to a new all-time record low (for the second week in a row).
Jobs, Jobs, Jobs: Big Jobs Friday!
Tale of the Tape:
– July Non Farm Payrolls 1.768M vs. estimates that ranged from 1.48M to 1.60M.
– June Non Farm Payrolls revised from 4.8M down to 4.791M.
– May Non Farm Payrolls revised from 2.699M up to 2.725M.
– The Unemployment Rate came in at 10.2% vs. estimates of 10.5%.
– The U6 Underemployment Rate is 16.5% vs. estimates of 19.7%.
– The Participation Rate is 61.4%, was 61.5% last time around.
– The hourly rate rose by 7 cents to $29.39.
– Average Hourly Earnings MOM 0.2% vs. estimates of -0.5%.
– Average Hourly Earnings YOY 4.8% vs. estimates of 4.2%.
– Initial Weekly Jobless Claims were lower than expected but still saw another 1M new filers for the week with a 1.186M vs. estimates of 1.415M. Those classifying as temporarily laid off decreased but those classifying as permanently losing their job increased. Continuing Claims were 16.107M vs. estimates of 16.720M.
– July ADP Private Payrolls were lighter than expected (but not really) with the headline data hitting only 167K vs. estimates of 1.500M. Seems like a big miss. However, June was revised upward significantly from 2.369M to 4.319M…basically a 2M swing upward which moved the goal posts.
– The July ISM Non Manufacturing hit their best levels since Feb 2019 with a reading of 58.1 vs. estimates of 55.0.
– New Orders jumped to a very high 67.7 but Employment contracted to a very low level of 42.1.
The July national ISM Manufacturing PMI showed expansion with a 53.2 vs. 52.0 estimate. New orders spiked to 61.5 vs. estimates of 46.8 but Employment tanked to 44.3 vs. estimates of 48.3. June Factory Orders were better than expected (6.2% vs. estimates of 5.0%).
Central Bank Palooza
The Bank of England kept their key interest rate at 0.1%. The BofE governor said that negative interest rates are “in the toolbox” but they are not ready to use that tool until after the COVID pandemic passes.
What’s on the Agenda for this Week?
The three areas that have the greatest ability to impact backend pricing this week are: (1) Stimulation Nation, (2) Coronavirus and (3) Domestic Flavor.
(1) Stimulation Nation: President Trump has signed an Executive Order designed to get around the impasse between the Senate and House in competing stimulus bills. His order would reinstate the “helicopter money” for those that are unemployed and would replace their $600 weekly checks with $400 weekly checks. It also includes a “payroll tax holiday” for those making less than $100K per year and eviction stays for those not making rent payments. Many expect legal challenges to this recent order.
(2) Coronavirus: The Covid-19 pandemic continues to grow and its economic impact is still the main concern of long bond traders with the consensus seeing further deterioration of economic conditions and not a “V” shaped recovery.
(3) Domestic Flavor: The two biggest reports of the week are Initial Weekly Jobless Claims and Retail Sales. There will also be key inflationary readings with PPI and CPI.
Here is this week’s Treasury Auction schedule:
– 08/11 3 year note
– 08/12 10 year note
– 08/13 30 year bond
Jobs, Jobs, Jobs: The June Job Openings and Labor Turnover Survey (JOLTS) showed a large increase in the number of unfilled jobs and beat expectations (5.889M vs. estimates of 4.910M).
On Deck For Tomorrow: Producer Price Index, 3 year Treasury note auction.