Learn from the Past
Overview
Mortgage backed securities (MBS) gained 34 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move slightly lower compared to the prior week.
Domestic Flavor
Taking it to the House:
– July Existing Home Sales were much higher than expected (5.86M vs. estimates of 5.38M), overall prices increased by 8.5%.
– Weekly Mortgage Applications decreased by -3.3%, led by a drop of -5.0% in Refinance applications. Purchase applications increased by 1.0%.
– July Building Permits hit 1.495M vs. estimates of 1.32M. New Housing Starts came in at 1.496M vs. estimates of 1.24M.
– The August NAHB Housing Market Index tied its best reading ever with a 78 vs. 73 reading. Any reading above 50 is positive.
The Talking Fed: The Minutes from the last FOMC meeting were issued. Long bonds (higher rates) reacted poorly to the Fed’s discussion which appeared to lean towards not being concerned with the longer end of the yield curve (i.e. 20 and 30 year bonds) but more focused on the shorter end (2,5 and 10s).
Jobs, Jobs, Jobs: Initial Weekly Jobless Claims were much higher than expected with new claims breaking back above 1M at 1.106M vs. expectations of 925K. Continuing Claims were 14.844M vs. estimates of 15.000M
Flash time: The high-frequency Markit PMI’s were hotter than expected with Manufacturing PMI at 53.6 vs. estimates of 51.9 and Services PMI 54.8 vs estimates of 51.0
What’s on the Agenda for this Week?
Overview
This week has a lot going on with major geopolitical and economic events.
Three Things
The three areas that have the greatest ability to impact backend pricing this week are: (1) Cowboys, (2) Mother Nature and (3) Domestic Flavor
(1) The Cowboy State: No, not the Dallas Cowboys. The Cowboy State, Wyoming, as Kansas City’s Federal Reserve hosts a “virtual” version of their Jacksonhole, WY Economic Symposium. Federal Reserve Chair Jerome Powell will speak on Thursday at 9:10 am. The bond market will be focused on discussions revolving around interest rates, Fed policy and the group-think on the timing of an economic turnaround.
(2) Mother Nature: Two hurricanes are going to hit the U.S. this week which will be disruptive to the economies of the Southern portion of the U.S. Covid cases spiking on every single college campus that allowed students back is also very alarming and could push a real economic recovery to past 2021.
(3) Domestic Flavor: There will be some big data points this week with the Fed’s key measure of inflation (PCE), the revised GDP (-32.9%), Durable Goods and Chicago PMI, along with key readings on the consumer with both Consumer Confidence and Consumer Sentiment.
Treasury Dump
Here is this week’s Treasury auction schedule
– 08/25 2 year note
– 08/26 5 year note
– 08/27 7 year note