Learn from the Past
Mortgage backed securities (MBS) lost 19 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move slightly higher compared to the prior week.
Inflation Nation: The Fed’s primary measure for inflation, Personal Consumption Expenditures, were released at 8:30 am ET. The headline PCE YOY was 1.0% vs. estimates of 1.2%, but last month was revised higher. The Core (ex food and energy) YOY reading rose by 1.3% vs. estimates of 1.2%.
Income and Spending: Personal Incomes in July rose by +0.4% vs. expectations for a contraction of -0.2%. Personal Spending increased by 1.9% vs. estimates of 1.5%.
Manufacturing: The August Chicago PMI showed expansion for the second straight month with a 51.2 reading. The market was expecting 52.0, July was at 51.9. July Headline Durable Goods Orders were much higher than expected (11.2% vs. estimates of 4.3%). The more closely watched Ex-Transportation component was close to expectations with a 2.4% vs. 2.0% level. Non-Defense Capital Goods matched expectations with a 1.9% reading.
Taking it to the House: July Pending Home Sales MOM were up +5.9% vs. estimates of 3.0%. Meanwhile, the FHFA announced an extension on the moratorium for foreclosures on their backed loans. Weekly Mortgage Applications dropped by 6.5%, led by a drop of 10% in Refinance Applications. Purchase Applications were up 0.4%. The June FHFA Housing Price Index MOM rose by 0.9% vs. estimates of 0.1%. The June YOY Case Shiller 20 metro city index showed an annual increase of 3.5% vs estimates of 3.8%. New Home Sales for July showed an annualized pace 901K of vs estimates of 785K.
Jobs, Jobs, Jobs: Initial Weekly Jobless Claims once again hit the 1M mark with 1.006M new filings. The 4 week moving average is 1.068M. Continuing Claims were 14.535M vs estimates of 14.450M.
GDP: The monumentally awful 2nd quarter GDP revised upward from -32.9% to -31.7%.
What’s on the Agenda for this Week?
The three areas that have the greatest ability to impact backend pricing this week are: (1) The Talking Fed, (2) Jobs, Jobs, Jobs and (3) Geopolitical.
(1) The Talking Fed: Last week Fed Chair Powell unleashed the Fed’s new stance on how they will meet their inflation target mandate. This week, the bond market will be looking for more clarification and to see if the Fed will be stepping up their assets purchases to keep pace with the big increase in Treasury issuance. Here is this week’s schedule:
08/31 Vice Chair Clarida, Dallas Fed Manufacturing
09/02 Fed’s Beige Book
09/03 Fed’s Balance Sheet
(2) Jobs, Jobs, Jobs: There is an avalanche of Jobs and Wage related data all week long, with ADP Private Payrolls, Challenger Job Cuts, Initial Weekly Jobless Claims and internal readings in ISM Manufacturing and Unit Labor Costs. Of course, Big Jobs Friday will get the most attention from traders as the markets are looking to see if the Unemployment Rate can dip below 10%.
(3) Geopolitical: There are a lot of stories for bond markets to focus on including our Presidential Election, No movement on another stimulus bill, China Trade Talks, Turkey vs. Greece, China vs. India and many more.
The Talking Fed: Vice Chair Richard Clarida says that he expects the Fed to return to discussing refining guidance and their balance sheet. He also said “the reality that econometric models of maximum employment, while essential inputs to monetary policy, can be and have been wrong.”
On Deck for Tomorrow: ISM Manufacturing PMI, Construction Spending.