Learn from the Past
Mortgage backed securities (MBS) gained 9 basis points from last Friday’s close which caused fixed mortgage rates to move lower compared to the prior week.
Jobs, Jobs, Jobs: It was Big Jobs Friday: You can read the official BLS release here.
Here is the Tale of the Tape:
Non Farm Payrolls (NFP) September 661K vs. est. of 850K
NFP August revised upward from 1.371M to 1.489M
NFP July revised upward from 1.734M to 1.761M
The Average Hourly Earnings for all employees is now $29.47
Average Hourly Earnings YOY change is 4.7% vs. estimates of 4.83%
Average Hourly Earnings MOM change is 0.1% vs. estimates of 0.2%
The Headline Unemployment Rate dropped to 7.9% vs. estimates of 8.2%
The U6 Under Employment Rate dropped to 12.8% vs. estimates of 15.4%
The Participation Rate dropped to 61.4% vs. estimates of 61.5%
Inflation Nation: The Fed’s key measure of inflation, Core (ex food and energy) PCE on a YOY basis was hotter than expected hitting 1.6% vs. estimates 1.4%. The headline PCE YOY was 1.4% vs. estimates of 1.3%.
Income vs. Spending: Personal Income tanked -2.7% (due to the $600 per week “helicopter” money ending) vs. estimates of -2.4%. Personal Spending rose by 1.0% vs. estimates of 0.8%.
Manufacturing: September ISM Manufacturing hit 55.4 vs. estimates of 56.3 which is a slight miss but any reading in the mid-50’s is very expansionary. New Orders were 60.2 vs. estimates of 54.5 and Prices Paid 62.8 vs. estimates of 58.6; both are big beats. The Employment component remains in contractionary territory though with a 49.6 vs. estimates of 45.8
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) Geopolitical.
(1) Stimulation Nation: A huge dose of direct checks to consumers, business loans and money to state and local governments can have a huge stimulative impact on the economy IF it’s done right. While both sides have been far apart on the size and scope of the next package, Treasury Sec. Mnuchin and Speaker Pelosi continue discussions and for now at least appear to be getting closer. Last week the two parties were $1.6T vs. $2.2T.
(2) Coronavirus: The opening up/relaxing of protective measures vs. expanding measures has a direct impact on economic growth vs. contraction, employment, consumer spending and more.
(3) Geopolitical: President Trump’s recovery, the VP debate, military escalation with Turkey and more will get some attention from bond traders.
Here is this week’s Treasury auction schedule, Thursday’s 30Y Bond is the most important for pricing:
10/06: 3 year note
10/07: 10 year note
10/08: 30 year bond
The Talking Fed
Fed Chair Powell and the ECB’s head Lagarde will speak this week along with key releases:
10/05: Evans, Bostic
10/06: Fed Chair Powell, Harker, Bostic and Kaplan
10/07: Minutes from the last FOMC meeting, Rosengren, Williams and Evans
10/09: Rosengren and Bostic
Services: The September ISM Non Manufacturing Index (2/3 of our economy) was stronger than expected with a 57.8 vs. estimates of 56.3 reading. New Orders were very robust with at 61.5 vs. 44.7 reading. The Employment Index actually broke above 50.00 for a reading of 51.8 which is expansionary.
On Deck for Tomorrow
Fed Chair Powell, JOLTS, Trade Balance and 3 year note auction.