What’s on the Agenda for this Week?
Overview
This is a monumental week in the bond market – a week that could shape entire economic systems for decades.
Three Things
The three areas that have the greatest ability to impact backend pricing this week are: (1) Geopolitical, (2) Central Bank Palooza, (3) Jobs, Jobs, Jobs.
(1) Geopolitical: The Presidential election will be the main focus all week. There are many possible scenarios that the bond market and economists alike will have to reprice regardless of the outcome. Also, Great Britain, Germany, Italy and others are all on lock down for a month as Covid numbers are running out of control.
(2) Central Bank Palooza: Our own Federal Reserve Interest Rate Decision and Policy Statement will be issued on Thursday. Usually, this happens on a Wednesday but it’s delayed due to election day. Their statement may be influenced by which party/system is the victor. There will also be key Central Bank decisions out of Australia and Great Britain.
(3) Jobs, Jobs, Jobs: It’s a new month so Big Jobs Friday will include Non Farm Payrolls, the Unemployment Rate and Average Hourly Earnings. But throughout the week will also be a steady drip of employment data with ADP Private Payrolls, Challenger Job Cuts, Initial Jobless Claims and internal employment readings in the ISM data.
Learn from the Past
Overview
Mortgage backed securities (MBS) gained 34 basis points from last Friday’s close which caused fixed mortgage rates to move slightly lower compared to the prior week.
Domestic Flavor
Inflation Nation:
– The Fed’s key measure of inflation, Core (ex food and energy) YOY PCE was much lower than expectations, showing a yearly gain of only 1.4% vs. estimates of 1.7%.
– The headline YOY PCE was 1.4% vs. estimates of 1.3%.
– Personal Spending was higher than expected (1.4% vs. estimates of 1.0%) and Personal Incomes were double the market expectations (0.9% vs. estimates of 0.4%).
Manufacturing: The bellwether October Chicago PMI hit 61.1 vs. estimates of 58 which is an extremely robust reading.
Taking it to the House:
– September Pending Home Sales MOM decreased by -2.2% vs. estimates of 3.4% gain.
– Weekly Mortgage Applications increased by 1.7%, led by a jump of 3.0% in Refinance Applications. Purchase Applications were flat at 0.2%.
– The August National FHFA Housing Pricing Index MOM cranked up to 1.5% vs. estimates of 0.6%.
– The August smaller sample sized, 20 metro Case Shiller Home Price Index which is a YOY reading was 5.2% vs. estimates of 4.2%.
GDP: The preliminary 3rd quarter Gross Domestic Product was higher than expected (33.1% vs. estimates of 31.0%). The GDP Product Prince Index was much higher than expected (3.7% vs. estimates of 2.8%).
Jobs, Jobs, Jobs: Initial Weekly Jobless Claims were lower than expected (751K vs. estimates of 775K). The more closely watched 4 week moving average dropped below 800K to 787,750. Continuing Claims were lower than expected (7.756M vs. estimates of 7.700M).
Central Bank Palooza:
The Bank of Japan kept their key interest rate at -0.1%. The European Central Bank also kept their key interest rate unchanged at 0.0% and their deposit rate at -0.5%. The Bank of Canada kept their key interest rate at 0.25%
Market Wrap-up
Domestic Flavor
Manufacturing: Just like last week’s blockbuster October Chicago PMI, the National ISM Manufacturing PMI was much stronger than expected, coming in at 59.3 vs. estimates of 55.8. It is the strongest reading since December 2018. The ISM Manufacturing Employment Index cracked above 50 for the first time since the Pandemic hit.
Construction Spending: The September MOM reading only showed an improvement of 0.3% which is about 2/3 lower than the market expectations of 1.0%.
On Deck for Tomorrow
Election coverage, Reserve Bank of Australia Interest Rate Decision, Factory Orders.