What Happened Last Week?
Unexpected Snowball Rally After Consumer Sentiment Data
Snowball moves in markets, by their nature, tend to be unexpected. Friday’s was downright surprising, largely because the extent of the “miss” in Consumer Sentiment data was equally surprising. This is not a report that typically accounts for this much movement. Even in this case, it was only worth 3bps of improvement in 10-year yields. But that 3bps was enough to prompt short-covering and technical triggers that helped bonds drop several more bps by the end of the day.Source: Matthew Graham, Mortgage News Daily 8/13/21
What’s on the Agenda for this Week?
Three Things
The three main areas that have the greatest ability to impact mortgage backed securities (MBS) backend pricing this week are: (1) Covid, (2) The Talking Fed and (3) Domestic Flavor.
(1) Covid: Continued concerns over supply chain disruption (China’s major port(s) closed last week due to Covid), were heightened even further this morning after a slew of weak economic data out of China. This portends a global slowdown which is generally favorable for pricing.
(2) The Talking Fed: With the Jackson Hole WY Symposium coming up, the focus of long bond traders continues to be the timing of the Fed’s taper. This week Fed Chair Powell will speak and the Minutes from the last FOMC meeting will be issued.
(3) Domestic Flavor: There is a lot of housing news this week, but bond traders will be focusing on Tuesday’s Retail Sales and Thursday’s Jobless Claims.
Market Wrap-up
Domestic Flavor
Manufacturing: The August NY Empire Manufacturing Index fell short of expectations, 18.3 vs. estimates of 29.0, and a huge drop from July’s pace of 43.0.
On Deck for Tomorrow: Fed Chair Powell, Retail Sales, Home Builders Index, Industrial Production and Capacity Utilization.