What Happened Last Week?
Powell Sticks to Script, Bonds Like It
Fed Chair Powell’s Jackson Hole speech has come and gone without causing any major drama. He held very close to his recent script which acknowledged the prospect of tapering in the near future while remaining dependent on just a bit more data and track record with the delta variant. Bonds had positioned defensively ahead of the speech and are simply pricing out some (not all!) of that defensiveness heading into a big week of econ data.Source: Matthew Graham, Mortgage News Daily 8/27/21
What’s on the Agenda for this Week?
Three Things
The three areas that have the greatest ability to impact mortgage backed securities (MBS) backend pricing this week are: (1) Jobs, Jobs, Jobs, (2) ISMs and (3) Geopolitical.
(1) Jobs, Jobs, Jobs: There will be a ton of job and wage related data this week culminating in Big Jobs Friday. The market will be watching the deluge of jobs data closely as last week the Fed said that Inflation had indeed made “substantial progress” towards their goals; however, labor still lagged. If the jobs report on Friday is strong, that may start to pressure pricing towards a taper in 2021.
(2) ISMs: Very important ISM Manufacturing and Services will be issued this week. Both releases will show exactly what our growth pace is and contain very important internal readings on employment as well.
(3) Geopolitical: The bond market will continue to watch the discussions on the budget reconciliation process in an attempt to push through $3.5T in spending along with another $1T (about half of that number was previously allocated from prior Covid relief bills, only half is new money) that the Senate has already passed. Hand in hand with that is the ability to pay for that with a Debt Ceiling fast approaching that will have to be raised or this all comes to a big halt.
Market Wrap-up
Domestic Flavor
Taking it to the House: July Pending Home Sales Index was lighter than expected, contracting by 1.8% vs. an expected gain of 0.4%. The Pending Home Sales Index is now down 8.5% YOY.
On Deck for Tomorrow: FHFA Housing Price Index, Case-Shiller Home Price Index, Chicago PMI, Consumer Confidence.