What Happened Last Week?
Modest Gains, But Huge Moves in Rate Sheets
By the end of the week, the power of mortgage backed securities (MBS) coupon stack compression combined with healthy bond gains to deliver some of the biggest rate sheet improvements of the past several decades. Bonds started Friday in weaker shape, but turned a corner after the morning data. Hotter PCE inflation and ECI was “tolerated” and “digested,” but tremendously weak Chicago PMI got the ball rolling toward positive territory. Month-end positioning took over and was exacerbated by short-covering. There was a brief bounce after the official month-end closing bell, but not enough to undo what had been done. br> Source: Matthew Graham, Mortgage News Daily 7/29/22)
What’s on the Agenda for this Week?
Three Things
The three areas that have the greatest ability to impact MBS backend pricing this week are: (1) Jobs, Jobs, Jobs, (2) The Talking Fed and (3) Central Bank Palooza.
(1) Jobs, Jobs, Jobs: There is a ton of wage and job related data this week. In fact, there will be at least one economic release related to jobs each and every day this week: ISMs, JOLTS, Challenger Job Cuts, Initial Jobless Claims and Big Jobs Friday with Non-Farm Payrolls, Average Hourly Earnings, and the Unemployment Rate.
(2) The Talking Fed: With Fed ending “forward guidance” the bond market will focus heavily on the barrage of Fed Speak this week. Additionally, the Federal Reserve Bank of NY will purchase 30Y UMBS on Monday, Wednesday and Friday. They will issue their updated Balance Sheet on Thursday.
(3) Central Bank Palooza: Australia and the Bank of England will announce key interest rate decisions. The bond market will focus the most on the BofE which is expected to hike by only 25BPS but it may be 50BPS.
Market Wrap-up
Domestic Flavor
Manufacturing: ISM Manufacturing for June expanded at a pace of 52.8 vs. estimates of 52.0. Prices Paid were still very high but have moved lower from their peak (60 vs. 78.5). The Employment Index remained just below 50.0 at 49.8.
Bob the Builder: Construction Spending in June fell flat with a contraction of -1.1% vs. estimates of 0.1%
On Deck for Tomorrow
JOLTS, Reserve Bank of Australia Interest Rate Decision.