What Happened Last Week?
Stable and Sideways as Rates Were Back in the Range
Thursday and Friday last week had seen more volatility in rates markets as traders reconciled lower inflation readings and upbeat economic data. The net effect was a fairly quick move back up into the familiar old “sideways, volatile range.” As rates hit the 2.91% pivot point Thursday (and again overnight on Friday), there was immediately less of an impulse to sell. As they drifted back down to the 2.85% technical level, there was less of an impulse to buy. This resulted in a surprisingly calm, sideways Friday afternoon.
Source: Matthew Graham, Mortgage News Daily 8/12/22)
What’s on the Agenda for this Week?
The three areas that have the greatest ability to impact mortgage backed securities (MBS) backend pricing this week are: (1) Retail Snails, (2) The Talking Fed and (3) Rosie the Riveter.
(1) Retail Snails: July Retail Sales will be issued on Wednesday. This report is a “nominal” basis (total dollars spent) and is not adjusted for inflation. So as prices rise, it appears that Retail Sales are climbing, when in fact they are not. Retail Sales Ex-Autos are expected to decline by -0.1% but that would represent a huge move lower in actual total unit sales because prices are so much higher.
(2) The Talking Fed: There will be a lot of Fed Speak this week as the market continues to try to hedge ahead of the September meeting.
- 08/15: Waller
- 08/17: Bowman, FOMC Minutes
- 08/18: George, Kashkari and their Balance Sheet
- 08/19: Barkin
(3) Rosie the Riveter: There is some important manufacturing news this week which will determine if we are in a manufacturing recession or not. Empire Manufacturing has already hit and it was the second worst reading on record. This week will also be Industrial Production and Capacity Utilization and Philly Fed Manufacturing.
Rosie the Riveter: The August NY Empire regional manufacturing index was dismal, contracting with the second worst free-fall in history -31.3 vs. estimates of a gain of +8.5.
Taking it to the House: The August NAHB Housing Market Index showed that builders have no confidence, with a contractionary reading of 49. The market was expecting 55. 50 is the neutral level for this index.
On Deck for Tomorrow: Housing Starts and Building Permits, Industrial Production and Capacity Utilization
Central Bank Palooza
The People’s Bank of China unexpectedly lowered their key lending rate by 10 BPS following some dismal economic news out of China.