What Happened Last Week?
Month-End Selling Keeps Rates Range-Bound
You’ve perhaps heard of month-end bond buying? How about month-end selling? We had some of the former earlier in the session with a reversal toward weaker levels at the 3pm CME close. PCE inflation data wasn’t traded Friday morning. Early cues came from overseas. Late cues look more position-driven. Even before that weakness, bonds rejected another opportunity to move below 3.72%, which increasingly looks like the bottom of the range unless this week’s data is convincingly downbeat.
Source: Matthew Graham, Mortgage News Daily 9/30/22)
What’s on the Agenda for this Week?
Overview
This is a very pivotal week for pricing. Is the four-week trend of massive selloffs over?
Three Things
The three areas that have the greatest ability to impact mortgage backed securities (MBS) backend pricing are: (1) Jobs, Jobs, Jobs, (2) Geopolitical and (3) Domestic Flavor.
(1) Jobs, Jobs, Jobs:It will be Big Jobs Friday with Non Farm Payrolls, Unemployment Rate and Average Hourly Earnings but there will also be a ton of job or wage related data every day this week with ISMs, ADP Payrolls, JOLTS, Challenger Job Cuts and Initial Jobless Claims.
(2) Geopolitical: One of the primary movers in MBS backend price over the past two weeks was Great Britain and the market turmoil caused by the new administration taking an opposite path from the Bank of England…eventually causing the Bank of England to have to step in with emergency bond buying. This week starts off with the new PM dropping her new tax cuts for the wealthiest, which is providing some stability in markets. There is also the growing concern of another “Lehman Event” with Credit Suisse and a potential Opec + oil output cut. Rate hikes are also expected out of Australia and New Zealand.
(3) Domestic Flavor: Front and Center will be this week’s national ISMs. Last week’s regional Chicago PMI was a big miss to the downside. Will the national ISM Manufacturing or Services be the same?
Market Wrap-up
Domestic Flavor
Bob the Builder: August Construction Spending was dismal, contracting by -0.7% vs. expectations of -0.3%. Plus, July was revised even lower from -0.4% down to -0.6%
Rosie the Riveter: The September Markit Manufacturing PMI was close to the mark with a reading of 52.0 vs. estimates of 51.8. But the ISM Manufacturing PMI was much lighter than expected, barely in positive territory with a 50.9 reading vs. estimates of 52.2. Both the Employment and New Orders components were sub-50 which is very concerning.
On Deck for Tomorrow
Reserve Bank of Australia Interest Rate Decision, Factory Orders, JOLTS.