What Happened Last Week?
Bonds Ultimately Shrug Off Stronger Jobs Data
Friday saw a fairly impressive round trip for rates following the stronger-than-expected jobs report. The initial reaction was clear and unsurprising. NFP (and especially wages… recently mentioned by Powell) came out higher and rates immediately jumped. Stocks also tanked on the news because both sides of the market were trading the Fed outlook. After the initial convulsion, bonds gathered their composure and began the long slog back to unchanged levels by the 3pm CME close.
Source: Matthew Graham, Mortgage News Daily 12/2/22)
What’s on the Agenda for this Week?
Overview
Pricing ended up improving on a “stronger” jobs report on Friday. What will be the top end range this week?
Three Things
The three areas that have the greatest ability to impact mortgage backed securities (MBS) backend pricing this week are: (1) Inflation Nation, (2) Rosie the Riveter and (3) Central Bank Palooza.
(1) Inflation Nation: The three biggest measures of inflation are PCE, PPI and CPI. PCE was last week and it showed additional monthly increases but less than expected. This week will be PPI and then next week CPI. PPI (8.0%) has been trending much hotter than PCE (6.0%).
(2) Rosie the Riveter: There was some very weak manufacturing data last week with Chicago PMI and ISM Manufacturing. This week we will be Factory Orders, Non Farm Productivity and Unit Labor Costs but Monday’s ISM Non Manufacturing/Services will take center stage.
(3) Central Bank Palooza: Key interest rate decisions will be issued out of Australia and Canada.
Market Wrap-up
Domestic Flavor
Rosie the Riveter: October Factory Orders were stronger than expected, up 1.0% vs. estimates of 0.7%.
Service: The November ISM Non Manufacturing (services), which represents 2/3 of our economic engine, was very strong with an expansionary reading of 56.5 vs. estimates of 53.1. Employment improved to 51.5 from 49.1. New Orders were 56.0 vs. last of 56.5 and Prices Paid dropped from 70.7 to 70.0. This was a solid report across the board.
On Deck for Tomorrow
Reserve Bank of Australia Interest Rate Decision, U.S. Trade Balance.