What Happened Last Week?
Mortgage Rates End Slightly Lower After Starting Out Slightly Higher
Mortgage rates began Thursday very close to Wednesday’s latest levels. The average lender was just a hair higher. As the day progressed, US bonds followed European bonds toward lower yields (yields = rates). This allowed the average lender to make a mid-day improvement bringing rates down to levels just a bit lower than Wednesday’s. In the big picture, none of the above is important or meaningful. Investors are waiting to see how the next round of inflation data comes in as well as the Federal Reserve’s policy response.
Source: Matthew Graham, Mortgage News Daily 12/29/22)
What’s on the Agenda for this Week?
Overview
Happy New Year! Now that the bond market is fully staffed and functioning (after two weeks of skeleton crews), how will pricing react? What can help or hurt mortgage backed securities (MBS) pricing this week?
Three Things
The three areas that have the greatest ability to impact MBS backend pricing this week are: (1) Geopolitical, (2) Jobs, Jobs, Jobs and (3) The Talking Fed.
(1) Geopolitical: The market is seeing more volatility and more of a response in long bonds to the Ukraine war as concerns are increasing over Russian casualties on Russian soil due to attacks launched from Ukraine using American supplied weapons which heightens the potential of direct conflict between the U.S. and Russia. China’s reopening and potential global economic upside vs. their massive spike of Covid is also a big concern.
(2) Jobs, Jobs, Jobs: Big Jobs Friday is this week with Non-Farm Payrolls, the Unemployment Rate and most importantly, Average Hourly Earnings. Throughout the week will be JOLTS, ADP Payrolls, Challenger Job Cuts, Initial Weekly Jobless Claims and internal employment readings in ISM. The bond market will be very sensitive to the data all week long.
(3) The Talking Fed: The Minutes from the last FOMC meeting will be released on Wednesday. The bond market will be looking for more background/discussion on their economic projections, and their hawkish statement.
Market Wrap-up
Domestic Flavor
Bob the Builder: November Construction Spending was much better than expected, up 0.2% vs. estimates of down 0.4%.
Rosie the Riveter: The revised Markit Manufacturing PMI matched the previous release of 46.2.
On Deck for Tomorrow: ISM Manufacturing, JOLTS, FOMC Minutes.