What Happened Last Week?
5 for 5 on Uneventful Trading Days
Heading into the week, if we had to guess, we would have expected things to look about how they looked. Specifically, yields didn’t challenge the trading range and economic data wouldn’t have a huge impact on bonds. Perhaps that would have been different if the data fell farther from forecasts, but it didn’t, so we can only guess. Either way, we know the upcoming week contains bigger landmines and more of them. So if we had to guess, we would expect a range breakout to happen for better or worse, or at least rapid swings between range boundaries (i.e., 3.42 and 3.62 in terms of 10-year yields).
Source: Matthew Graham, Mortgage News Daily 1/27/23)
What’s on the Agenda for this Week?
Overview
This is a very pivotal week depending on how the economic data shapes up and how the markets hedge the central banks’ forward paths.
Three Things
The three areas that have the greatest ability to impact MBS backend pricing this week are: (1) The Talking Fed, (2) Central Bank Palooza, and (3) Jobs, Jobs, Jobs.
(1) The Talking Fed: The FOMC’s Interest Rate Decision and Policy Statement will be on Wednesday. The markets largely expect a rate hike of only 25BPS but the door is open for more. The key is their message; if they keep hammering that the Fed’s key interest rate will be in the “5s” before pausing, then there will be one or two more 25BPS hikes. Fed Chair Powell will hold a live presser right after their policy statement release.
(2) Central Bank Palooza: Our Fed is not the only game in town. This week there will also be rate hikes from the Bank of England (50BPS) and the European Central Bank (50BPS).
(3) Jobs, Jobs, Jobs: There is a ton of job and wage related data this week culminating in Big Jobs Friday. This week will be: Employment Cost Index, Jolts, ADP Payrolls, Challenger Job Cuts, Initial Weekly Jobless Claims, Unit Labor Costs, Average Hourly Earnings, Average Weekly Hours, Non Farm Payrolls, Unemployment Rate, U6 Underemployment Rate and the Participation Rate.
Market Wrap-up
Domestic Flavor
Rosie the Riveter: The regional Dallas Fed Manufacturing Survey just had its 9th straight month of readings below zero. This time it contracted by -8.4 and is yet another data point that confirms that we are currently in a manufacturing recession.
On Deck for Tomorrow: Employment Cost Index, Case Shiller Home Price Index, FHFA Home Price Index, Chicago PMI, Consumer Confidence, FOMC starts two days of meetings.