What Happened Last Week?
Weaker After PCE Data, But it Could Have Been Worse
PCE Inflation data has been relegated to an “occasional and modest” market mover in the current environment. Traders have been doing whatever they need to do in response to the comparable CPI data that comes out much earlier in any given month. But exceptions are made for PCE data that sings a decidedly different tune, such as Friday’s. It matched a decades-high reading at the core level (month-over-month) and thus sent yields higher. Despite the unpleasant motivation and the 10-year almost hitting 4.0%, things definitely could have been worse. If traders were determined to squeeze rates highs as fast as possible, it didn’t show up in Friday’s fairly moderate selling pressure (not to mention the afternoon recovery).
Source: Matthew Graham, Mortgage News Daily 2/24/23)
What’s on the Agenda for this Week?
Three Things
The three areas that have the greatest ability to impact mortgage backed securities (MBS) backend pricing are: (1) Rosie the Riveter, (2) The Talking Fed, (3) Across the Pond.
(1) Rosie the Riveter: There is a ton of manufacturing releases this week that include Durable Goods Orders, Chicago PMI, Richmond Fed, Dallas Fed, ISM Manufacturing, S&P Markit Flash PMIs, Non-Farm Productivity and Unit Labor Costs. Overall, the manufacturing data has been extremely week over the past three months. Any strength in this round of data will be negative for pricing.
(2) The Talking Fed: The long bond market has clearly shifted to expecting more rate hikes and for them to remain in place for longer than what was priced in a month ago. A big part of that has been the constant drip of Fed speak which has all been on point with the same message. This week Jefferson, Bostic and Barkin will speak.
(3) Across the Pond: There is a ton of inflationary readings, job readings and manufacturing readings out of Europe and China to keep an eye on.
Market Wrap-up
Domestic Flavor
Rosie the Riveter: January headline Durable Goods Orders were weaker than expected, -4.5% vs. estimates of -4.0% but ex-Transportation, they were much stronger than expected, 0.7% vs. estimates of 0.1%. Non-Defense Cap Ex-Aircraft were 0.8% vs. estimates of 0.0%. The February Dallas Fed Manufacturing Index showed continued contraction, dropping down to -13.5.
Taking it to the House: The January Pending Home Sales Index increased to an index reading of 82.5 which is a MOM increase of 8.1%. YOY, it dropped by -24.1%.
On Deck for Tomorrow: Consumer Confidence, Chicago PMI, Case Shiller Home Price Index, FHFA Housing Price Index, and the Richmond Fed Manufacturing Index.