What Happened Last Week?
From Slightly Stronger to Slightly Weaker After PMI Data
The “data dependent” theme kept on rockin’ all last week. Traders even let the lowly S&P Global (previously Markit) PMI get in on the action on Friday. After opening in slightly stronger territory, a better-than-expected Services PMI reading pushed bonds immediately and obviously into weaker territory. The rest of the day was very flat with yields hitting 5pm at almost the exact same levels seen 5 minutes after the PMI data. Same story for mortgage backed securities (MBS) and an even flatter trajectory throughout the day. Bonds continue waiting on headier events of early May, but they could make an exception for PCE and ECI at the end of this week.
Source: Matthew Graham, Mortgage News Daily 4/21/2023)
What’s on the Agenda for this Week?
Overview
There is a 100% chance that rate quotes for the highest quality/low risk borrowers are shooting up next week.
Three Things
The three areas that have the greatest ability to impact MBS backend pricing this week are: (1) LLPA, (2) Inflation Nation and (3) GDP.
(1) LLPA: Loan Level Pricing Adjustments are now a form of social engineering and will have a big impact on how mortgage rates are calculated.
(2) Inflation Nation: The Fed is now in their Media Blackout Period as we await their May Interest Rate Decision and Policy Statement. This week’s Core PCE MOM reading will be a huge factor in their decision.
(3) GDP: A first look at the first quarter GDP is this week and it will be a big focus for traders.
Market Wrap-up
Domestic Flavor
Rosie the Riveter: The April Dallas Fed Manufacturing Index dropped from -15.7 in March down to -23.4 which was well below the estimates of -14.6. The Chicago National Activity Index for March was -.019 vs. estimates of -0.02.
On Deck for Tomorrow: Consumer Confidence, Case Shiller HPI, FHFA Home Price Index, Richmond Fed Mfg, New Home Sales and 2 year note auction.