What Happened Last Week?
Stronger Friday, Sideways in General
Bonds improved overnight Thursday on a combination of friendly central bank news in Japan and softer economic data in Europe. From there, bond traders were relieved that PCE prices weren’t any higher than they were considering the warning embedded in Thursday’s GDP data. Chicago PMI tried briefly to push toward higher rates, but buyers quickly regained control and didn’t give it up again through the close. The gains are nice, but rates remain exceptionally range bound in the bigger picture.
Source: Matthew Graham, Mortgage News Daily 4/28/2023)
What’s on the Agenda for this Week?
Overview
This is a big week for economic data and central bank action. After being stuck in a sideways pattern (net change of +6 BPS over a two week period) can MBS break out of this channel this week
Three Things
The three areas that have the greatest ability to impact MBS backend pricing this week are: (1) The Talking Fed, (2) Jobs, Jobs, Jobs and (3) Central Bank Palooza.
(1) The Talking Fed: On Wednesday will be the Federal Open Market Committee’s latest Interest Rate Decision and Policy Statement. The bond market has moved from expecting a “pause” in their tightening cycle to expecting a hike at this meeting. The focus will be on future expectations of hikes, pausing (and for how long) and eventually rate decreases depending on the expected timing of a slowdown or recession. Fed Chair Powell will hold a live presser after the meeting but this meeting will not have an updated Economic Projections (dot plot chart).
(2) Jobs, Jobs, Jobs: This week will be a ton of job and wage related data that culminates in Big Jobs Friday: ADP Payrolls, Challenger Job Cuts, Weekly Jobless Claims, Continuing Jobless Claims, Non Farm Payrolls, Average Hourly Earnings, Unemployment Rate and ISMs.
(3) Central Bank Palooza: Our own Fed is not the only game in town. A few smaller central banks will have updates this week but the markets will focus on the European Central Bank’s Interest Rate Decision and Policy Statement/Guidance this week.
Market Wrap-up
Domestic Flavor
Rosie the Riveter: The April ISM Manufacturing PMI continues to show manufacturing contraction with readings below 50, this time 47.1 but that a little better than expectations of 45.5. Prices Paid jumped up to 53.2 vs. February’s 49.2. The only bright spot was that the Employment Index broke above 50 (50.2). The final revised March S&P Markit PMI dropped from 50.4 to 50.2.
Hard Hat: March Construction Spending increased by 0.3% vs. estimates of -0.1%.
On Deck for Tomorrow
Reserve Bank of Australia Interest Rate Decision, FOMC starts two days of meetings, JOLTS and Factory Orders.