What Happened Last Week?
Month/Quarter-End Came Early
There was an absolute lack of any meaningful volatility at the 3pm CME close Friday, it is safe to say that month-end trades were pulled forward to the morning, and also to Thursday. That means Thursday’s reaction to GDP/Claims may have been a bit overdone. In the absence of month-end, it would likely have been a large, in-range correction but not one that tested the range so aggressively. As for Friday, a friendly response to as-expected PCE inflation left bonds modestly stronger with little fanfare after the morning hours.
Source: Matthew Graham, Mortgage News Daily 6/30/2023)
What’s on the Agenda for this Week?
Overview
Hope you enjoyed a fantastic 4th of July! The bond market is awaiting today’s FOMC Minutes. How might they impact MBS pricing?
Domestic Flavor
Rosie the Riveter: Factory Orders will be today.
The Talking Fed: The Minutes from the last FOMC meeting are also today. This is the meeting where they kept their key interest rate unchanged and had a unanimous vote even though there was a lot of chatter leading up to that meeting calling for a hike. So, the bond market is very interested in some more color as to what the Fed discussed. Also, NY Fed President Williams is speaking this afternoon.
Market Wrap-up
Domestic Flavor
Rosie the Riveter: May Factory Orders fell short of expectations, up 0.3% vs. estimates of 0.8%. However, it was expansionary and the second straight monthly increase of 0.3%.
The Talking Fed
The Minutes from the last FOMC meeting were released. You can read their official release here. Here are a few key takeaways:
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Most participants observed that leaving the target range unchanged at this meeting would allow them more time to assess the economy’s progress toward the Committee’s goals of maximum employment and price stability.
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Some participants indicated that they favored raising the target range for the federal funds rate 25 basis points at this meeting or that they could have supported such a proposal.
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The participants favoring a 25 basis point increase noted that the labor market remained very tight, momentum in economic activity had been stronger than earlier anticipated, and there were few clear signs that inflation was on a path to return to the Committee’s 2 percent objective over time.
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Almost all participants noted in their economic projections that they judged that additional increases in the target federal funds rate during 2023 would be appropriate.
On Deck for Tomorrow
Weekly Mortgage Applications, Challenger Job Cuts, ADP Payrolls, Initial Weekly Jobless Claims, JOLTS, Trade Balance, ISM Services.