What Happened Last Week?
NFP Threads the Needle, But Doesn’t Deliver a Rally
Things could have gone better or worse Friday following the release of the mighty NFP (nonfarm payrolls, the headline data point from the big jobs report). NFP came in at 209k vs 225k forecasts which may as well have been “as-expected.” That was a victory in a sense, if it were compared to Thursday’s ADP number (497k!). Bonds rallied initially for exactly that reason, but then pulled back because 200k+ is still very solid–more than enough to keep the Fed on track to hike 2 more times in 2023.
Source: Matthew Graham, Mortgage News Daily 7/7/2023)
What’s on the Agenda for this Week?
Overview
After three weeks of very strong downward pressure on mortgage backed securities (MBS), have they hit a bottom? Can they get back some of the pricing losses?
Three Things
The three areas that have the greatest ability to impact MBS backend pricing this week: (1) Inflation Nation, (2) The Talking Fed and (3) Central Bank Palooza.
(1) Inflation Nation: There are several measures of inflation this week, including CPI, PPI, Import Prices and Consumer Sentiment. CPI is expected to show continued upward pressure. PPI is expected to reverse the prior reading of -0.3 and move back into growth territory on a MOM basis, but on a YOY basis it is expected to tumble.
(2) The Talking Fed: The July FOMC meeting is fast approaching and this week will be their Beige Book and one last barrage of Fed speakers before the media blackout period next week.
(3) Central Bank Palooza: After Canada’s policy mistake of pausing, they are expected to increase their interest rate for the second straight meeting. There will also be a rate decision out of New Zealand.
Treasury Dump
- 07/11: 3-year note
- 07/12: 10-year note
- 07/13: 30-year bond