What Happened Last Week?
Good Times Still Mostly Rolling Despite Token Correction on Friday
Bonds sold off on Friday, with the easiest scapegoat being the extra strong Consumer Sentiment number (72.6 vs 65.5 forecast). 10-year yields remained below Thursday’s highs, and although Friday’s MBS prices were lower than Thursday’s, they’d outperformed Treasuries earlier in the week. In short, most of the week’s gains remained intact. In fact, considering it was a summertime Friday with super strong data after 4 straight days of gains that took bonds into overbought territory in the short term, one might consider a 6bp bump to 10-year yields and a 3/8ths of a point loss in MBS to be a victory, of sorts.
Source: Matthew Graham, Mortgage News Daily 7/14/2023)
What’s on the Agenda for this Week?
Overview
In the last two weeks there has definitely been some volatility as the bond market changes its hedge ahead of the FOMC next week.
Three Things
The three areas that have the greatest ability to impact MBS backend pricing this week. (1) Retail Sales, (2) Rosie the Riveter and (3) Flying a G20.
(1) Retail Sales: The market is expecting a small improvement over the last report but since this measures sales in nominal dollars, experts have to analyze how much of an improvement is due to higher prices and how much is due to higher demand.
(2) Rosie the Riveter: There is a lot of manufacturing news this week. The manufacturing sector has been contracting for many months. Will there be more of the same or a “bottoming” which would set a floor? This week will be Empire Mfg. Industrial Production and Capacity Utilization and the Philly Fed Mfg. Survey.
(3) G20: The Finance Ministers G20 meeting is in India this week; it includes the Governors from the Central Banks as well. The bond market will be sensitive to comments from that meeting.
Market Wrap-up
Domestic Flavor
Rosie the Riveter: The July NY Empire Manufacturing Index surprised to the upside in the Fed’s district, showing expansion of 1.1 vs. est. of 0.0. It is that index’s second straight month of growth.
Yellen is Yelling: Treasury Secretary Janet Yellen said that she did not think that the U.S. would slip into a recession.
On Deck for Tomorrow: Retail Sales, Retail Sales Ex Autos, Industrial Production and Capacity Utilization, NAHB Housing Market Index.