What Happened Last Week?
What to Make of the Week’s Movement
Friday ended up being a slightly stronger session for bonds, but not in any impressive way. Moreover, it wasn’t remotely strong enough to undo the damage seen Thursday. The overall takeaway is that it is strong economic data more than anything that is keeping the upward pressure on rates right now. Things may have looked completely different had we not seen lower jobless claims and higher GDP on Thursday. The other takeaway is that it’s not just inflation data that matters. In fact, it’s telling that Friday’s PCE and ECI data (both inflation-focused) argued for a rally, but bonds mostly lost ground after the data came out.
Source: Matthew Graham, Mortgage News Daily 7/28/2023)
What’s on the Agenda for this Week?
Overview
There is an upside to the week, but it is limited from a technical perspective due to all the layers of overhead resistance. It will take a series of really weak economic data this week for a real pricing change.Three Things
The three areas that have the greatest ability to impact MBS backend pricing this week are: (1) Jobs, Jobs, Jobs, (2) Central Bank Palooza and (3) Rosie the Riveter.
(1) Jobs, Jobs, Jobs: There is a ton of job and wage related data this week culminating in Big Jobs Friday. The stronger this data is, the worse it will be for pricing.
(2) Central Bank Palooza: There will be key interest rate decisions from Australia and England, with the focus on the Bank of England which is expected to increase rates by 25BPS but their commentary will carry a lot of weight.
(3) Rosie the Riveter: The big soft-spot in our economy over the last 10 to 12 months has been the manufacturing sector which just continues to contract each month. This week will be a lot of manufacturing news and the bond market will be very focused on any bright spots.
Market Wrap-up
Domestic Flavor
Rosie the Riveter: The July Chicago PMI was very weak with a contractionary reading of 42.8; the market was expecting 43.0 and June was 41.5. The regional Dallas Fed Manufacturing Business Index was also very weak with a -20.0 reading vs. estimates of -26.3.
On Deck for Tomorrow
Reserve Bank of Australia Interest Rate Decision, Construction Spending, ISM Manufacturing, JOLTS.