What Happened Last Week?
Bonds Can’t Catch a Break
Last week was supposed to be all about CPI confirming or rejecting the notion that core inflation was finally falling into line. A reading at or below the forecast would ostensibly have done that, but bonds managed to sell off abruptly that same afternoon. On Friday, a modest 0.1% beat in Producer Prices (a far less relevant report) resulted in additional selling. One might be forced to conclude that the selling happened for reasons that transcend the data despite the persistent cries of “data dependent” from the Fed and those who hang on their every word.
Source: Matthew Graham, Mortgage News Daily 8/11/2023)
What’s on the Agenda for this Week?
Overview
Why was there a sell-off last week and what it would take to see a rebound this week?
Three Things
The three areas that have the greatest ability to impact MBS backend pricing this week are: (1) Retail Sales, (2) Across the Pond and (3) The Talking Fed.
(1) Retail Sales: The July reading will be on Tuesday. Headline Retail Sales are expected to rise by 0.4% which is double the 0.2% pace in June. Same story for Retail Sales Ex Autos. However, it has yet to be determined how much of the increase (if there is one) is due to higher prices and how much is due to stronger demand, which are two separate things.
(2) Across the Pond: There is a lot of heady economic data from outside the U.S. that can have an impact on the desire to own U.S. long bonds.
- Eurozone: Employment, GDP, Industrial Production, CPI
- China: Retail Sales, Industrial Production
- Japan: GDP, Industrial Production
- Great Britain: Unemployment, CPI, PPI, Retail Prices, Retail Sales
- Canada: CPI
(3) The Talking Fed: On Wednesday the Minutes from the last FOMC meeting will be issued where they increased their key interest rate and had a hawkish tone to their statement. The Minutes will give a little more color to that decision. This weekend is the start of the Kansas City Fed’s Jackson Hole, WY Economic Symposium which will feature a ton of speeches from Powell and crew.
Market Wrap-up
Domestic Flavor
There were no domestic events today:
On Deck for Tomorrow: Retail Sales, Import and Export Prices, NY Empire MFG, NAHB Housing Market Index.
Across the Pond
Germany: Wholesale Prices dropped by 0.2% but the market was expecting a much bigger drop of 1.4%.