Weekly Mortgage Overview: 12/4/2023

By December 5, 2023Mortgage Overview

What Happened Last Week?

Another Surprisingly Eager Bond Rally Suggests Caution and Opportunity

Wednesday, the focus of the analysis was on the potentially puzzling level of strength in the bond market (i.e., gains seemed a bit overdone relative to motivations). In fact, yesterday’s bump in yields was welcomed as something that made more sense in the current context. The only caveat was that Thursday was “month-end” and often directional month-end volatility give way to a reversal on the first day of the new month. That was the case Friday, but at best, one could only say the new-month trading environment greased the skids. Directional inspiration was gleaned from ISM Manufacturing data as well as a “no whammies” speech from Fed Chair Powell. Any additional grease on the skids would be a byproduct of traders not wanting to be caught not owning bonds Friday in the event this week’s economic data comes in weaker than expected. If it does, it will officially be the best data-driven confirmation of the big picture rate reversal that has been seeking for more than a year. On the other hand, caution is in order due to the obvious lead-off being taken. In other words, the market is obviously positioning for the scenario where data continues missing the mark, and is thus relatively poorly positioned for an upbeat data surprise. Such a surprise could cause quite a volatile little spike in rates.
Source: Matthew Graham, Mortgage News Daily 12/1/2023)

What’s on the Agenda for this Week?

Three Things

The three areas that can have the most impact on MBS backend pricing this week are: (1) Jobs, Jobs, Jobs. (2) Central Bank Palooza and (3) Services.

(1) Jobs, Jobs, Jobs: There is a ton of job and wage related data this week culminating in Big Jobs Friday. There is ISM Services Employment Index, JOLTS, ADP, Unit Labor Costs, Challenger Job Cuts, Initial Weekly Jobless Claims, Non Farm Payrolls, Average Hourly Earnings, Unemployment Rate, Average Weekly Hours, U6 Under Employment and Labor Force Participation Rate.

(2) Central Bank Palooza: The Bank of Canada is expected to keep their key interest rate at 5.00%; however, the markets will be very keen to examine their language hinting on a rate cut. Speaking of rate cuts, the bond market is balancing expectations of a rate cut by the European Central Bank next week and will continue to try to frontrun the FOMC’s decision next week.

(3) Services: There is a mixed bag with Manufacturing last week with a huge beat in Chicago PMI but a very tame ISM. This week the focus will be on the services side which accounts for 2/3 of our economic engine and has almost single-handily kept our economy afloat. ISM Non-Manufacturing PMI will hit on Tuesday.

Market Wrap-up

Domestic Flavor

Rosie the Riveter: October Factory Orders were worse than expected, down -3.6% vs estimates of -2.6%, plus September was revised lower.

On Deck for Tomorrow: ISM Non Manufacturing PMI (services) and JOLTS.