What Happened Last Week?
Data Driven Rally, But This Week’s Data is More Important
By the end of the holiday-shortened week, bonds didn’t quite manage to completely erase the damage done during the first half, but they came close enough to help balance the near term outlook. Credit goes to the slightly lower reading in Core PCE for the bulk of the AM rally. But Chicago PMI didn’t hurt, falling to the lowest levels in more than a decade apart from the initial covid lockdown. Bonds didn’t rally for much longer after that and then spent the rest of the day in a sideways, narrow range, just above the 4.50% technical level. As big as last week’s apparent volatility may have been, this week’s potential is much bigger as it brings the typical combo of events seen during the 1st week of every month (ISMs, JOLTS, ADP, NFP).
Source: Matthew Graham, Mortgage News Daily 5/31/2024)
What’s on the Agenda for This Week?
Three Things
The three areas that have the greatest ability to impact MBS backend pricing this week are: (1) Central Bank Palooza, (2) Jobs, Jobs, Jobs and (3) ISMs.
(1) Central Bank Palooza: This week two Central Banks are both expected to cut by at least 25BPS. First will be the Bank of Canada on Wednesday and then the European Central Bank on Thursday. The key with the ECB is their forward guidance.
(2) Jobs, Jobs, Jobs: Big Jobs Friday is this week, plus a lot of job and wage related data every day this week with JOLTS, ADP, Challenger Job Cuts, Initial Weekly Jobless Claims, Unit Labor Costs, Non Farm Payrolls, Average Hourly Earnings, Unemployment Rate, U6 Underemployment Rate and Average Weekly Hours.
(3) ISMs: After last week’s depression era level Chicago PMI, the market will be very focused on the national ISM readings. ISM Manufacturing PMI is today and ISM Services PMI will be on Wednesday.
Market Wrap-up
Domestic Flavor
Bob the Builder: April Construction Spending contracted by -0.1% versus expectations of +0.2%.
Rosie the Riveter: There is some conflicting data on the manufacturing sector today. The S&P Manufacturing PMI showed expansion at 51.3 versus estimates of 50.9. However, this primarily measures smaller-sized manufacturers. The national ISM Manufacturing PMI showed contraction with a 48.7 reading which was well below expectations of 49.6. On the plus side, the Employment Index jumped from 48.6 in March to 51.1 in April. On the negative side, Prices Paid were still unacceptably high at 57 even though estimates were for 60.
On Deck for Tomorrow: Factory Orders and JOLTS.