What Happened Last Week?
Surprisingly Light Selling Given the Econ Data
Friday’s market reaction to the big beat in NFP (162k vs 56k) certainly stretches the paradigm of most market watchers who’ve been in the game for more than a few years, but this has been the reality over the past year or two. Relatively rapid changes in labor force trends (and ongoing changes in seasonal distortions) have made the job count a less precise measurement of labor market health than it once was. Meanwhile, the unemployment rate has been far more insulated from that volatility (and far less prone to big beats/misses compared to NFP). This doesn’t mean NFP doesn’t matter. Clearly, it does. It just didn’t hit bonds quite as hard as you might expect. Very early in the day, attention turned to the 3-day weekend and this week’s inflation data. The modest increase in yields was an incidental byproduct.
Source: Matthew Graham, Mortgage News Daily 9/4/26)
What’s on the Agenda for This Week?
Three Things
The three areas that have the greatest ability to impact pricing this week are: (1) Geopolitical, (2) Inflation Nation and (3) Central Bank Palooza.
(1) Geopolitical: We come back from a long holiday weekend with plenty to absorb. Canada vs. US Trade War has moved another notch higher; Iran and Oman say they have an agreement to control the Strait of Hormuz; Iran has attacked Saudi energy sites; and the IDF has hit Hezbollah sites. As a result, oil prices across the board are being pressured higher.
(2) Inflation Nation: Both PPI and CPI will be this week with the main focus on Friday’s CPI report. A higher than expected report will ratchet up rate hike expectations in next week’s FOMC meeting.
(3) Central Bank Palooza: The European Central Bank is expected to be the first of the major banks to raise interest rates to address inflation pressed higher by oil (it’s hitting Europe more than in the US)
Treasury Dump
This week’s 30-year Treasury Bond auction will be the most important:
- 09/08: 3-year note
- 09/09: 10-year note
- 09/10: 30-year bond
Market Wrap-up
Domestic Flavor
Glass Half Empty: The August NFIB Small Business Optimism Index dropped from 99.8 down to 98.7.
Consumer Credit: July Consumer Credit shot up from 14.5B to 18.1B, which was much higher than expectations of only $11B.
Treasury Dump
Three days of dumping debt into the marketplace kicked off with today’s shorter term 3-year note. $58B went off at a high yield of 4.474% with a bid-to-cover ratio of 2.72.
On Deck for Tomorrow
Weekly Mortgage Applications, ADP, 10-year note auction.