Learn from the Past
Overview
Mortgage backed securities (MBS) lost 29 basis points from last Friday’s close which caused fixed mortgage rates to move higher compared to the prior week.
Domestic Flavor
Taking it to the House:
• September Existing Home Sales jumped by 9.4% which was almost double the monthly gain expected of 5.0%. In terms of Units, there were 6.54M vs. estimates of 6.3M.
• Weekly Mortgage Applications were flat at -0.6%.
• Purchase Applications fell by -2.0% and Refinance Applications were +0.2%.
• New Housing Starts were 1.415M units vs. estimates of 1.457M, rising 22.3% YOY to 1.108M.
• Building Permits rose by 1.553M vs. estimates of 1.520M.
• New SFR permits were up 24.3% YOY.
• The October NAHB Housing Market Index reach another all-time new record high with a reading of 85. The previous record was 83 which was set in September.
Jobs, Jobs, Jobs:
• Initial Weekly Jobless Claims were much lower than expected, 787K vs. estimates of 860K.
• Continuing Claims dropped dramatically down to 8.373M which was more than 1M lower than estimates of 9.50M.
The Talking Fed
The Fed issued their Beige Book on Wednesday. You can read the official release here.
Here are few highlights:
• While consumer spending growth remained positive, some districts reported a leveling off of retail sales and a slight uptick in tourism activity.
• Most districts continued reporting tight labor markets, attributing it to workers’ health and childcare concerns, with many firms consequently offering increased schedule flexibility. A few districts, however, noted some firms were finding it easier to hire workers.
• Overall, consumer prices across districts rose modestly, with the notable exceptions of food, automobiles, and appliances, which increased significantly. Retail gasoline prices declined.
• There were just 41 instances of the phrases “Covid” , “virus” or “coronavirus”; this was not only a big drop from the 52 last month, but also the fewest mentions of the disease since the start of the pandemic.
What’s on the Agenda for this Week?
Overview
This is a very pivotal and robust week with Thursday being the most important trading session for a bunch of reasons.
Three Things
The three areas that have the greatest ability to impact backend pricing this week are: (1) Central Bank Palooza, (2) Domestic Flavor and (3) Coronavirus/Stimulus.
(1) Central Bank Palooza: The Bank of Canada will announce their latest interest rate decision on Tuesday but it’s Thursday’s interest rate decision by the Bank of Japan and the European Central Bank that will get the most attention of markets.
(2) Domestic Flavor: This is a very big week for economic data. Thursday’s GDP will take center stage as it’s expected to move from a depression era pace of -31.4 in the second quarter to climb back to zero by a 3rd quarter rise of +31.9. On Friday will be the Fed’s key measure of inflation with the YOY Core PCE reading. Those are the two biggest releases of the week but there will be a ton of other second-tier releases all week long.
(3) Coronavirus: While the national and international Covid cases are spiking to levels much higher than ever before…leading to renewed shutdowns in many states and nations, key negotiators on both sides of the aisle say that stimulus talks “continue”.
Treasury Dump
Here is this week’s auction schedule:
10/27 2 year note
10/28 5 year note
10/29 7 year note
Market Wrap-up
Domestic Flavor
Taking it to the House: September New Homes Sales were lighter than expected, coming in below the important 1M Unit line with a reading of 959K vs. estimates of 1.025M. August was revised lower from 1.011M down to 994K. The median sales price was $326,800, the average sales price was $405,400.
On Deck for Tomorrow: Durable Goods Orders, FHFA Home Price Index, Case-Shiller Home Price Index, Consumer Confidence and the Richmond Fed Manufacturing Index.