What Happened Last Week?
What the Range Breakout Means for the Outlook
With bonds seeing additional weakness after breaking above 3.60% on Thursday, the breakout could be considered to be “confirmed” in a technical sense. But what does that confirmation really mean? We have seen similar range breakouts only for yields to move lower in the next trading session. We’ve also seen them at the start of even uglier trends. Fortunately, the current range and its associated breakout arrive at a time where the outlook is fairly well understood. We’re still waiting for a sweeping verdict on inflation and growth–one that will take weeks if not months. Last week’s trading merely showed the market is willing to entertain that the verdict isn’t guaranteed to be rate friendly.
Source: Matthew Graham, Mortgage News Daily 5/19/2023)
What’s on the Agenda for this Week?
Overview
This is a holiday shortened week with an early close to the bond market on Friday.
Three Things
The three areas that have the greatest ability to impact your backend pricing this week are: (1) Inflation Nation, (2) The Talking Fed and (3) Geopolitical.
(1) Inflation Nation: The Fed’s key measure of inflation, Core PCE, will be issued this Friday. It is expected to increase another 0.4% on a MOM basis and YOY, increase from 4.6% to 5.0%. In other words, their target measure is expected to be moving higher and away from their 2.0% target rate…not closer to it.
(2) The Talking Fed: This is another very busy week for Fed Speak with the market focus on Wednesday’s release of the Minutes from the last FOMC meeting.
- 05/22: Bullard, Barking, Daly
- 05/23: Logan
- 05/24: FOMC Minutes
- 05/25: Collins, Balance Sheet
(3) Geopolitical: Front and center is the continued concern over the debt ceiling negotiations as we are fast approaching the June deadline. There will also be key interest rate decisions out of China and New Zealand.
Treasury Dump
Here is this week’s Treasury auction schedule.
- 05/23: 2-year note
- 05/24: 5-year note
- 05/25: 7-year note
Market Wrap-up
Domestic Flavor
There were no economic releases today.
On Deck for Tomorrow: Richmond Fed Manufacturing, New Home Sales and 2 year note auction.
The Talking Fed
Minneapolis Fed President Kashkari said even if the Fed did a “skip” at the June meeting, it would not signal an end to tightening. San Francisco Fed President Daly said that the data “should direct what we do” and that “I really think at this point in our tightening cycle, it is prudent to resist the temptation to say what we’re going to do for the rest of the year. St. Louis Fed President Bullard says it’s a “great time” to fight inflation (raise rates) amid low unemployment. He also said that he could see that it’s possible for two more hikes this year.
Central Bank Palooza
The People’s Bank of China kept their key interest rate at 3.65%.