What Happened Last Week?
Absolutely No Surprises From Powell
What a letdown, but also what an unsurprising speech from Fed Chair Powell. He did the market a solid and threw in a mention of “R Star” and the inflation target, but not in a way that offered any new insight beyond anything shared at the last press conference. Markets had some positioning to work through in the wake of the speech, but the process was done by lunch with both MBS and Treasuries perfectly unchanged by the 1pm hour.
Source: Matthew Graham, Mortgage News Daily 8/25/2023)
What’s on the Agenda for this Week?
Overview
What will it take from this week’s data to see a real pivot in pricing?
Three Things
The three areas that have the greatest ability to impact MBS backend pricing this week are: (1) Inflation Nation, (2) Jobs, Jobs, Jobs and (3) Rosie the Riveter.
(1) Inflation Nation: After Powell said on Friday that the Fed would not move their target rate from 2% and that they would keep pressing until inflation actually hit that goal, this week’s inflation related data will be very important. On Thursday will be the Fed’s key measure of inflation, Core PCE. It is expected to increase YOY from 4.1% to 4.2% which of course is still double their target rate.
(2) Jobs, Jobs, Jobs: Big Jobs Friday is this week, ahead of the long holiday weekend. Throughout the week there will be a ton of job and wage related data points including: JOLTS, ADP, Initial Weekly Jobless Claims, Challenger Job Cuts, Non Farm Payrolls, Unemployment Rate, Average Hourly Earnings and more.
(3) Rosie the Riveter: There will be some very big name manufacturing reports this week with both Chicago PMI and ISM Manufacturing PMI. Experts will focus on the internals for employment and prices paid.
Treasury Dump
Here is this week’s Treasury auction schedule:
- 08/28: 2-year and 5-year notes
- 08/29: 7-year note
Market Wrap-up
Domestic Flavor
Rosie the Riveter: The August Dallas Fed Manufacturing Survey continued to show contraction with a reading of -17.2, it was -20.0 in July.
Treasury Dump: There were two auctions today. The 2-year note saw $45B go off at a high yield of 5.024% and a bid-to-cover ratio of 2.94. The 5-year note saw $46B go off at a high yield of 4.400% and a bid-to-cover ratio of 2.54.
On Deck for Tomorrow: Consumer Confidence, Case Shiller HPI, FHFA House Price Index, JOLTS and a 7-year note auction.