What Happened Last Week?
Time to Hurry Up and Wait Again
Friday ended up being reasonably pleasant, but mostly uneventful. Gains were in place from the overnight session on a combination of European economic data and central banker comments. Geopolitical headlines may have played a role at times, and end-of-week position squaring probably had some impact as well. None of the above really matters in the bigger picture. Bonds lost a lot of ground last week as inflation remained higher than the market hoped. The end. Now it’s waiting for the next big data with the power to change that bigger picture narrative and that means waiting for next month’s inflation reports. Reports like next week’s Retail Sales or the following week’s PCE inflation are capable of moving the needle, but they’d have a hard time moving it enough to shift a bigger picture trend.
Source: Matthew Graham, Mortgage News Daily 4/12/2024)
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) The Talking Fed, (2) Retail Sales and (3) Geopolitical
(1) The Talking Fed: This is the last week of open communication from the Fed before next week’s media blackout period that leads up to their next FOMC meeting.
(2) Retail Sales: This is the most important data set of the week. The stronger this data is, the worse it will be for pricing and vice versa.
(3) Geopolitical: The IMF starts a full week of meetings and the markets will be very sensitive to Iran/Israel, etc.
Market Wrap-up
Domestic Flavor
Retail Sales: Overall, the March Retail Sales report was stronger than expected with the Headline reading up 0.7% on a MOM basis which was double the market expectations of 0.3%. Plus February was revised upward from 0.6% to 0.9%. Ex-Autos, Retail Sales were 3x higher than expectations (1.1% versus estimates of 0.4%). The Retail Sales Control Group which feeds into the GDP calculation increased from a pace of 0.3% in Feb to 1.1% in March.
Rosie the Riveter The Empire Manufacturing Index continues to disappoint for the Fed’s NY district as it cratered by -14.3 versus estimates of -9.
Taking it to the House: The April NAHB Home Builder’s Sentiment Index remained above 50 for the second straight month with a reading of 51, which is positive for the new home sector.
On Deck for Tomorrow
RIP 6.00 coupon, switch to the 6.50 coupon as the benchmark, Housing Starts and Building Permits, Fed Chair Powell speaks.