What Happened Last Week?
Fed Week Uncertainty Makes for Logical Consolidation
Bonds rallied sharply just over a month ago following a downbeat jobs report and other data. They then consolidated ahead of the early September data before rallying just a bit more. The past week didn’t add much to the broader context and thus presented a good opportunity for another consolidation ahead of a week that’s sure to spark some volatility. Friday’s only hope was Consumer Sentiment and it was not up to the task of raising any heart rates. Bonds began the day in modestly stronger territory and went out the door at almost the exact same levels.
Source: Matthew Graham, Mortgage News Daily 9/13/2024)
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) Retail Sales, (2) The Talking Fed and (3) Central Bank Palooza.
(1) Retail Sales: This is the last major economic release prior to the FOMC decision on Wednesday that has the ability to impact their policy. Basically, if this report is hotter (stronger) than expected it may seal the deal on a 25BPS move from the Fed. However, if this is much weaker than expected, it may give more weight to a 50BPS move.
(2) The Talking Fed: It’s finally here, the much anticipated end to the Fed’s “do nothing” stretch as they shift gears into a declining rate path. However, the pace and scope of that path will have a big impact on pricing. Their Interest Rate Decision and Policy statement will be on Wednesday at 2 pm ET along with their Economic Projections which is where the “dot plot” chart is derived from. The path of cuts that this “dot plot” chart shows will carry significant weight among bond traders. So will the amount of this initial cut… will it be 25BPS or 50BPS? Then at 2:30 pm will be a live presser from the perpetual uber Dove Fed Chair Powell.
(3) Central Bank Palooza: Our Federal Reserve is not the only game in town as there will be key interest rate decisions from several of the world’s largest Central Banks, which include the Bank of England, The People’s Bank of China and The Bank of Japan.
Market Wrap-up
Rosie the Riveter: The September regional Empire (NY) Manufacturing Index had a rare gain, up 11.5 versus estimates of -3.9.
On Deck for Tomorrow: The FOMC begins two days of meetings, Retail Sales and Retail Sales Ex Autos, Industrial Production and Capacity Utilization, NAHB Index, 20-year Treasury Bond Auction.