What Happened Last Week?
Reasonably Reserved Reaction to Tariff Headlines
If you were just watching headlines and making note of MBS Live alerts, it may have seemed like Friday’s tariff news was a big deal for rates. And while tariffs definitely hit harder than the morning’s PCE data, bonds nonetheless headed out the door with only modest losses on the day, no losses for the month, and solid gains on the week. There are inherent uncertainties surrounding tariffs, not only with respect to legal implementation, but also the precedent of market impacts (focusing on the 2019 trade war). Granted, things could certainly be different this time, but we won’t really know for sure any time soon.
Source: Matthew Graham, Mortgage News Daily 1/31/2025)
What’s on the Agenda for Week?
Three Things
The three areas that have the greatest ability to impact MBS backend pricing this week are: (1) Jobs, Jobs, Jobs, (2) Tariffic, (3) ISMs.
(1) Jobs, Jobs, Jobs: There will be a ton of job and wage related data this week leading up to Big Jobs Friday. These include ISMs, ADP, JOLTS, Challenger Job Cuts, Non Farm Payrolls, Unemployment Rate, Average Hourly Earnings and more. The bond market will be very sensitive to this data.
(2) Tariffic: The tariffs on Canada and Mexico were announced Saturday and are expected to go into effect in less than 24 hours. What will be worked out before then?
(3) ISMs: As far as domestic economic data outside of Jobs, ISM Manufacturing and ISM Services will get the most attention as bond traders will focus on Prices Paid and Employment components.
Central Bank Palooza
The Bank of England is expected to cut by 25BPS.
The Talking Feds
There are several Talking Feds this week which will be very important.
Market Wrap-up
Domestic Flavor
Rosie the Riveter: After being in negative territory for 16 straight months, the January ISM Manufacturing PMI popped above 50 with a reading of 50.9 versus estimates of 49.8. However, Prices Paid continued to show upward pressure on inflation by rising from 52.5 to 54.9. The Employment Index rose from 45.4 to 50.3.
Bob the Builder: December Construction Spending was up 0.5% versus estimates of 0.1%.
On Deck for Tomorrow: Factory Orders and JOLTS.
Tariffic
Tariffs on Mexico and Canada started today with a rate of 25% (Canadian oil just 10%). However, Mexico has already caved and the U.S. has put our tariffs on hold for 30 days and Mexico is sending 10K troops to the border. Canada has responded with their own very targeted tariffs (bourbon, beer, etc.) but the leaders of both countries are meeting at 3PM so we will see.