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Listen Live
Saturday’s: 9AM 1590 AM/97.9 FM KVTA
Sunday’s: 7AM K-EARTH 101 FM
MBS OVERVIEW
4:00 EST – Our benchmark FNMA MBS 6.00 May Coupon is down -12 BPS with 60 minutes left to trade.
Taking it to the House: The March Pending Home Sales Index contracted by -5.2% vs. est. of +0.5%
Jobs, Jobs, Jobs: Initial Weekly Jobless Claims were lower than expected, 230K vs. est. of 248K. The more closely watched 4 week moving average dropped to 236K. Continuing Claims were 1.858M vs. est. of 1.878M
GDP: The preliminary 1st QTR GDP was lower than consensus estimates (1.1 vs. est. of 2.0) but it was higher than the “whisper” numbers on Wall Street yesterday.
Treasury Dump: We had a 7 year note auction at 1:00 today. $35B went off at a high yield of 3.563% and a bid-to-cover ratio of 2.41
On Deck for Tomorrow: PCE, Core PCE, Personal Incomes and Spending, Employment Cost Index, Chicago PMI and UofM Consumer Sentiment.
Big day for financials, the stock indexes rallied, the 10 year increased. As for rates, no real change in the 10 year note since the beginning of March. The note is comfortable swinging between 3.60% an 3.40% (how many times have I said that?) There is no directional trend, but we believe that is about to change next week when the FOMC meets, and Powell delivers his press conference. The battle between inflation, the recession concerns, and what direction rates will begin to trend will take on new life after the FOMC policy statement, not the 25 bp increase that is already well discounted, but what message the Fed will send.
Wage increases have added fuel to inflation concerns, Powell has made that a focal point recently. The FOMC and Fed regional bank officials are now sounding a different tune, wages still a huge issue but the reality of tighter credit as banks rev up revenue by increasing credit costs may take some of that labor market concern off the table that has been a keynote for the Fed over the last three months. Wage growth slowed in most of the country in the past few months, according to the Fed’s latest Beige Book report. Tomorrow after this week’s secondary data reports, there will be a lot to think about; not just inflation on the PCE, personal income and spending, April Chicago purchasing mgrs. index and U. of Michigan final April consumer sentiment index but the Q1 employment cost index. The headlines will be inflation, consumer sentiment but the real meat is the employment cost index. The ECI will carry a lot of weight next week at the FOMC meeting.
Tomorrow’s data will all be released by 10 am. By the end of the day tomorrow, or at the latest by next Wednesday, the 20 bp trading range that has confined the bellwether 10 year note for two months will have been broken. The direction of course depends on the data. We use the word coiling when describing tight near term trading ranges, this range is wide but has coiled. The 10 year note today in the middle of the range, it will not stand longer than next Wednesday. When the range is penetrated the move will be swift and likely deep, maybe as much as 20 bps either way for the 10 (3.80%-3.20%). Mortgage rates will follow but not to the extent the treasury market will move if the range cracks, the high at 7.20% was the top, 6.40% will likely hold against more declines.
The Q1 GDP report, expected at +2.6% reported at +1.1%, was the first look; next month expect GDP to be revised higher, the decline driven by inventory declines.
These are the estimates for tomorrow’s data. Q1 employment cost index +1.2% Q4 1.0% PCE inflation; m/m +0.1% from +0.3%, year/year +4.2% from 5.0%, core PCE m/m +0.3% unchanged from Feb, year/year +4.5% from 4.6%. U. of Michigan consumer sentiment index 63.5 unchanged from mid-month and up from 62.7 at the end of Feb. The April Chicago purchasing mgrs. index 43.5 from 43.8 in March.
