July 5, 2023 – Economic News

• July 5, 2023
• realestate

MBS OVERVIEW

Our benchmark FNMA MBS 6.00 July Coupon is currently down -26 BPS.

Rosie the Riveter: May Factory Orders fell short of expectations, up 0.3% vs. est. of 0.8%. However, it was expansionary and the second straight monthly increase of 0.3%.

The Talking Fed: We got the Minutes from the last FOMC meeting at 2 pm ET. You can read their official release here. Here are a few key takeaways:

• Most participants observed that leaving the target range unchanged at this meeting would allow them more time to assess the economy’s progress toward the Committee’s goals of maximum employment and price stability.
• Some participants indicated that they favored raising the target range for the federal funds rate 25 basis points at this meeting or that they could have supported such a proposal.
• The participants favoring a 25 basis point increase noted that the labor market remained very tight, momentum in economic activity had been stronger than earlier anticipated, and there were few clear signs that inflation was on a path to return to the Committee’s 2 percent objective over time.
• Almost all participants noted that in their economic projections that they judged that additional increases in the target federal funds rate during 2023 would be appropriate.

On Deck for Tomorrow: Weekly Mortgage Applications, Challenger Job Cuts, ADP Payrolls, Initial Weekly Jobless Claims, JOLTS, Trade Balance, ISM Services.

Interesting day, the FOMC minutes scheduled to be released at 2 pm Et. Interest rate traders couldn’t wait to buy treasuries, interest rates began to increase about 11 am with no news. The 10 at 9:30 am +1 bps, at 11:45 am +6 bps, MBS prices at 9:30 am +6 bps by noon -30 bps. The 10 has been inching up in very small moves since last week, clearing 3.84% that we had as a key technical resistance, today blowing above what had been our next technical support level to end the day plus 8 bps at 3.94%.

It has been a month or more with debates raging from Wall Street firms each with just two opinions, that the economy would not fall into recession and the Fed was probably done increasing rates. The bets about the Fed and the economic outlook generally evenly divided depending on which financial media was reporting. Six weeks ago, we were on the side of no more increases, over that time the stock market roared, the labor market not only wasn’t slowing but growing, inflation has edged lower but by just 1 bp from May to June, 4.7% to 4.6%. The last two weeks Jerome Powell began to make it clear the Fed wasn’t finished tightening, last week at a major central banks conference Powell once again worried about wages and high employment and repeated once again the Fed was far away from its 2.0% inflation goal. Yet there was still the idea the Fed may just be blowing a little smoke. The 10 year note hit its high at 4.09% in early March then declined to 3.69% and now climbing back to the high levels. Trading volume was thin, the only caveat for today’s increases.

The FOMC minutes released at 2 pm reaffirmed what the FONC policy statement said at the June meeting, no particular new info. The FOMC Minutes from the June meeting, which showed near-uniform agreement that more rate hikes will be appropriate before the end of the year. The increase in rates at the long end of the curve didn’t track the 2 year note today that should have been climbing along with the long end of the curve, increased just 2 bps.

Tomorrow ADP will report its private jobs (235K from 278K), weekly jobless claims (245K from 239K), June ISM services sector index (50.8 from 50.2), the May JOLTS job openings (9.9 mil from 10.130 mil). Friday the June employment report ( unemployment unchanged at 3.7%, NFP jobs 213K from 339K in May, private jobs +199K from 283K, (Fed officials believe employment growth has to slow to around 100,000 a month to help the central bank in its fight against inflation).Average hourly earnings at 4.2% down from 4.3%. The combined two days of data may increase daily volatility in the rate markets. “All elements of the June employment report should be strong enough to keep the Fed raising rates in July,” economists at Citi said in a note to clients.

30 year mortgage rates according to Freddie at 7.08%, the recent high in March 7.22%.