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Saturday’s: 9AM 1590 AM/97.9 FM KVTA
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Listen Live
Saturday’s: 9AM 1590 AM/97.9 FM KVTA
Sunday’s: 7AM K-EARTH 101 FM
MBS OVERVIEW
Our benchmark FNMA MBS 6.00 July Coupon is currently up 34 BPS.
Retail Sales: The May headline Retail Sales showed a MOM increase of 0.3% vs. est. of -0.1%. Ex Autos, they were 0.1% which matched expectations and the Control Group was up 0.2% vs. est. of 0.0%.
Jobs, Jobs, Jobs: Initial Weekly Jobless Claims were higher than expected, up 262K vs. est. of 249K, it was the second consecutive week at 262K. The more closely watched week moving average increased to 247K. Continuing Claims were 1.775M vs. est. of 1.765M.
Rosie the Riveter: We got conflicting reports about our manufacturing sector this morning. The June Empire State Manufacturing Index showed a very rare improvement with a +6.6 reading which was much better than expectations of -15.1 and May’s reading of -31.8. Meanwhile, the Philly Fed Manufacturing Survey had an awful reading of -13.7 vs. May’s reading of -10.4. May Industrial Production cratered at -0.2% vs. est. of +0.1%. Capacity Utilization was 79.6% vs. est. of 79.7%
Genco Olive Oil: Both Import and Export Prices fell which is good for bonds as it is anti-inflationary. Import Prices were down -0.6% vs. est. of -0.1% and Export Prices were -1.9% vs. est. of 0.0%
Central Bank Palooza: The European Central Bank (ECB) increased their key interest rate by 25% which was widely telegraphed and expected. They signaled that they would need to further tighten to combat inflation.
On Deck for Tomorrow: Bank of Japan Interest Rate Decision, UofM Consumer Sentiment Index.
WE WILL NOT HAVE A REPORT TOMORROW MORNING
The stock indexes went wild today, interest rates declined. Someone is going to get this wrong, either the stock market is going to roll over based on recent economic data slowing or interest rates are going to break out of the recent trading range. We are either headed for a recession or the Fed is finished increasing rates. The recent headlines for equities have been AI that underpins all stocks in some way, the momentary tone, buy anything and bet on the Fed is finished. The DJIA has now recouped all the losses from the pandemic. The recent economic releases have been anything but stellar, but now no one wants to step in front of the two markets. History is repeat with Federal Reserve fails; this is shaping as one of them.
No matter what the FOMC and Powell commented yesterday, markets don’t care now. Heard mentality, lemmings following each other, over the cliff? Equity market runs usually happen this way, from negative opinions to bullish ones driving everyone into the equity market and keeping interest rates from increasing. The rate markets always more conservative but following the idea that is growing that the Fed is likely finished increasing rates. We believe the Fed is done but question why equity markets don’t see the future implications of the of the Fed stopping. It isn’t necessary to look very deep, recent data points here and globally are tilting to lower outlooks; China’s economy declining adds to the view the US markets are way over-excited.
Don’t know how long, or what the trigger will be but when it happens equities will be in danger and safety into treasuries will drive rates lower. At 19 times projected 12-month earnings, the S&P 500’s multiple is about 8% higher than its 10-year average. Investors may be running out of cash to invest, if a turn occurs support won’t be very strong. And Finally, although we don’t think so, if the Fed officials that will be coming off their quite period next week continue hawkish forecasts it won’t take much to shake this unsteady tree. This chart is worth perusing; look at 1987 figures, in that selling in one day the S&P lost half of its value before finding a bottom, and chaos was rampant, interest rates declined 300 bps.
The only economic data tomorrow; the mid-month U. of Michigan consumer sentiment index expected at 60.0 from 59.2 at the end of May.
Next week expect Fed officials will be back on their speaking calendars. Don’t expect any support from them that the Fed is finished as we and markets presently believe. If the 10 year note doesn’t breach 3.84%, the recent high, the idea of no more cuts will gain momentum.
