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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 up +20 BPS with 60 minutes left to trade.
Jobs, Jobs, Jobs: The April ADP Employment Change was much better than expected showing 296K job additions vs. est. of only 148K
Taking it to the House: Weekly Mortgage Applications edged lower by -1.2%. Refinances gained +0.8% while Purchases dropped -2.0.
Rosie the Riveter: April ISM Non Manufacturing/Services which accounts for 2/3 of our Economy came in at 51.9 vs. est. of 51.8. The Employment Index dropped from 51.3 to 50.8, New Orders increased from 52.2 to 56.1 and Prices Paid moved from 59.5 to 59.6
The Talking Fed: The FOMC gave us their interest rate decision and policy statement at 2:00, You can read their official release here. Here are a few highlights:
On Deck for tomorrow: ECB Interest Rate Decision, Challenger Job Cuts, Initial Jobless Claims, Continuing Claims, Trade Balance.
The FOMC did what was universally expected, increased the FF rate 25 bps to 5 to 5.25%. Prior to the FOMC treasury rates were lower, the 10 traded at 3.35%. Powell saying employment is strong, the labor market is tight, but he added he was pleased the economic outlook is still solid (my word). He made the point as he has in the past that the Fed won’t stop until inflation declines to 2.0%. He noted the banking system is strong and resilient. The FOMC did not hint or imply that the Fed is going to pause with its increases, once again the Fed will stay data dependent. On a recession, he said the Fed is expecting just a mild one, if at all. He indicated it isn’t possible now to know whether the recent tightening is enough. On the debt limit, Powell added his concern that it must be resolved.
FOMC Policy Statement: “ Economic activity expanded at a modest pace in the first quarter. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated.
The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 5 to 5-1/4 percent. The Committee will closely monitor incoming information and assess the implications for monetary policy. In determining the extent to which additional policy firming may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.”
More key inflation data tomorrow; Q1 productivity and unit labor costs. Productivity expected 0.0% down from 1.7% in Q4: unit labor costs increasing to 3.9% from 3.2% in Q4. Also, tomorrow weekly jobless claims expected 238K from 230K the week before.
Now that the FOMC is behind us, turning to Friday’s April employment data.
The banking system isn’t out of the woods, inflation while slowing still way too high. Investors moving into treasuries away from banks, no reason to keep money in banks that pay nothing, the stock market isn’t doing much unless you are a short-term trader. With the FOMC not saying one way or the other letting markets on their own. We have continued to talk about 3.40% for the 10 still a high hurdle, it broke down this afternoon to 3.35% at 3:55 pm. The market reactions to this meeting and Powell’s comments were unusually quiet compared to the high volatility that normally happens.
