May 23, 2023 – Economic News

• May 24, 2023
• realestatelife
• Business & Markets, Fed, Interest Rates, Politics & Economy, Rates, Real Estate, Real Estate Finance, Recession, World News, Your Real Estate Life

MBS OVERVIEW

4:00 EST – Our benchmark FNMA MBS 6.00 June Coupon is down -17 BPS with 60 minutes left to trade.

Domestic Flavor:

Taking it to the House: Weekly Mortgage Applications fell again, this time down -4.6%. Refinances were down -5.4% and Purchases were down -4.3%

The Talking Fed: We got the Minutes from the last FOMC meeting. You can read them here. Here are a few highlights:

• Participants generally expressed uncertainty about how much more policy tightening may be appropriate.
• Many participants focused on the need to retain optionality after this meeting.
• Some participants commented that, based on their expectations that progress in returning inflation to 2 percent could continue to be unacceptably slow, additional policy firming would likely be warranted at future meetings.
• Several participants noted that if the economy evolved along the lines of their current outlooks, then further policy firming after this meeting may not be necessary.
• Fed staff reiterate forecast for a “mild recession starting later this year, followed by a moderately paced recovery”
• “Several participants remarked that tighter credit conditions may not put much downward pressure on inflation, in part because lower credit availability could restrain aggregate supply as well as aggregate demand.”
• The word “pause” was only mentioned one time in the document.

Treasury Dump: We had a 5 year note auction at 1:00. $43B went off at a high yield of 3.749% and a bid-to-cover ratio of 2.58

Across the Pond:

Central Bank Palooza: New Zealand raised their key interest rate by 25 basis points to 5.5% but signaled that they may be willing to pause at the next meeting. We will hear from ECB President LaGarde today at 1:45 pm.

Great Britain: CPI MOM up 1.2% vs. est. of 0.8%/Retail Prices MOM 1.5% vs. est. of 1.2%

On Deck for Tomorrow: GDP Revised, Initial Weekly Jobless Claims, Pending Home Sales, 7 year note auction.

With no progress on the debt ceiling the 10 year note jumped this afternoon to 3.74%, the 2 year note increased 7 bps. This morning the news was that the negotiators had not set another meeting, this afternoon White House and House Republicans resumed talks, the 10 backed off but still higher on the session. More quotes, “I firmly believe we’ll be able to get there,” McCarthy said of prospects for a deal to avert default, speaking to reporters as his negotiating team was on its way to the session. The US debt now at $31.4 trillion.

Janet Yellen said that the world is just seeing the beginnings of the potential market stress if the debt crisis continues. JPMorgan Chase chief US economist Michael Feroli wrote to clients warning that his team now puts the odds of hitting the June 1 “X-date” without a deal “at around 25% and rising.” Not a huge percentage but it is increasing as neither party wants to concede anything. Up to now this situation mirrors past budget deals, always the last minute. When it is completed, the next issue will be what’s in the deal? This is juicy stuff for the financial media, stocks fell yesterday and lower again today.

The FOMC minutes revealed members were divided over a pause on more hikes. The minutes: “Several participants noted that if the economy evolved along the lines of their current outlooks, then further policy firming after this meeting may not be necessary,” “Some participants commented that, based on their expectations that progress in returning inflation to 2% could continue to be unacceptably slow, additional policy firming would likely be warranted at future meetings.” The Fed and other central banks have underestimated the strength of employment and slow decline in inflation. There are increasing comments, although in the minority, that the level of the Fed’s inflation target at 2.0% may be too low and possibly the target will have to be increased. A pause in June is likely given Powell’s comments recently, the odds of a July increase now 50%. Core CPI in March 4.6%, Friday the April PCE core expected at 4.6% year/year.

Tomorrow weekly jobless claims (248K from 242K), April pending home sales (+1.1% from -5.2% in March). Q1 GDP (+1.1%). Also, tomorrow Treasury sell $35B of 7 year notes.

Treasury sold $43B of 5s this afternoon. Like the 2 yesterday, strong bidding; in the WI trade prior to the auction 3.763%, at the auction 3.749%; the cover 2.58 compared to 2.44 average, indirects took 72.7% compared to the average 65.7%, last month’s 5 year auction 3.50%.