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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 +24 BPS with 60 minutes left to trade.
Jobs, Jobs, Jobs: The quarterly release of the Employment Cost Index for the 1st QTR showed a solid gain of 1.2% vs. est. of 1.1%.
Inflation Nation: March headline PCE showed a MOM gain of only 0.1% vs. est. of 0.3%. YOY, it was up 4.2% vs. est. of 4.6%. February was revised higher. Core (ex food and energy) PCE was up 0.3% on a MOM basis which matched forecasts. YOY, it was up 4.6% which was higher than est. of 4.5%, February was revised higher as well.
Its Personal: March Personal Incomes rose by 0.3% vs. est. of 0.2% and Personal Spending was flat at 0.0% vs. est. of -0.1%
Rosie the Riveter: The April Chicago PMI was much higher than expected, 48.6 vs. est. of 43.5 and a nice improvement over March’s 43.8 but it is still below 50.0 which is still contractionary.
Consumer Sentiment: The final revised April UofM Consumer Sentiment Index hit vs. 63.5 est. of 63.5
Central Bank Palooza: The Bank of Japan kept their key interest rate at -0.1%
The inflation data this morning added more credence the FOMC will increase rates by 25 bps at the meeting next week. March core PCE slightly higher than forecasts, up 0.3% for the second month. The Labor Department’s measure of employment costs — also closely watched by the Fed — increased 1.2% in the first quarter from the previous period, exceeding forecasts, some positive data, service costs declined. The service sector inflation driven by wage growth. Labor costs have risen at least 1% for seven straight quarters, extending what was already a record streak in data back to 1996. The current consensus is a 25 bp increase then a pause, how long the pause will obviously depend on incoming data.
First Republic Bank is on the sales block. Its stock declined down 30% after declining 49% on Tuesday. It is an outlier but there are rumblings the Fed may pass increasing rates next week to shore up regional banks, then move 25 bps at the June meeting. We still hold the Fed will move next Wednesday. Michael Barr the Fed’s head of bank supervision is on a mission to increase regulations for bank liquidity. New and tighter regs on regional banks will increase the cost of borrowings. Barr focusing on additional capital or liquidity, or limit share buybacks, dividend payments or executive compensation, at firms with inadequate capital planning and risk management.
Next Week: Monday April HIS PMI manufacturing index, March construction spending, April ISM manufacturing index. Tuesday FOMC meeting begins, March factory orders, March JOLTS job openings. Wednesday April ADP private jobs, MBA mortgage apps, HIS PMI services index, FOMC policy statement and Jerome Powell’s press conference. Thursday weekly jobless claims, Q1 productivity and unit labor costs. Friday April employment data, March consumer credit.
This week: The 10 year note declined 14 bps this week. FNMA 6.0 and 5.5 coupons unchanged this week. The DJIA +289, NASDAQ +155, S&P +35. Gold this week +$5.00, crude oil-$1.10. The dollar choppy but ending the week about unchanged –0.11on the dollar index. Bitcoin strong this week increased 2,064.
The bellwether 10 year note remains in its two-month range and any buying stops when the note drops to 3.40%. The Fed next week holds the key to unlock rate declines. The trading range is long in the tooth, if it fails to crack 3.40% next week the likelihood is a move back toward the high of the range at 3.60%. Last Wednesday the 10 year yield dropped to test 3.40%, it failed and yesterday the note increased 8 bps to 3.53% from Wednesday’s close at 3.45% +5 bps from Tuesday.
