February 1, 2023 – Economic News

• February 1, 2023
• realestatelife
• Business & Markets, Fed, Interest Rates, Politics & Economy, Rates, Real Estate, Real Estate Finance, Recession, Your Real Estate Life

MBS OVERVIEW

4:00 EST – Our benchmark FNMA MBS 6.00 February Coupon is up +37 BPS with 60 minutes left to trade.

Jobs, Jobs, Jobs: The January ADP Employment Report showed 106K job adds which was well below the consensus estimates of 178K and a steep decline from December’s upwardly revised 253K. The December Job Openings and Labor Turnover Survey (JOLTS) jumped to back above 11M with a reading of 11.012M beating out estimates of 10.25M.

Taking it to the House: Weekly Mortgage Applications tanked even though mortgage rates dropped. Refinance applications fell by -7.1% and Purchase Applications fell by -10.3%

Rosie the Riveter: The national ISM Manufacturing PMI was weaker than expected, 47.4 vs. est. of 48.0. It marks the 3rd straight month of contractionary readings below 50. New Orders fell to 42.5, Prices Paid rose to 44.5. The Employment Index remained above 50 at 50.6

Construction Spending: The December reading was worse than expected, down -0.4% vs. est. of 0.0%

The Talking Fed: As expected, the FOMC increased the Fed Fund Rate by 25BPS to 4.75%. You can read their official policy statement here. Here are a few highlights:

• “The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.” = more rate hikes
• Inflation has eased somewhat but remains elevated.
• Data Dependent: “In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook.”

On Deck for Tomorrow: Interest Rate Decisions from the Bank of England and the ECB. Initial Weekly Jobless Claims, Non Farm Productivity and Unit Labor Costs, Factory Orders.

FOMC increased the FF rate 25 bps to 4.50%-4.75%, as expected. The reaction prior to Powell’s press conference at 2:30 pm ET was no reaction. The 10 didn’t move, MBS prices didn’t change. The 10 at 2 pm 3.48%, MBS prices -7 bps, at 2:30 pm both were the same as at 2 pm. Powell’s press conference at 2:30 pm, at the start the 10 was unchanged, MBS prices also unchanged from morning levels. The stock indexes fell, the DJIA down 400 points. By 3 pm the 10 year note, in less than a minute, the note dropped to 3.40%, the stock indexes were unchanged on the day; MBS prices +33 bps. The cause for the huge rate drop, when Powell said, “disinflation process has started,” suggesting the aggressive tightening cycle is starting to have its desired effect of reducing the pace of price growth. Treasuries gained, with the two-year yield falling to around 4.11% after hovering around 4.21% earlier. Powell also said he doesn’t see any rate cuts coming this year.

Tomorrow weekly jobless claims, expected to show claims at 193K from 186K the prior week; claims at that level lower than prior to the pandemic. Q4 preliminary productivity and unit labor costs, productivity +2.4%, unit labor costs +1.5% from +2.4% in Q3. Dec factory orders +2.2% from -1.8% in November.

Friday the January employment data.

The 10 year now back to 3.40% the obvious chart support that has been tested numerous times over the last three weeks unable to drop below it. Ahead of employment data Friday it is unlikely the 10 will decline below 3.40% tomorrow. Powell’s comment that disinflation process has started is a strong remark, a break below 3.40% on the 10 year will set a rapid move to 3.30%. There is likely a lot of stop loss orders under 3.40%. Inflation, the killer for long term rates has been wounded with Powell’s comment. The 2 year note yield after Powell’s remark declined to 4.10% -16 bps.