July 6, 2023 – Economic News

• July 6, 2023
• realestatelife
• Business & Markets, Fed, Interest Rates, Politics & Economy, Rates, Real Estate, Real Estate Finance, Recession, World News, Your Real Estate Life

MBS OVERVIEW

Our benchmark FNMA MBS 6.00 July Coupon is currently down -31 BPS.

Taking it to the House: Weekly Mortgage Applications fell by -4.4%. Purchases were down -4.6% and Refinances were down -4.1%.

Jobs, Jobs, Jobs: We have several key jobs reports this morning:

• June Challenger Job Cuts fell from 80.089K in May down to 40.709K in June.
• ADP Employment Change shocked the markets by shooting up 497K in June vs. est. of 245K.
• Initial Weekly Jobless Claims were basically inline with expectations (248K vs. est. of 245K). The more closely watched 4 week moving average dropped from 256K down to 253K. Continuing Claims remained above the important 1.7M mark with a reading of 1.720M which was lower than expectations of 1.751M.
• The May Job Openings and Labor Turnover Survey (JOLTS) were 9.8M vs. est. of 9.93M. The “quits” rate rose from 2.4% to 2.6% which indicates upward movement in wages.

The Talking Fed: Today we will hear from Dallas Fed President Logan. Late Wednesday, NY Fed President Williams said that it was the right move for the central bank to hold rates steady three weeks ago, while hinting at some point it may have to raise rates again amid ongoing economic strength.

Services: The June ISM Non Manufacturing (Services) PMI showed expansion in 15 out of 18 industry sectors that they track. Their headline PMI reading was stronger than expected, 53.9 vs. est. of 51.0. The Employment Component moved from contractionary territory in May of 49.2 to expansionary territory in June of 53.1. Prices Paid were 54.1 vs. est. of 53.3.

On Deck for Tomorrow: Big Jobs Friday! Non Farm Payrolls, Average Hourly Wages, Unemployment Rate, Underemployment Rate, Laborforce Participation Rate, Average Weekly Hours.

ADP private jobs this morning were twice as more than forecasts, 497K jobs. At 10 am ET the June ISM service sector index thought to be 50.8 from 50.3 in May, the index registered 53.9, 3.6 percentage points higher than in May. The composite index indicated growth in June for the sixth consecutive month after a reading of 49.2 in December, which was the first contraction since May 2020 (45.4). The Business Activity Index registered 59.2 a 7.7-percentage point increase compared to the reading of 51.5 in May. The New Orders Index expanded in June for the sixth consecutive month after contracting in December for the first time since May 2020; the figure of 55.5 is 2.6 percentage points higher than the May reading of 52.9.

The increase in ADP jobs likely due to the annual retooling in the auto industry according to data reported, the biggest gains were in Michigan and New York. It was the largest job gains in over a year. Another report this morning, the Challenger, Gray & Christmas Inc. showed announced job cuts by US employers fell in June to an eight-month low. Tomorrow markets will get the official jobs data from the BLS, there is history on the deviation from ADP and BLS releases.

Markets also got the May JOLTS job opening this morning, openings declined from 10.32 mil in April to 9.82 mil, close to forecasts of 9.9 mil. The quit rate rose by the most in nine months, indicating workers still feel confident in their ability to secure another job.

More Fed speak, Dallas Fed Pres Lorie Logan saying more rate increases are necessary to drive meaningful disinflation. “I remain very concerned about whether inflation will return to target in a sustainable and timely way,”… “I think more-restrictive monetary policy will be needed to achieve the Federal Open Market Committee’s goals of stable prices and maximum employment.” She said in would have been appropriate to increase rates instead of a pause. “My hope was that the overall package of communications coming out of the June meeting would deliver a strong signal to financial markets and meaningfully tighten financial conditions.” The Dallas Fed has a history of strong outspoken leaders. The minutes of the June meeting showed a growing divide among officials, with some saying they would have preferred to raise rates again at that point.

Tomorrow June employment data, the only report that could sway a few that the Fed isn’t going to increase rates on the 26th, the reaction today is strong evidence traders now believe another 25 bp increase, it is in the present levels. Today the 2 year note reached its highest rate in 16 years at 5.11% before backing down into the close. Inflation releases next week, CPI and PPI; whether inflation slips or not it isn’t going to change the rate increase; Powell’s main concern is the very strong job market. Betting against a rate increase now is like spitting into a fan, the blowback isn’t good.