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Listen Live
Saturday’s: 9AM 1590 AM/97.9 FM KVTA
Sunday’s: 7AM K-EARTH 101 FM
MBS OVERVIEW
Our benchmark FNMA MBS 6.00 July Coupon is currently down at -23 BPS.
Taking it to the House: May Existing Home Sales were 4.30M units on an annualized basis vs. est. of 4.250M.
The Talking Fed: Fed Chair Powell completed two days of testimony. This time to the Senate Banking Committee. There were no deviations from Wednesday’s testimony. The Chicago Fed National Activity Index dropped from +0.14 in April to -0.15 in May. The Kansas Fed Manufacturing dropped from -2 in May down to -10 in June. Fed Governor Bowman said “I believe that additional policy rate increases will be necessary to bring inflation down to our target over time.”
Central Bank Palooza: It was a round of rate hikes today. The Swiss National Bank raised by 25BPS and The Norges Bank (Norway) raised by 50BPS which was 25BPS more than expected. The Bank of England shocked the markets by raising by 50BPS on the heals of a very high inflationary report Wednesday.
On Deck for Tomorrow: Markit PMI’s and Loretta Mester
Yesterday at the House Powell stressed the need to increase rates further but leaned on data dependence to state his case. Today he went toward the need for two more increases as a means to help working families that suffer the most with high inflation, a more humanitarian approach. “It is for the benefit of those people and all other people that we need to restore 2% inflation in this country on a sustained basis,” he said. “We are committed to getting inflation under control and a strong majority of the committee feels that we’re close, but there’s a little further to go with rate hikes.” Yesterday after he finished testifying interest rates edged down and MBS prices increased in the afternoon. Today after hammering the second day interest rates edged higher; the 10 increased to 3.80%, the 2 year note rate increased 8 bps and MBS prices fell 6 bps from 9:30 am.
“We don’t want to do more than we have to, but we do think — overwhelmingly, people on the committee do think — that there are more rate hikes coming, but we want to make them at a pace that allows us to see incoming information so we make good decisions,” Powell was supported by Fed Governor Michelle Bowman tis morning saying the Fed believes “additional policy-rate increases will be necessary” to curb inflation that is still unacceptably high.
May existing home sales increased 0.2% from April at a 4.30 mil pace: down 20.4% year/year. The inventory of unsold existing homes grew 3.8% from the previous month to 1.08 million at the end of May, or the equivalent of 3.0 months’ supply at the current monthly sales pace. Total housing inventory registered at the end of May was 1.08 million units, up 3.8% from April but down 6.1% from one year ago (1.15 million). Unsold inventory sits at a 3.0-month supply at the current sales pace, up from 2.9 months in April and 2.6 months in May 2022. The median existing home price for all housing types in May was $396,100, a decline of 3.1% from May 2022 ($408,600). Prices grew in the Northeast and Midwest but fell in the South and West. Properties typically remained on the market for 18 days in May, down from 22 days in April but up from 16 days in May 2022. Seventy-four percent of homes sold in May were on the market for less than a month. Single-family home sales dipped to a seasonally adjusted annual rate of 3.85 million in May, down 0.3% from 3.86 million in April and 20.0% from the previous year. The median existing single-family home price was $401,100 in May, down 3.4% from May 2022.
Tomorrow the only data; June preliminary PMI composite, manufacturing index expected at 48.5 while services at 53.5. The May ISM services sector index declined for the first time recently; the index at 50.3 from 51.9 in April; prices paid 56.2 from 59.6; employment 49.2 from 50.8; new orders 52.9 from 56.1. Cleveland Fed’s Mester will talk at 1:40 pm tomorrow afternoon, not likely she will add anything new.
Other than housing market details this week has had little direct economic releases. No inflation readings until a week from tomorrow when May PCE inflation reports hit.
We floated for a few days but locked this afternoon as the 10 edged toward its key resistance at 3.84%, investors and traders still not fully anticipating the Fed will increase rates at the July FOMC meeting, equally there is no indication the Fed won’t raise rates. The Bank of England increased its base rate by 50 bps today, as we anticipated.
