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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 -11 BPS.
Rosie the Riveter: May Durable Goods were much stronger than expected with the headline reading rising by 1.7% vs. est. of a contraction of -1.0%. Ex Transportation, it was up 0.6% vs. est. of -0.1% and Non Defense Capital Goods Ex Aircraft were up 0.7% vs. est. of 0.0%. The June Richmond Fed Manufacturing Index hit -7 vs. est. of -10.0.
Taking it to the House: The April FHFA Housing Price Index, which is a MOM reading, showed an increase of 0.7% vs. est. of 0.3%. The April Case-Shiller Home Prices metro Index, which is a YOY reading, showed a decrease of -1.7% vs. est. of -2.6%. May New Home Sales were 763K at an annualized pace vs. est. of 675K.
Consumer Confidence: The June Conference Board’s Index was 109.7 vs. est. of 103.7.
Treasury Dump: We have a shorter term 5 year Treasury note auction at 1:00. $42B went off at a high yield of 4.019% and a bid-to-cover ratio of 2.52.
On Deck for Tomorrow: Weekly Mortgage Applications, Fed Chair Powell, 7 year note auction, bank stress test info.
May durable goods orders and June consumer confidence index released this morning, much stronger than forecasts. New orders expected -1.0% increased 1.7%, excluding transportation orders expected 0.0% increased 0.6%, core capital goods expected 0.6% increased 0.7%, just +2.0% year/year. The transportation sector is generally volatile with commercial plane orders, in May those orders increased 33% from April, offsetting military aircraft that declined 35%; auto orders increased 2.0% from unchanged in April. Business investment increased 0.7% and rose for the second straight month. Very strong orders that when announced didn’t phase the rate markets with the 10 at 3.70% -2 bps.
Then came June consumer confidence that also surprised on the upside the index expected at 104.0 reported at 109.7, the best since Jan 2022. Finally, today May new home sales that were the strongest since February 2022.
May new home sales also stronger, +763K units against forecasts of 667K and exceeded April sales by almost 100K (680K to 763K). 12.2 percent (±12.8 percent)* above the revised April rate of 680,000 and is 20.0 percent (±15.5 percent) above the May 2022 estimate of 636,000. The median sales price of new houses sold in May 2023 was $416,300. The average sales price was $487,300. The seasonally adjusted estimate of new houses for sale at the end of May was 428,000. This represents a supply of 6.7 months at the current sales rate. New homes are hot driven by the lack of existing homes on the market and concessions b y builders like rate buy-downs.
The 10 traded down to 3.69% yesterday, today’s low prior to the strong economic data at 3.70%. As we noted it is a key technical area that hasn’t dropped below 3.69% on any rate improvements since June 1st. The economy much firmer than what some believed and that expect a recession. There is a lot of data to go through before the FOMC meeting on July 26th but what we saw today increases the odds the Fed will increase rates at the meeting. Markets will get May inflation data on Friday with the PCE (personal consumption expenditures).
Tomorrow (2:30 am) in a Policy Panel Discussion at the European Central Bank (ECB) Forum on Central Banking 2023, Sintra, Portugal. Look for Powell to follow ECBs Lagarde that inflation remains too high, and the Fed is prepared to keep on increasing. A month ago, there was a growing belief the Fed would end increases the rest of the year, we were in that group, believing the stock market was headed to a huge decline and the economy would decline into recession. With economic reports continuing to surprise on the upside and employment remaining firm it doesn’t look like the Fed is done. Some analysts were believing the Fed would begin cutting rates late this year to combat the anticipated recession. All those outlooks brought in question now.
This afternoon Treasury sold $43B of 5 year notes. The auction was mediocre, the yield 4.019% compared to WI trading at 4.012%, cover 252 compared to the average of 2.45.
Tomorrow weekly MBA mortgage applications, May US trade deficit expected -$92.5B from -$97.1B in April. Jerome Powell’s discussion. The time, early in the morning (2:30 am), so whatever comes from his comments will already be infused in markets when the US opens in the morning. Also, tomorrow $35B of 7y notes up for sale.
