MIG Market Watch, May 1st, 2023
Market Comment

Mortgage bond prices finished the week slightly higher which kept rates relatively flat. We started positively, had some negative mid-week movements, and closed the week on a positive note. The data was mixed and many of the releases showed economic strength. The FHFA house price index rose 0.5% vs the expected 0.1% decline. Consumer confidence was 101.3 vs104. New home sales were 683K vs 630K. Durable goods orders rose 3.2% vs 0.7%. GDP rose 1.1% vs 2%. Weekly jobless claims were 230K vs 245K. Employment cost index rose 1.2% vs 1.1%. Income rose 0.3% vs 0.2%. Spending was unchanged vs the expected 0.1% decline. Core PCE inflation rose 0.3% as expected. Mortgage interest rates finished the week unchanged to better by approximately 1/8 of a discount point.

Looking Ahead
Economic Indicator Release Date & Time Consensus Estimate Analysis
ISM Index Monday, May 1,
10:00 am, et
46.6 Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates.
Factory Orders Tuesday, May 2,
10:00 am, et
Up 0.8% Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
ADP Employment Wednesday, May 3,
8:15 am, et
150K Important. An indication of employment. Weakness may bring lower rates.
Fed Meeting Adjourns Wednesday, May 3,
2:15 pm, et
25 basis point hike Important. Most expect the Fed to change rates. Volatility may surround the adjournment of this meeting.
Weekly Jobless Claims Thursday, May 4,
8:30 am, et
230K Important. An indication of employment. Higher claims may result in lower rates.
Preliminary Q1 Productivity Thursday, May 4,
8:30 am, et
Up 1.6% Important. A measure of output per hour. Improvement may lead to lower mortgage rates.
Trade Data Thursday, May 4,
8:30 am, et
$70B deficit Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
Employment Friday, May 5,
8:30 am, et
Payrolls +156K
Very important. An increase in unemployment or weakness in payrolls may bring lower rates.

The Fed

The Federal Reserve meets this week and is expected to raise rates 25 basis points. Financial markets currently price in an 87% chance of a hike this week and a 67% chance of no additional changes at the June 14th meeting. Many analysts strongly believe there will be a pause after this week’s hike. The one thing the meeting could bring is additional insight into other Fed moves beside rate hikes. The Fed has been open about their desire to reduce their balance sheet. However, they still hold in excess of $2.5 trillion of mortgage-backed securities and almost $4.5 trillion of US Treasury notes and bonds. Many economists predict the Fed will announce balance sheet reductions. This means they will stop reinvesting in mortgage-backed securities. This isn’t a huge surprise as Fed officials continue to be clear in their intentions. The challenge they face is the fact that higher rates hurt the housing market and housing is a vital component of the economy. Be cautious this week as mortgage interest rates are likely to be volatile.