MIG Market Watch, June 3rd, 2024

Market Comment

Mortgage bond prices finished the week near unchanged to slightly higher which kept rates in check. We started the week on a positive note, turned sharply negative Wednesday morning, then pushed positive the remainder of the week. The Treasury auctions saw decreased demand and higher yields as global inflation fears continued. The economic releases were mixed. The FHFA house rose 0.1% vs 0.5%. Consumer confidence was 102.0 vs 95.9. Gross domestic product rose 1.3% as expected. Weekly jobless claims were 219K vs 218K. Income rose 0.3% as expected. Spending rose 0.2% vs 0.3%. Core PCE inflation rose 0.2% vs 0.3%. The tame inflation reading helped to end the week on a positive note. Mortgage interest rates finished the week unchanged to better by approximately 1/8 of a discount point.

Looking Ahead

Date & Time
ISM IndexMonday, June 3,
10:00 am, et
49.8Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates.
Construction SpendingMonday, June 3,
10:00 am, et
Up 0.2%Low importance. An indication of economic strength. Significant weakness may lead to lower rates.
Factory OrdersTuesday, June 4,
10:00 am, et
Up 0.6%Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
ADP EmploymentWednesday, June 5,
8:15 am, et
180KImportant. An indication of employment. Weakness may bring lower rates.
Trade DataThursday, June 6,
8:30 am, et
$69B deficitImportant. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
Weekly Jobless ClaimsThursday, June 6,
8:30 am, et
218KImportant. An indication of employment. Higher claims may result in lower rates.
EmploymentFriday, June 7,
8:30 am, et
Payrolls +180K
Very important. An increase in unemployment or weakness in payrolls may bring lower rates.

Interesting Times

There is a Chinese proverb that states, “May you live in interesting times.” It is often argued that the word interesting is meant to be a synonym for turbulent or dangerous. This phrase hits the bull’s-eye given the current state of the financial markets, continued Fed rate uncertainty, and a presidential election coming this fall. It is a major understatement to say that the upcoming election is polarizing.

The overwhelming consensus a few months ago regarding the Fed’s next move was that they would pivot by June. Those sentiments shifted quickly as inflation readings remained elevated the past few months. A summer rate cut now has very little support. Current odds are 50/50 as to the Fed cutting rates at all this year.

The Fed has difficult decisions to make. They need to keep inflation in check. However, the last thing they want to do is stifle the economic recovery they have worked so hard to produce.
Their last meeting noted “price growth is expected to continue at a modest pace in the near term.”

Timing is the key. We will likely continue to see whipsaw trading in the months ahead. Concerted downward pressure on rates is not expected until it is very clear the Fed will pivot. Now is a great time to take advantage of rates to avoid any future spikes.