MIG Market Watch, July 1st, 2024

Market Comment

Mortgage bond prices finished the week near unchanged which helped rates remain steady. Trading went back and forth with small positive movements Monday, sell-offs mid-week, and a slight rebound Thursday. Rates saw a little upward pressure Wednesday in response to several news articles that speculated inflation will remain higher for longer. There were few data releases early in the week and trading was lackluster and narrow. The data was mixed. Consumer confidence was 100.4 vs 100. Durable goods orders rose 0.1% vs down 0.1%. GDP rose 1.4% as expected. Personal income rose 0.5% vs 0.4%. Spending rose 0.2% vs 0.3%. Core PCE rose 0.1% as expected. Mortgage interest rates finished the week with discount points near unchanged.

Looking Ahead

Date & Time
ISM IndexMonday, July 1,
10:00 am, et
49Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates.
Construction SpendingMonday, July 1,
10:00 am, et
Up 0.1%Low importance. An indication of economic strength. Significant weakness may lead to lower rates.
ADP EmploymentWednesday, July 3,
8:15 am, et
170KImportant. An indication of employment. Weakness may bring lower rates.
Weekly Jobless ClaimsWednesday, July 3,
8:30 am, et
235KImportant. An indication of employment. Higher claims may result in lower rates.
Trade DataWednesday, July 3,
8:30 am, et
$76B deficitImportant. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
Factory OrdersWednesday, July 3,
10:00 am, et
Up 0.3%Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
Fed MinutesWednesday, July 3,
2:00 pm, et
NoneImportant. Details of the last Fed meeting will be thoroughly analyzed.
EmploymentFriday, July 5,
8:30 am, et
Payrolls +180K
Very important. An increase in unemployment or weakness in payrolls may bring lower rates.

Tame PCE Inflation

According to the Bureau of Economic Analysis, “The PCE Price Index Excluding Food and Energy, also known as the core PCE price index, is released as part of the monthly Personal Income and Outlays report. The core index makes it easier to see the underlying inflation trend by excluding two categories – food and energy – where prices tend to swing up and down more dramatically and more often than other prices. The core PCE price index is closely watched by the Federal Reserve as it conducts monetary policy.”

The Fed wants to see that their high interest rate stance has pushed back inflationary pressures. Tame inflation readings, like the one we saw last week, bode well for alleviating price pressures on MBSs. However, one release does not change the future Fed outlook materially and they need to see more favorable data. Traders are optimistic that the Fed will eventually cut rates however the timing remains uncertain. They are clear they want to win the inflation fight and have noted they will err on the side of keeping rates higher for longer rather than cutting too soon. A cautious approach to float/lock decisions is prudent heading into economic data in the weeks and months ahead.