Neutral
Seismic shift in real estate arrives with NAR settlement
No doubt about it. The real estate industry just got hit with a massive life change, and along with it, consumers who rely on experts to help them buy and sell their homes.
NBC News’ Christine Romans and Rob Wile report on a groundbreaking $418 million settlement by the powerful National Association of Realtors (NAR) set to usher in the most sweeping reforms the American real estate market has seen in a century, the results of which could dramatically drive down homebuyers’ costs — and push some real estate brokers out of business.
For decades, the NAR has required home sale listing brokers to provide an offer of compensation to a buyer’s agent upfront. That usually comes out to about 6%, split between a seller’s broker and a buyer’s agent.
While agents have always claimed those fees to be negotiable, it has been the standard for decades, sometimes steering buyers’ agents away from showing homes listed for lower compensation commissions. Now it has come under intensifying scrutiny, with critics comparing it to price-fixing, even likening it to a cartel. This comes on the heels of a Kansas City federal court finding the longstanding practice to be a form of collusion that artificially inflated real estate fees, awarding a massive $1.78 billion judgment against NAR.
So how does this affect the “little guy” — meaning us? If the settlement announced Friday is approved by a federal court, the standard 6% commission goes away. Sellers would no longer have to make a compensation proposal to prospective buyers and their agents. And working with a broker would see buyers having to sign an explicit deal with a broker before they start working with one — something experts say would lead many homebuyers to forgo using brokers entirely, according to Romans and Wile. Realtors will no doubt be raising red flags warning consumers that they will no longer be protected from lawsuits without proper representation and expertise – true in some cases – and the games will begin.
The new rules are set to take effect within months of approval, currently expected around mid-July, so what does that portend for those looking for a home now? It means a settling-in period no one can precisely place their finger on. The industry will be in transition as market forces begin working. Agents will no doubt begin to get creative and consumers will see what that means to their bottom lines.
While discount brokers have been in existence just as long as bonafide Realtors, many dismissed them as less than serviceable, meaning finding listings at lower fees was often not included in multiple listing services. “Home buyers and their agents will need to decide on a commission and put it in writing,” says Romans and Wiles. “Sellers, likewise, will need to work carefully with their listing agents as the new rules come into effect.”
Cutting to the bottom line, the changes mean buyers will save significantly on commissions, eventually bringing U.S. fees more in line with the much lower transaction costs seen in other residential property markets around the world.
Experts say it’s too early to declare the end of local real estate agents given their local expertise and reputation in neighborhoods. It’s hard to know if what happened to the travel agency model, where agents could no longer collect commissions on airline tickets and neighborhood travel agent offices all but disappeared will happen with real estate. But we are in for a ride.
The NBC News reporters cite Nerdwallet’s Holden Lewis, who warns of a “potential negative trade-off”: “Buyer-seller negotiations will become more complex, and buyers with plenty of cash might navigate the process more easily than buyers who don’t have a lot of savings,” he said. Others say it could particularly affect first-time buyers with limited means to pay for an agent.
Brokers and agents have come out against the settlement, with listing agents saying they often participate in paying out thousands of dollars in services like staging homes to aid the sale process. Buyers’ agents (who often spend weeks or months on end trying to find the right home for their clients) will be left “flying blind” since they won’t know how much they’ll end up making from a given home because they can’t see it in the MLS. It may also mean getting an agreement signed by the buyer outlining how much they’ll be able to compensate them.
Where this lands, nobody can predict at this point. A Reddit thread explains, “Waiting isn’t saving you any money. The only thing changing is that the commission amount the seller/listing agent is offering the buyers' agents won’t be listed in the MLS.” It goes on to say, “The amount you can offer isn’t changing. It has always been $0 minimum, and offering $0 will just cut your buyer pool way down. In turn, your home might sit longer and sell for less if many buyers can’t afford it. Pros and cons that should be explained to you if you are using a Realtor.”
This “shaking out” period may, however, make home-buying in the current world of high prices and high mortgage rates a bit more palatable.
NBSNews, TBWS
How Rates Move:
Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I'm among few mortgage professionals who have access to live trading screens during market hours.
Rates Currently Trending: Neutral
Mortgage rates are moving sideways today. The MBS market worsened by -68 bps last week. This was enough to increase mortgage rates or fees. The market experienced high volatility last week.
This Week's Rate Forecast: Neutral
Three Things: These are the three areas that have the greatest ability to impact rates this week. 1) The Fed, 2) Central Banks and 3) Treasury Auction.
1) The Fed: On Wednesday we will get the latest FOMC Interest Rate Decision and Policy Statement. While there are no expectations of any rate changes at this meeting, the bond market will be very sensitive to changes in the policy statement as well as mentions of changes to the QT wind down process. But of more importance is the release of their updated Economic Projections from which the famous "dot plot" chart is created. The bond market will focus on the groupings of "dots" that move away from rate cuts/lower expected rates during certain periods compared to their last release. After all of that, we have a live presser with Fed Chair Powell.
2) Central Banks: Our Federal Reserve is not the only game in town this week. We also get key interest rate decisions from the Bank of England, the Reserve Bank of Australia and the Bank of Japan. The BofJ may actually raise their interest rate for the first time in forever from -0.10% to 0.0%.
3) Treasury Auction: We have an important 20 year Treasury bond auction on Wednesday at 1 pm ET.
This Week's Potential Volatility: High
This morning markets are not seeing significant change. Volatility has started low but will increase later in the week on central banks decisions.
Bottom Line:
If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.
Richard Sardella has been actively managing and providing services in the mortgage industry for over 30 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.
All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.
MLO of record MLO.100007700 / NMLS#233568 / CHM NMLS#127716.
A quiet start today and likely to remain that way the rest of the day. This week is the FOMC meeting on Wednesday that dominates. Also this week, housing updates with NAHB housing market index, February housing starts and permits and February existing home sales.
FOMC meetings always a key factor, this one may be even more so with insight into what the Fed is thinking about when to begin lowering rates. Until last week the consensus in markets was that the Fed would begin lowering rates at the June FOMC meeting. The February CPI and PPI data last week brought uncertainty to when the Fed would begin, many pushed the first cut to the July meeting. Inflation increased more than expected in consumer prices and wholesale prices increasing interest rates, the 10 last week increased 22 bps and MBS prices lost 66 bps in price.
Two weeks ago, Powell testified in Congress he wasn’t prepared to say the impact of the pandemic is gone; “The pandemic is still writing the story of our economy right now.” “We should just be prepared to be surprised with the next chapter.” Investors having difficulty reading the Fed, inflation is not declining as quickly as the Fed thought a year ago, keeping the Fed edgy and why the Fed remains reluctant to call inflation dead. The economy and jobs continue to improve, albeit slower than last year, surprising the Fed with job losses remaining historically low. All FOMC meetings are critical, this one especially so with inflation stubbornly holding on.
At 9:30 am the DJIA opened +133, NASDAQ +196, S&P +43. 10 year note yield at 9:30 am 4.33% +1 bp. FNMA 6.0 30 year coupon at 9:30 am -4 bps from Friday’s close and -5 bps from 9:30 am Friday.
At 10 am March NAHB housing market index was expected unchanged at 48, the index increased to 51, the highest level since July 2023 and marks the fourth consecutive monthly gain for the index. It is also the first time that the sentiment level has surpassed the breakeven point of 50 since last July.
In the absence of any unexpected news the market will be quiet until Wednesday afternoon, then whatever the FOMC and Powell say will set the next move. The 10 year note trading at its 20, 40, and 200 day averages.
PRICES @ 10:00 AM
10 year note: 4.32% unch
5 year note: 4.35% +1 bp
2 year note: 4.74% unch
30 year bond: 4.45% +1 bp
30 year FNMA 6.0: @9:30 am 100.35 -4 bp (-5 bp from 9:30 am Friday)
30 year FNMA 6.5: @9:30 am 101.74 -6 bp (-4 bp from 9:30 am Friday)
30 year GNMA 5.5: @9:30 am 99.12 -8 bp (-10 bp from 9:30 am Friday)
Dollar/Yuan: $7.1982 +$0.0023
Dollar/Yen: 149.13 +0.05 yen
Dollar/Euro: $1.0888 unch
Dollar Index: 103.47 +0.03
Gold: $2,160.70 -$0.80
Bitcoin: 67,575 -941
Crude Oil: $81.48 +$0.47
DJIA: 38,818 +103
NASDAQ: 16,185 +212
S&P 500: 5163 +46
Inflation just won’t cooperate, continuing to increase. This week CPI and yesterday PPI both a little higher than forecasts sent rates higher, the 10 increased 11 bps yesterday, and MBS prices fell 42 bps. The unexpected increase in inflation so far has not caused traders to abandon three rate cuts from the Fed this year, although the timing is being questioned. Last week when Powell testified at Congress, he was on the positive side saying the Fed has made progress bringing down inflation, but he wanted more evidence inflation was on a path lower, this week he didn’t get it.
At the FOMC meeting next week the Fed will issue its quarterly update on inflation, employment, and GDP growth; the last update was at the December FOMC meeting. Bloomberg surveyed 49 economists, the survey showed economists increased 2024 GDP growth from 1.4% to 11.7% and inflation at 2.5% up from 2.4% in the previous survey. The survey conducted between March 8 and March 13 that includes Tuesday’s CPI data but not the PPI data of yesterday. CPI the last two months showed inflation hasn’t lessened. Beside inflation, the FOMC is expected to announce a slower pace of tightening of its $7.5 trillion balance sheet, so far the reduction in its balance sheet has come from letting maturing debt run off, not actually selling the debt. The expectations are that the Fed will slow down its quantitative easing.
Recession or not? Last summer 58% of economists surveyed were expecting a recession this year; the recent survey shows just 17% now believe a recession this year. The Fed is believing it has avoided a potential recession according comments recently from Powell and other Fed officials recently.
Data this morning; the March Empire State manufacturing index, expected -8.0 dropped -20.9. February import prices +0.3% against forecasts of +0.2%, year/year -0.8% with estimates at -0.7%; export prices +0.8% with estimates at +0.1%, year/year -1.8% from –2.2% in January. February industrial production month/month expected 0.0% increased 0.1%, the first time production has not been negative for more than a year. Capacity utilization at 78.3% unchanged from January but was expected 78.4%.
At 9:30 am the DJIA opened -18, NASDAQ -108, S&P -26. 10 year note 4.31% +1 bp. FNMA 6.0 30 year coupon at 9:30 am -9 bps from yesterday’s close and -30 bp from 9:30 am yesterday.
At 10 am University of Michigan mid-month consumer sentiment index estimates were 76.3 from 76.9 in February.
Next week the FOMC meeting on Wednesday.
10 year note: 4.31% +1 bp
5 year note: 4.33% +3 bp
2 year note: 4.73% +2 bp
30 year bond: 4.44% unch
30 year FNMA 6.0: @9:30 am 100.40 -9 bp (-30 bp from 9:30 am yesterday)
30 year FNMA 6.5: @9:30 am 101.78 -4 bp (-19 bp from 9:30 am yesterday)
30 year GNMA 5.5: @9:30 am 99.34 -6 bp (-30 bp from 9:30 am yesterday)
Dollar/Yuan: $7.1961 +$0.0025
Dollar/Yen: 148.90 +0.59 yen
Dollar/Euro: $1.0888 +$0.0005
Dollar Index: 103.40 +0.04
Gold: $2,161.70 -$5.80
Bitcoin: 68,363 -969
Crude Oil: $80.67 -$0.59
DJIA: 38,756 -149
NASDAQ: 15,962 -166
S&P 500: 5112 -38
At 8:30 am February PPI, what markets had been waiting for since Tuesday’s consumer price index that exceeded forecasts on inflation. CPI core inflation expected unchanged from January increased 0.1% over estimates, pushing rates up and MBS prices lower. This morning February PPI data was a mixed picture, month/month overall PPI expected +0.3% increased 0.6%, year/year estimates were +1.2% from +0.9% in January increased 1.6%. The core, where the Fed focuses, month/month expected +0.2% from +0.5% in January increased 0.3%, year/year core reported at +2.0% was unchanged from January.
Weekly jobless claims thought to be 218K declined to 209K and down 1K from the previous week, the prior week revised from 217K to 210K. The 4-week moving average of initial claims 208K versus 208.5K last week. Continuing claims 1.811 million down from 1.794 million the prior week, the 4-week moving average of continuing claims 1.799M versus 1.797M last week. Jobs continue to hold very well.
February retail sales increased 0.6% against forecasts of 0.7%, January revised from –0.8% to -1.1%; excluding vehicles estimates were +0.4%, as released +0.4%. Year/year, retail sales are up 1.5%.
At 9:30 am the DJIA opened +98, NASDAQ +18, S&P +8. 10 year note 4.25% +6 bps. FNMA 6.0 30 year coupon at 9:30 am -21 bp from yesterday’s close and -19 bps from 9:30 yesterday.
Both CPI and PPI inflation increased more than expected questioning the view the Fed will cut rates at the June FOMC meeting. Next Wednesday the FOMC meeting that likely will have a more comments that inflation is still not declining as the Fed wants to lower rates. The first 25 bp cut was anticipated at the June meeting, with inflation still increasing, a rate cut in June is presently off the table. The economy holding but slowing while inflation stubbornly continues. The Fed in an awkward situation; not wanting to keep rates high and push the economy into recession but has to continue the fight to lower inflation. How will the FOMC and Powell frame it next week?
Over the last week the 10 year note has increased from a low of 4.03% to this morning’s 4.27% at 10 am.
10 year note: 4.27% +7 bp
5 year note: 4.27% +6 bp
2 year note: 4.68% +4 bp
30 year bond: 4.41% +7 bp
30 year FNMA 6.0: @9:30 am 100.70 -21 bp (-19 bp from 9:30 am yesterday)
30 year FNMA 6.5: @9:30 am 101.97 -14 bp (-11 bp from 9:30 am yesterday)
30 year GNMA 5.5: @9:30 am 99.64 -21 bp (-13 bp from 9:30 am yesterday)
Dollar/Yuan: $7.1915 +0.0041
Dollar/Yen: 148.06 +0.31 yen
Dollar/Euro: $1.0915 -$0.0035
Dollar Index: 103.07 +0.28
Gold: $2,165.70 -$15.10
Bitcoin: 71,612 -1851
Crude Oil: $80.66 +$0.94
DJIA: 38,940 -103
NASDAQ: 16,133 -44
S&P 500: 5148 -17
Yesterday in reaction to the slightly higher inflation reported on the February CPI the 10 year note yield increased 6 bps, at 8:30 am ET this morning up another 3 bps to 4.19%. MBS prices yesterday down 15 bps, early this morning down another 5 bps.
Inflation inched higher yesterday but in a mixed picture, this morning the thoughts remain that it didn’t change the idea the Fed will begin lowering rates at the June FOMC meeting, that is two meeting from next Wednesday’s FOMC meeting. Powell continued to stress recently that he wants to see a pattern of continual inflation declines, he didn’t get that yesterday. In futures trading this morning it’s a 70% chance of a June rate cut, don’t make much out of it though, the odds swing with every key inflation reading. Next week’s FOMC meeting will have the Fed’s quarterly outlook for employment, growth and inflation extending out two years.
In case you missed it, yesterday February CPI was a little hot. The Index increased 0.4% in February, faster than the 0.3% rise in January and 3.2% higher than a year ago, according to the Bureau of Labor Statistics. The core CPI, which excludes food and energy components, also increased 0.4%, matching the January pace. The annual change fell to 3.8%, from 3.9%. Housing price increases also showed some improvement but remained too high in February, at 0.4%, versus a 0.6% rise in January. Goods prices turned positive after declining for eight straight months. Volatile energy prices jumped 2.3% last month, driven by a 3.8% surge in gasoline prices.
This morning the only news was better weekly MBA mortgage applications. The second week in a row application increased. Overall apps increased 7.1% after increasing 9.7% the week before, purchase apps +4.7% from +10.6%, refinance apps +12.2% from +8.1%.
There are no first-tier economic releases today. Treasury will finish this week’s borrowing with $22B of 30 year bonds. Yesterday’s 10 year note auction didn’t see strong demand, the 30 is also likely to meet with mediocre interest.
A curious comment from an ECB member today, saying that the central bank will need to lower borrowing costs without having certainty that inflation will return to target.
At 9:30 am the DJIA opened +78, NASDAQ -44, S&P -1. 10 year note +2 bps to 4.18%. FNMA 6.0 30 year coupon at 9:30 am -2 bps from yesterday’s close and -8 bps from 9:30 am yesterday.
Today with no key data rate markets are likely to be quiet. Tomorrow another inflation release, February PPI. The present estimates month/month +0.3% unchanged from January, year/year +1.2% from +0.9%; core month/month +0.2% from +0.5% in January.
10 year note: 4.18% +2 bp
5 year note: 4.18% +2 bp
2 year note: 4.62% +3 bp
30 year bond: 4.34% +2 bp
30 year FNMA 6.0: @9:30 am 100.89 -2 bp (-8 bp from 9:30 am yesterday)
30 year FNMA 6.5: @9:30 am 102.08 unch (-8 bp from 9:30 am yesterday)
30 year GNMA 5.5: @9:30 am 99.77 -11 bp (-26 from 9:30 am yesterday)
Dollar/Yuan: $7.1898 +$0.0077
Dollar/Yen: 147.88 +0.23 yen
Dollar/Euro: $1.00938 +$0.0008
Dollar Index: 102.85 -0.10
Gold: $2,173.40 +$7.30
Bitcoin: 72,304 +910
Crude Oil: $79.47 +$1.92
DJIA: 39,902 +86
NASDAQ: 16,158 -107
S&P 500: 5165 -10
Markets waited a week for February CPI data, knowing the history of increased volatility every time it hits. The report at 8:30 am ET was in line with forecasts and there was no immediate movement. After the huge miss in January when CPI data was released showing inflation increased more than what was expected sent rates higher and MBS prices crumbling, today a yawner for a change. CPI month/month expected +0.4% reported at +0.4% although it increased from January’s +0.3%, year/year CPI +3.2% against estimates of +3.1% and unchanged from January. The core CPI month/month +0.4% with forecasts of 0.3% and unchanged from January; year/year core declined from 3.9% to 3.8% with forecasts of +3.7%. Inflation didn’t increase on the core data, a big relief and didn’t change the outlook for Fed rate cuts by the June FOMC meeting.
Overall inflation month/month +0.4% unchanged from January’s increase but more than +0.3% that was penciled in. By 9 am markets began to take on a little water, the 10 year note +4 bps; MBS prices -6 bps from yesterday’s close. The February inflation held January’s increases. Once again, the index for shelter (+0.4%) was the largest factor in the monthly increase for core CPI and it accounted for roughly two thirds of the year-over-year increase. Excluding shelter, CPI was up just 1.8% year-over-year.
At 9:30 am the DJIA opened +128, NASDAQ +113, S&P +23. 10 year at 9:30 am increased to 4.14% +4 bps from yesterday. FNMA 6.0 30 year coupon at 9:30 am -9 bps from yesterday’s close and -5 bps from 9:30 am yesterday.
At 1 pm Treasury will auction $39B of 10 year notes. Yesterday’s 3 year note went well with decent demand.
At 2 pm Treasury will release the February budget that increased from January. February budget expected at -$29.8B from -$21.9B in January.
The next data of consequence comes on Thursday with February PPI, retail sales, weekly jobless claims.
10 year note: 4.15% +5 bp
5 year note: 4.14% +5 bp
2 year note: 4.59% +3 bp
30 year bond: 4.31% +5 bp
30 year FNMA 6.0: @9:30 am 100.97 -9 bp (-5 bp from 9:30 am yesterday)
30 year FNMA 6.5: @9:30 am 102.16 -6 bp (-3 bp from 9:30 am yesterday)
30 year GNMA 5.5: @9:30 am 100.03 -3 bp (-10 bp from 9:30 am yesterday)
Dollar/Yuan: $7.1801 -$0.0043
Dollar/Yen: 147.85 +0.91 yen
Dollar/Euro: $1.0909 -$0.0018
Dollar Index: 103.16 +0.29
Gold: $2,136.00 -$25.60
Bitcoin: 72,132 +111
Crude Oil: $77.62 -$0.31
DJIA: 38,874 +105
NASDAQ: 16,102 +83
S&P 500: 5140 +22
Higher
Home Ownership Still One of the Best Investments:
The U.S. housing market gained $2.4 trillion over the last year, bringing its total value to $47.5 trillion.
In percentage terms, the total value of U.S. homes increased 5.3% from a year earlier in December, the biggest increase in 11 months, and was up 13.3% ($5.6 trillion) from two years earlier.
Housing demand is sluggish due to elevated mortgage rates and affordability challenges, yet home values keep rising. There are three primary reasons:
There’s a shortage of homes for sale. Many homeowners are hesitant to put their houses on the market because they scored an ultra low mortgage rate in recent years, and selling would mean giving it up. Supply is even more constrained than demand, meaning buyers are competing for a limited pool of homes. That’s propping up values for both homes that are already for sale and those that could hit the market in the future.
Home values hit a low about a year ago. The total value of U.S. homes was nearing a trough at the end of 2022, which is part of the reason year-over-year growth at the end of 2023 was so large. It’s typical for home values to cool in the winter, but they experienced an abnormally large slowdown in 2022 as the shock of surging mortgage rates sent a freeze through the housing market.
More homes were built. While America is grappling with a housing shortage, it continues to build homes, which contributed to the gain in total home value last year. Redfin’s analysis includes roughly 96 million homes, up from 95 million as of December 2022—an increase that was fueled by new construction.
“America’s homeowners are sitting pretty. They’re holding a massive amount of housing wealth, despite lackluster demand from buyers, because home values skyrocketed during the pandemic and now a supply shortage is preventing those values from falling,” said Redfin Economics Research Lead Chen Zhao. “Prospective buyers aren’t as lucky. The combination of elevated mortgage rates, high home prices and a limited pool of homes for sale means homeownership is about as unaffordable as ever. One bright spot for buyers is that mortgage rates should start declining before the end of 2024.”
The average U.S. home was valued at $495,183 as of December, up from $474,740 a year earlier. Of course, not every homeowner has seen their property increase in value. The average home value jumped past $500,000 in both the summer of 2023 and the summer of 2022, meaning the typical homeowner who bought during those times has lost value. It’s worth noting that this data is seasonal, and home values typically peak in the summer and trough in the winter.
Mortgage rates are moving sideways today. The MBS market improved by +42 bps last week. This may have been enough to decrease mortgage rates or fees. The market experienced moderate volatility last week.
This Week's Rate Forecast: Higher
Three Things: These are the three areas that have the greatest ability to impact rates this week. 1) Inflation, 2) Retail Sales and 3) Treasury Auction
1) Inflation: We have many economic releases that contain inflationary data such as Import Prices and Consumer Sentiment Inflation Expectations. But it will be CPI and to a lesser extent PPI which will drive rates this week. Both headline and core CPI are expected to show continued monthly expansion, the degree of that expansion will have a major impact on rates.
2) Retail Sales: After a large contraction in the previous Retail Sales report, things are expected to pick up again in this report. The stronger this report is, the worse it will be for rates.
3) Treasury Auction: We have a record amount of longer issuance debt this week. MBS have had a very strong correlation to the results of the 30 year Treasury bond auctions. Both the 10Y note auction and the 30Y bond auctions occur after the CPI report and will have a negative reaction to a high CPI release. Here is this week's schedule:
03/11 3Y Note
03/12 10Y Note
03/13 30Y Bond
This morning markets are seeing very little change. Volatility has started low but will increase later in the week.
More inflation data this week, this morning the 10 year began unchanged from Friday and MBSs were -4 bps at 8:15 am ET. No data today but Treasury will auction $56B of 3 year notes at 1 pm.
February CPI and PPI this week along with Treasury selling 3s, 10s, and 30s for a total of $117B. Last week J Powell testified at Congress adding more credibility the Fed is preparing to cut rates; data dependent of course, other Fed officials also chimed in. The two inflation reports based on the estimates should add to markets expectations. The current belief, the first cut will occur at the June FOMC meeting. The expectations versus the reality can deviate as we saw last month when January CPI was stronger than forecasts sending interest rate higher and MBSs lower, the 10 year note increased 15 bps and MBS prices down 49 bps. The point is markets are all in on rate cuts, so any disappointment meets with big reactions. CPI an PPI are the last inflation releases prior to the next FOMC meeting (3/20). The forecast for core CPI is +3.7% year/year, if so, it would be the lowest since April 2021.
At 9:30 am the DJIA opened -62, NASDAQ -50, S&P -13. 10 year note unchanged at 4.08%. MBS prices at 9:30 am slightly lower, at 9:30 am the 6.0 30 year coupon -6 bps from Friday’s close and -11 bps from 9:30 am Friday.
Not much news for the financial markets this morning. The 3 year note auction at 1 pm could set off volatility, the last 3 year auction didn’t get much demand and pushed rates up. Tomorrow it is the 10 year note that demands more respect.
10 year note: 4.09% +1 bp
5 year note: 4.08% +3 bp
2 year note: 4.53% +4 bp
30 year bond: 4.25% unch
30 year FNMA 6.0: @9:30 am 101.02 -6 bp (-11 bp from 9:30 am Friday)
30 year FNMA 6.5: @9:30 am 102.19 -4 bp (-9 bp from 9:30 am Friday)
30 year GNMA 5.5: @9:30 am 100.13 +7 bp (-7 bp from 9:30 am Friday)
Dollar/Yuan: $7.1814 -$0.0048
Dollar/Yen: 146.93 -0.14 yen
Dollar/Euro: $1.0919 -$0.0021
Dollar Index: 102.83 +0.12
Gold: $2191.50 +$6.00
Bitcoin: 71,570 +2040
Crude Oil: $76.92 -$1.09
DJIA: 38,601 -122
NASDAQ: 15,999 -87
S&P 500: 5100 -23
February employment at 8:30 am ET this morning pushed rates lower. The unemployment rate expected unchanged at 3.7% increased to 3.9%. Non-farm jobs thought to be +190K increased 275K, January jobs were revised from 353K to 229K (the downward revision was expected), private jobs estimates +150K increased 233K, January private jobs revised from 317K to 229K. Average hourly earnings month/month +0.1% against estimates of 0.3%, January revised to +0.5% from 0.6%; year/year earnings +4.3% as expected, January revised from +4.5% to +4.4%. The lower revisions from January on job growth offset the stronger increase in February.
Stronger jobs in February offset by revisions from January. Wages lower than thought. The economy is humming along, and inflation is easing, unemployment rate increased added to the takeaway, all is good for the Fed to continue expecting to lower rates. Jobs numbers strong in February but offset on revisions in January and December, a total of 167K less. Softer wage gains add additional credence the Fed will begin lowering rates soon, yesterday the outlook for rate cuts was at the June FOMC meeting, after the data this morning traders will likely move the cut forward to the May meeting… but inflation data looms next week.
At 9:30 am the DJIA opened -16, NASDAQ +35, S&P +6. 10 year at 9:30 am 4.08% -1 bp. FNMA 6.0 30 year coupon +9 bps from yesterday’s close and +13 bp from 9:30 am yesterday.
There isn’t anything left on the calendar today. Set your clocks ahead tomorrow.
Looking ahead, next week is inflation week with February CPI and PPI on Tuesday and Wednesday.
10 year note: 4.07% -1 bp
5 year note: 4.04% -2 bp
2 year note: 4.46% -6 bp
30 year FNMA 6.0: @9:30 am 101.13 + 9 bp (+13 bps from 9:30 am yesterday)
30 year FNMA 6.5: @9:30 am 102.28 +12 bp (+13 bp from 9:30 am yesterday)
30 year GNMA 5.5: @9:30 am 100.20 +21 bp (+24 bp from 9:30 am yesterday)
Dollar/Yuan: $7.1891 -$0.0039
Dollar/Yen: 146.85 -1.19 yen
Dollar/Euro: $1.0961 +$0.0012
Dollar Index: 102.56 -0.27
Gold: $2,178.30 +$13.40
Bitcoin: 68,738 +983
Crude Oil: $78.52 -$0.41
DJIA: 38,960 +169
NASDAQ: 16,399 +126
S&P 500: 5185 +28
All information furnished has been forwarded to you and is provided by the tbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor the tbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.
Prior to 8:30 am ET this morning rates were unchanged from yesterday. Data at 8:30 am pushed the 10 year note lower, -3 bps with MBS prices up 19 bps from yesterday. Weekly jobless claims last week were expected at 215K, claims increased to 217K. Continuing claims increased 8K to 1.9 million, a sign it is taking longer to find a job, continuing claims about where they were prior to the pandemic.
Also at 8:30 am, Q4 productivity and unit labor costs, productivity +3.2% compared to forecasts of 3.1%. Unit labor costs pushed yields lower, expected at +0.7% increased just 0.4%. More evidence wage pressures are in check. It is old data but continues the idea the Fed has room to lower rates.
The January US trade deficit was thought to be -$63.7B, reported at -$67.4B.
Neel Kashkari, Minneapolis Fed, had an interesting take on the rate outlook; “if people have jobs, businesses are doing well, inflation is coming back down, why do anything?” he said. He is a non-voter at the FOMC this year. He said just two cuts this year.
As expected, the ECB left rates unchanged at its meeting today. Like the current Fed forecasts, the ECB is expected to begin lowering rates at its June meeting. “The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction.” … “Although most measures of underlying inflation have eased further, domestic price pressures remain high, in part owing to strong growth in wages.”
Fed chief Powell will be back at Congress today, at the Senate Banking Committee. Yesterday Powell said the Fed needs more convincing inflation is on a downward path, but he expected rates to be reduced this year. The June FOMC is what he is thinking if there are no hiccups in inflation readings over the next three months (that is a lot of data yet to be seen).
At 9:30 am the DJIA opened +190, NASDAQ +114, S&P +31. 10 year at 9:30 am 4.09% -2 bp. FNMA 6.0 30 year coupon at 9:30 am +15 bps from yesterday’s close and +20 bps from 9:30 am yesterday.
Later this afternoon at 3 pm January consumer credit data is forecast to be +$9.3B up from $1.6B in December. Dated data, but our focus as always is on the revolving credit number, the use of credit cards.
February employment data tomorrow; job growth less than reported in January that may see some revisions. Average hourly earnings expected to have dipped, both month/month and year/year.
10 year note: 4.08% -2 bp
5 year note: 4.09% -3 bp
2 year note: 4.55% -1 bp
30 year bond: 4.23% -1 bp
30 year FNMA 6.0: @9:30 am 101.00 +15 bp (+20 bp from 9:30 am yesterday)
30 year FNMA 6.5: @9:30 am 102.15 +17 bp (+21 bp from 9:30 am yesterday)
30 year GNMA 5.5: @9:30 am 99.96 +14 bp (+23 bp from 9:30 am yesterday)
Dollar/Yuan: $7.1952 -$0.0027
Dollar/Yen: 148.20 -1.21 yen
Dollar/Euro: $1.0898 unch
Dollar Index: 103.17 -0.20
Gold: $2,157.60 -$0.60
Bitcoin: 67,032 -108
Crude Oil: $78.57 -$0.57
DJIA: 38,827.61 +167
NASDAQ: 16,156 +128
S&P 500: 5139 +35