CHM Blog

After two hard days of selling in equity markets and selling treasuries this morning a little bounce back. Early stock indexes were better, the DJIA +130, at 8:30 am ET the 10 yr. note at 3.09% down 2 bps but earlier this morning the 10 had dipped to 3.06%. MBS prices at 8:30 am +11 bps. By 9:30 am the 10 back to 3.11% unchanged from yesterday and MBS down 3 bps from yesterday.

No change in what is driving markets, what will the Fed do at the Sept FOMC meeting? Still seeing a lot of bullishness in equity markets, even after the drubbing the indexes have taken the past two session. No way can big firms and their analysts turn outright negative without equally adding some hope for investors. Even after Jerome Powell talking aggressively that the Fed would keep pushing rates higher to curtail inflation there are still many that are hoping the Fed would hold the line and increase the FF rate by just 50 bps instead of 75 that Powell seemed to tilt towards with his comments last Friday. The selling on Friday and yesterday doesn’t appear to have upset investors based on the VIX, the S&P 500 dropped more than 3% Friday, the Cboe Volatility Index, a measure of options cost was stuck near 25, lower than in the six other instances this year when stocks sold off like this. That is one interesting data point, but the lack of full-blown capitulation is a sign that the carnage is not over, especially when rules-based funds and pensions are expected to offload shares in coming days.

Inflation remains very high from an historical perspective, but it has cooled based on recent data. There are two key inflation reports before the FOMC meets on the 21st of Sept, CPI and PPI and on Friday the August employment report. The present estimates for the report: the unemployment rate unchanged from July at 3.5% (that is considered as full employment), non-farm jobs +293K down from 528K in July, private jobs 280K from 471K in July, average hourly earnings at +0.4% down from +0.5% in July, yr./yr. at 5.2% unch from July. If the data actually hits on the forecasts, it will generate chatter that the economy is slowing based on the jobs estimates; that said, 293K new jobs isn’t that awful.

Tomorrow ADP will report its private jobs, estimates are a 200K increase.

At 9 am June FHFA home price index expected at +0.9% reported at +0.1%, yr./yr. 16.2% from 18.3% in May.

At 9:30 am the DJIA opened +87 after being up 200 early this morning, NASDAQ +63, and S&P +12. 10 yr. at 9:30 am unchanged at 3.11%. MBS prices at 9:30 am unchanged from yesterday and about unchanged from 9:30 am yesterday.

At 10 am August consumer confidence index from the Conference Board, expected at 97.4 from 95.7 in July. The Index increased in August, following three consecutive monthly declines. The Index now stands at 103.2 (1985=100), up from 95.3 in July. The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—improved to 145.4 from 139.7 last month. The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—increased to 75.1 from 65.6.

How will stock indexes perform today? That will set the tone for the bond market. With employment data on Friday expect light trading until then. After the recent selling in treasury prices, looking for some pause and possible slight improvements in MBS prices but the bias presently is bearish. So far this morning some volatility in rates, from 3.06% to 3.11% and at 10 am 3.07%.

PRICES @ 10:00 AM

S&P 500: 4008 -23

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.

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