July 27th, 2022 9:34 AM by Richard Sardella MLO.100007700/NMLS 233568
The 10 yr. began the day down 2 bps to 2.78%, MBS prices 11 bps better. Today is the day markets have been talking about the last two weeks. This afternoon at 2 pm ET the FOMC policy statement, at 2:30 pm Jerome Powell’s press conference. The consensus is an increase of 75 bps in the FF rate, what markets will be looking for is what will be the next move at the Sept FOMC meeting? Another increase, maybe 50, maybe 75, or maybe nothing. After the last two FOMC meetings in May and June Powell went out of his way to make it clear what the Fed was thinking and would do today, there was not much doubt over how strong a tightening move could be expected. This time it’s unlikely Powell or the FOMC will tip their collective hats for the Sept meeting.
There is an increasing belief in markets that inflation is cooling, is it? We don’t see it yet and the CPI reports in May and June certainly don’t show it, inflation increased. It takes time for higher rates to be absorbed into the economy, Wall Street firms are tilting toward the possibly that the Sept meeting won’t see any increase in the FF rate, it isn’t widespread thinking yet but is increasing in the whisper world. The meeting and press conference today may be less direct than the previous two meetings, allowing Powell and the Fed to have wiggle room instead of being specific as the Fed has been. The Sept meeting is on the 21st, there will be two more CPI releases between now and then. Weekly claims have been inching higher. There is now a seven month supply of homes based on current sales pace. How will Powell frame it this afternoon? The idea that inflation is a self-fulfilling prophesy driven by consumers got bad news yesterday when the July Conference Board’s consumer confidence index and its other components dropped more than what analysts were thinking, declining to the lowest level since the beginning of the pandemic. Powell, the Fed and financial markets will focus on all incoming data as it relates to inflation expectations over the next two months continuing the volatility.
Weekly MBA mortgage applications were down again last week; the composite declined 1.8%, purchase apps -0.8% and re-finances were down 3.7% from the prior week. June durable goods were better than expected +1.9% against forecasts of -0.5%; core capital goods were thought to be +0.2% but increased 0.5%.
At 9:30 am the DJIA opened +132 after dipping 228 yesterday, NASDAQ opened +190, S&P +35. The 10 yr. note at 9:30 am 2.77% -3 bps, MBS prices +25 bps from yesterday’s close.
At 10 am June pending home sales, expected -1.0%, declined -8.6% and -20% yr./yr.
Also at 10 am FNMA 4.5 30 yr. coupon up 28 bps, down 10 bps from 10 am yesterday.
Unusual to see this much movement with the FOMC meeting this afternoon, normally quiet with not much change until the meeting and Powell finishes the day with his press conference.
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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