June 30th, 2022 8:48 AM by Richard Sardella MLO.100007700/NMLS 233568
The world increasingly fears a global recession. Prior to this morning’s inflation report the 10 yr. note traded at 3.05% -2 bps from yesterday, after the PCE at 8:30 am ET at 3.02%, MBS prices at 8:30 am +28 bps from yesterday. After a respite yesterday as the stock indexes continued their decline this morning.
Traders waited all week for the PCE inflation report; inflation still high but not as much as had been expected. May PCE was expected +0.7% m/m, as reported +0.6%, yr./yr. thought to be +6.5% increased 6.3%, April PCE m/m +0.2%. Core PCE thought to be +0.4% m/m increased 0.3%, yr./yr. forecasts 4.8% reported at 4.7%. Inflation for the third month has moderated which was widely expected. May personal income expected +0.5% was right on forecasts, personal consumption expenditures estimates of +0.5% increased just 0.2%. Inflation slowing consumer spending of goods and now spending more on services as prices of goods escalate.
Weekly jobless claims at 231K down 2K from the prior week’s revision from 229K to 233K. The jobless claims four-week moving average, a measure which smooths out some of the volatility in the series, has risen in 11 of the last 12 weeks, and now stands at 231,750.
Fed Chair Jerome Powell and his counterparts in Europe and the UK warned inflation is going to be longer lasting than previously thought. Interest rates are falling as increasing concerns of economic weakness and potential recession; puts central banks in a box, they must increase rates to quell inflation but as admitted yesterday by Powell may lead to more economic weakness than markets had expected. Weaker economic growth leads to increasing concerns that the stock market may be over-priced, it is the driver for the recent drop in US interest rates are investors flock to park money in safe havens.
At 9:30 am the DJIA opened -332, about where it traded early this morning, NASDAQ -123, S&P -39. 10 yr. at 3.03% -7 bps. FNMA 4.5 30 yr. coupon at 9:30 am +23 bps and + 60 bps from 9:30 am yesterday.
At 9:45 am June Chicago purchasing mgrs. index expected at 58.4 from 60.3 in May, the index fell to 56.0.
Money moving to safety while the Fed is increasing interest rates, some murmurs floating that the Fed will only increase rates by 50 bps instead of what was widely believed 75 bps increase. Still believe the FOMC will do 75 bps at the July FOMC meeting in four weeks. Too many at the Fed are talking 75 and Powell has made it very clear the Fed will move strongly to reduce inflation. Powell doesn’t want a recession, but more than that the Fed as a duty to get inflation under control even if it leads to a minor and short-lived recession. Rates are falling this week, but there is a limit to how much lower rates will fall with the Fed intent in raising the FF rate, I still believe 350 bp increase in the FF rate this year; 75 bps in July, 75 bps in Sept then 50 more at the Dec meeting; however, that all can change in this volatile climate.
PRICES @ 10:00 AM
10 yr note: 3.03% -7 bp
5 yr note: 3.07% -7 bp
2 Yr note: 2.99% -7 bp
30 yr bond: 3.16% -6 bp
Libor Rates: 1 mo 1.713%; 3 mo 2.277%; 6 mo 2.947%; 1 yr 3.614% (6/29/22)
30 yr FNMA 5.0: @9:30 101.98 +27 bp (+67 bp from 9:30 am yesterday)
30 yr FNMA 4.5: @9:30 100.33 +23 bp (+60 bp from 9:30 am yesterday)
30 yr GNMA 4.0: @9:30 99.42 +19 bp (+47 bp from 9:30 am yesterday)
Dollar/Yuan: $6.6903 -$0.0075
Dollar/Yen: 135.88 -0.69 yen
Dollar/Euro: $1.0413 -$0.0029
Dollar Index: 105.20 +0.10
Gold: $1817.90 +$0.30
Bitcoin: 18,843 -1327
Crude Oil: $108.19 -$1.59
DJIA: 30,460 -596
NASDAQ: 10,885 -293
S&P 500: 3745 -73
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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MLO of record MLO.100007700 / NMLS#233568 / CHM NMLS#127716.