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Housing numbers miss expectations

MBS are down -1/32 (FNMA 30-yr 3.5 at 103.02), around 1/32 higher than yesterday at this time.

This morning, July Housing Starts fell 5% from June to an annual rate of 1155K, below the consensus of 1220K. The decline was nearly entirely due to multi-family units. Single-family starts posted just a slight decline. Housing starts are highly volatile from month to month. The Dow is up 50 points. No more economic data will be released today. The Minutes from the July 26 Fed meeting will come out at 2:00 et. Investors will be looking for clues about the Fed’s plans for the pace of tightening monetary policy.

Good economic news = Higher Mortgage RAtes

MBS are down -6/32 (FNMA 30-yr 3.5 at 103.01), around 6/32 lower than yesterday at this time.

MBS responded in the typical fashion to stronger than expected economic data this morning. July Retail Sales rose 0.6% from June, well above the consensus for an increase of 0.3%. Excluding the volatile auto component, Retail Sales rose 0.5%, above the consensus for an increase of 0.3%. The results for June for both readings were revised significantly higher as well. The Empire State regional manufacturing index jumped to 25.2, far above the consensus of 13.0. July Import Prices rose 0.1% from June, matching expectations. The Dow is up 10 points. No more economic data will be released today.

STAY Tuned for possible LOWER rates

MBS are up +2/32 (FNMA 30-yr 3.5 at 103.11), around 1/32 lower than yesterday at this time.

Weaker than expected inflation data has helped MBS a little this morning. July PPI fell 0.1% from June, below the consensus for an increase of 0.1%, and it was 1.9% higher than one year ago. Core PPI, which excludes food and energy, also decreased 0.1%, below the consensus for an increase of 0.2%. Core PPI was 1.8% higher than one year ago. Weekly Jobless Claims came in close to expectations. The Dow is down 100 points. No more economic data will be released today. The results from the 10-yr Treasury auction will come out around 1:00 et.

Good Economic News = Bad day for Interest Rates

MBS are down -10/32 (FNMA 30-yr 3.5 at 102.21), around 5/32 below volatile morning levels, and near the low for the day. Unfavorable repricing took place. Strong data and a stock market rally caused investors to sell MBS ahead of tomorrow’s Fed meeting. Consumer Confidence rose to 121.1, above the consensus of 117.0. Demand was stronger than average for the 2-yr Treasury auction. The Dow is up 100 points. Tomorrow, New Home Sales will be released at 10:00 et. The results from the 5-yr Treasury auction will come out around 1:00 et. The next Fed meeting will take place tomorrow at 2:00 et. No change in the federal fund’s rate is expected, but investors will be looking for guidance about future monetary policy.

TGIF 7/21/2017

MBS are up +3/32 (FNMA 30-yr 3.5 at 103.01), close to morning levels. It was another quiet session. The Dow is down 30 points. For the week, MBS rose about 14/32.

Looking ahead, the next Fed meeting will take place on Wednesday. No change in the federal funds rate is expected, but investors will be looking for guidance about future monetary policy. Before that, Existing Home Sales will be released on Monday and New Home Sales on Wednesday. Durable Orders, an important indicator of economic activity, will come out on Thursday. The first reading for second quarter GDP, the broadest measure of economic activity, will be released on Friday. In addition, there will be Treasury auctions on TuesdayWednesday, and Thursday.

7/19/2017 Market Update

MBS are down -1/32 (FNMA 30-yr 3.5 at 102.29), around 2/32 higher than yesterday at this time.

It has been a quiet morning. June Housing Starts jumped 8% from May to an annual rate of 1.22 million, well above the consensus of 1.16 million, and the May figures were revised higher as well. Despite the strong data, there was little reaction. The Dow is up 10 points. No more economic data will be released today.

Bad news for Economy = Good News for Interest Rates

MBS are up +8/32 (FNMA 30-yr 3.5 at 102.27), around 7/32 higher than yesterday at this time.

Weaker than expected economic data has lifted MBS this morning. June Retail Sales fell 0.2% from May, below the consensus for an increase of 0.1%. Excluding the volatile auto component, Retail Sales also fell 0.2%, below the consensus for an increase of 0.2%. June CPI was flat from May, below the consensus for an increase of 0.1%. Core CPI, which excludes food and energy, rose 0.1%  from May, also falling short of expectations. Core CPI was 1.7% higher than a year ago, the same annual rate as last month. June Industrial Production matched expectations with an increase of 0.4% from May. The Dow is up 25 points. Consumer Sentiment will be released at 10:00 et.

BIG DAY!!! 7/7/2017

MBS are down -1/32 (FNMA 30-yr 3.5 at 102.13), around 1/32 lower than yesterday at this time.

Solid job gains were offset by a shortfall in wage growth in today’s Employment Report, leaving MBS prices nearly unchanged. Against a consensus forecast of 175K, the economy added 222K jobs in June. In addition, upward revisions added 47K jobs to the results for prior months. The unemployment rate increased from 4.3% to 4.4%, above the consensus for a flat reading of 4.3%, mostly due to workers entering the labor force. Average hourly earnings, an indicator of wage growth, fell a little short of expectations. They were 2.5% higher than a year ago, up from a downwardly revised 2.4% last month. The Dow is up 50 points. No more economic data will be released today.

MARKET MOVING!!!

MBS are down -6/32 (FNMA 30-yr 3.5 at 102.26), around 5/32 lower than yesterday at this time.

European bond markets are leading global markets this morning. Increased concern that the European Central Bank and the Bank of England may be closer to tightening monetary policy than expected has pushed global bond yields higher. In addition, today’s German inflation data came in stronger than expected. In the U.S., first quarter GDP was revised higher from 1.2% to 1.4%, above the consensus for a flat reading of 1.2%. Weekly Jobless Claims came in close to expectations. The Dow is down 10 points. No more economic data will be released today.

FED ALERT!!

MBS are up +12/32 (FNMA 30-yr 3.5 at 103.12), close to most volatile morning levels, but 4/32 below the highs. First some favorable and later some unfavorable repricing was seen. Weaker than expected economic data caused a nice rally in MBS this morning, but some of the gains were lost after the Fed meeting (see below). The Dow is up 50 points. Tomorrow, Philly Fed, Import Prices, Empire State, and Industrial Production will be released.

The Fed provided more details on its plan to reduce its holdings of Treasuries and MBS. The reduction is expected to start some time in 2017. They will reduce their holdings by not reinvesting all the principle payments received, as they are currently doing. The amount of principle payment received that will not be reinvested will start at $10 billion per month and will grow over twelve months to $50 billion per month. This plan told investors that future demand from the Fed for MBS may be lower than had been expected, which hurt MBS prices.