Published Date 7/25/2022
Last Thursday and Friday the 10 yr. note declined 26 bps and MBS prices jumped 90 bps (4.5 coupon). The FOMC will release the policy statement on Wednesday afternoon with an increase of 75 bps, totally expected. The markets gathering around the idea that the Sept FOMC meeting may be the last this year, a growing belief that inflation has peaked at 9.1% CPI in June and will slowly decline. Interesting, until recently the consensus had been that the Fed’s main inflation gauge was the PCE (personal consumption expenditures); now traders believe the Fed is more focused on the monthly CPI that increased 9.1% in June while the June PCE to be released on Friday is expected +6.7%. The equity markets were the usual volatile trade last week but the three key indexes managed a gain.
As the Federal Reserve prepares to meet this week, Wall Street investors are betting that officials will raise interest rates aggressively through the end of the year—and then turn around and start cutting them in six months. The Fed will raise its benchmark federal-funds rate by three-quarters of a percentage point on Wednesday. The Fed is subsequently expected to lift the fed-funds rate to around 3.3% by the end of the year. But investors expect no further increases after that.
The 10 yr. note began today up 4 bps, MBS prices -22 bps. No news today but there is a 2 yr. note auction at 1 pm ET. This week’s calendar is headlined by the FOMC but there a few other key data points; consumer confidence, U. of Michigan consumer sentiment, pending home sales, first look at Q2 GDP. Q2 is thought to show a slight improvement from Q1’s -1.6%, the idea that a recession is marked my two consecutive declines in GDP is floating around but all other facts and data on the economy is that we are already in a recession. The only positive now is employment remains strong… so far.
It is earnings season now; equity markets are focusing on every major company reporting generating some intraday volatility. Several major Wall Street firms commenting that so far earnings are not as soft as had been thought.
At 9:30 am the DJIA opened -38, NASDAQ -47, S&P -5. 10 yr. at 9:30 am 2.83% +5 bp, FNMA 4.5 30 yr. coupon at 9:30 am -16 bps from Friday’s close, -19 bp from 10 am Friday.
This Week’s Calendar:
- Monday,
1 pm $45B 2 yr. note auction
- Tuesday,
9 am May Case/Shiller and may FHFA home price indexes (Case/Shiller +1.6%; FHFA N/A)
10 am July Consumer confidence index from Conference Board (96.8 from 98.7)
June new home sales (664K from 696K)
FOMC meeting begins
1 pm $46B 5 yr. note auction
- Wednesday,
7 am weekly MBA mortgage applications
8:30 am June durable orders (-0.5%, ex transportation +0.2%, core capital goods orders +0.2%)
June US trade deficit (-$103.2B)
10 am June pending home sales (-1.0%)
2 pm FOMC policy statement
2 pm Jerome Powell’s press conference
- Thursday,
8:30 am weekly jobless claims (249K)
Q2 advance GDP (+0.5%)
1 pm $38B 7 yr. note auction
- Friday,
8:30 am June personal income and spending and PCE (income +0.5%, spending +0.9%; PCE m/m +0.9%, yr./yr. +6.7% from 6.3%, core PCE m/m +0.5%, yr./yr. +4.7% unch from May)
Q2 employment cost index (1.1%, yr./yr. +4.6% from 4.5%)
10 am July Chicago purchasing mgrs. index (56.0 unch from June)
U. of Michigan final July consumer sentiment index (51.1 unch from mid-month)
Source: TBWS
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