Published Date 8/15/2022
Last week the stock indexes had strong gains, the interest rate markets generally unchanged. This morning stock indexes traded weaker, the 10 yr. note began –4 bps at 2.79%, MBS prices at 9 am ET +6 bps from Friday.
It isn’t new news, but it is news. China’s economic slowdown deepened in July due to a worsening property slump and continued coronavirus lockdowns. Retail sales, industrial output and investment all slowed and missed economists’ estimates in July. The surveyed jobless rate for those aged 16-24 climbed to 19.9%, a record high; the economy slowed in July after weakest expansion since 2020 in 2nd quarter. The data suggest a crisis of confidence among Chinese businesses and households, adding another threat to the world economy as global demand for everything from Apple iPhones to luxury goods take a knock. At the same time, a worsening property slump is being felt at home and abroad as commodity prices such as iron ore and copper plummet.
The August Empire State manufacturing index dropped by the second most since 2001. The Federal Reserve Bank of New York’s August general business conditions index slumped more than 42 points to minus 31.3, with the drop just behind that seen in April 2020. The report much weaker than what had been expected. The report is the first of several regional Fed bank manufacturing numbers set for release over the coming weeks.
Keys this week; FOMC minutes on Wednesday, housing data, and retail sales.
Inflation outlooks remain the prime focus in markets. The view that inflation has ended its increase getting more believers. The July consumer-price index fueled renewed wagers that inflation is more circumstantial than structural and that the Federal Reserve will in response moderate its rapid pace of rate increases. Since the July consumer-price index fueled renewed wagers that inflation is more circumstantial than structural and that the Federal Reserve will in response moderate its rapid pace of rate increases. (CPI in July +8.5% down from +9.1% in June). Increasingly more expectations the Fed will increase just 50 bps after expecting 75 bps until recent inflation data points to a slowing. The Fed in the meantime continues its strong resolve to squash inflation, but if the Fed sees markets looking for 50, that is what the Fed will do; Fed never tosses grenades into markets. Scheduled Fed officials this week; Wednesday Michelle Bowman, Fed governor, Friday Richmond Fed’s Barkin.
At 9:30 am the DJIA opened -153, NASDAQ -41, S&P -19. 10 yr. 2.78% -6 bps. FNMA 4.5 30 yr. coupon +16 bps and +14 bps from 9:30 am Friday; the 5.0 coupon +9 bps and +3 bps from 9:30 am Friday.
At 10 am the August NAHB housing market index, expected at 55 unchanged from July’s huge decline, as released 49.
Crude oil dropping hard this morning on news of weakening Chinese economic data; that helps the idea that inflation will continue to slow.
This Week’s Calendar:
- Monday,
- Tuesday,
- Wednesday,
- Thursday,
Source: TBWS
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