Mortgage rates went to bed last night knowing that the bond market would need to improve in the morning in order for prevailing levels to be maintained. In other words, bonds had begun losing ground yesterday, but not enough for mortgage lenders to go to the trouble of re-issuing rates (something they prefer to do as little as possible). Thankfully, this morning’s economic data was close enough to expectations that bonds managed to hold onto modest overnight improvement. With that, the average lender was able to set today’s rates right in line with yesterday’s.  Incidentally, these are the lowest levels since July 3rd, when the last jobs report came out and caused a quick but fairly tame increase. Tomorrow morning brings the next installment of the jobs report.  As far as bonds/rates are concerned, this is the most important scheduled economic data on any given month. The market is positioned as well as it can be for a stronger or weaker outcome. If job growth is stronger, it would likely result in rates moving higher and vice versa.

Below is a table that consolidates the results of various econ reports as well as NFP precedents that speak to the odds of NFP moving higher or lower in tomorrow’s data. Credit for this concept and collation of the data goes to our friends at BMO’s US Rates Strategy desk.
The “beat/miss/match” row refers to the percent of previous July payroll counts beating, missing, or matching the forecast.

Jobless Claims

Report
Result
NFP Implication

Initial Claims (NFP week)
221k vs 233k f’cast
Higher

Continuing Claims
1946k vs 1951k prior
Higher

Private Payrolls

ADP Employment
104k vs 76k f’cast
Higher

Liscio Estimate
105k vs 104k consensus
Neutral

Unemployment Report History

Beat / Miss / Match (July)
42% / 35% / 23%
Mixed / Slightly Higher

Labor Differential
11.3 vs 12.2 prior
Lower

Regional Fed Surveys

Empire State – Employees
9.2 vs 4.7 prior
Higher

Empire State – Workweek
4.2 vs -1.5 prior
Higher

Philly Fed – Employees
10.3 vs -9.8 prior
Higher

Philly Fed – Workweek
0.4 vs -1.6 prior
Higher

Other Indicators

Challenger Job Cuts (July)
62,075 vs 47,999 prior
Lower

Payroll Seasonality (ex-2020)
Miss 54%, Beat 46% (avg ±60k)
Slightly Lower

As hundreds of attendees add Bob Seger, Madonna, Eminem, and Stevie Wonder to their playlists in preparation for the MMLA conference starting this weekend in Michigan, and my son Robbie hunkers down in the rain in Sheboygan, WI., I received this note. “We’re a nationwide lender and have begun the hunt for a new AMC. Any suggestions?” Nope, but a solid place to start is at this Marketplace, a free centralized hub for vendors and service providers across the mortgage industry to be viewed by lenders. You may be nationwide, but all real estate is local, with different pros and cons. For example, at the MBA Hawai’i conference, HOA and insurance costs are weighing heavily on their markets. Inventory levels have crept up, the fire damage in Maui is a multi-year exercise in figuring out what to re-build and how to do it with limited manpower and materials. Interest by Japanese, Chinese, and Canadian buyers has plummeted. But there is opportunity: 38 percent of Hawaiian residents are renters. (Today’s podcast can be found here and this week’s are sponsored by nCino. nCino Mortgage unites the people, systems, and stages of the mortgage process into a seamless end-to-end solution embedded with data-driven insights and intelligent automation. Hear an interview with nCino’s Tyler Prows on how automated workflows provide a seamless experience for the borrowers and streamlined app intake for LOs in an end-to-end solution.) Products, Services, and Software for Lenders and Brokers

While jobless claims and the Employment Cost Index can be market movers, today’s biggest ticket in the 8:30am slot was the monthly PCE Price Index for June. Forecasters are generally more accurate when predicting these numbers because previously released reports reveal a majority of PCE components. That means we have to dig a little in order to find surprises. In today’s case, core monthly PCE was 0.256 unrounded versus a median forecast of 0.320 (which looks better than the conventional 0.3 vs 0.3). That good news was tempered by increasingly visible goods inflation along with the knowledge that actual tariff impacts lag the announcement. 

In light of that fact as well as the lower jobless claims and higher employment costs, bonds are doing a good job by holding modest overnight gains.

The regulator renewed his fight with the policymaker after the latter left the rates he oversees unchanged and distinguished them from those for mortgages.

One mortgage firm is out of business months after a cybersecurity incident, which compromised the personal information of over 30,000 of its former clients.

Fears of identity theft are top of mind for many Americans, even as many admit they’re open to lying themselves in order to get mortgage credit.

Federal Reserve Chair Jerome Powell said during his regular press conference Wednesday that the process of determining tariff-related price increases was always going to be slow, but it has taken longer than he expected.

Still, Redwood Trust lost $100 million on a GAAP basis for the period, a result of its previous decision to pivot to a scalable operating model in mortgages.

Markets Expected More Dovishness From Powell

AM data was a mixed bag that left bonds slightly weaker on the day, but not in an alarming way. GDP was mixed, coming in much stronger at the headline, but with lower domestic demand numbers. PCE prices were revised 0.2 higher for the quarter, meaning that tomorrow’s monthly PCE data has a 1 in 3 chance of being the culprit (slightly raises risk of higher inflation reading). But the day’s big focus was on Fed Chair Powell’s press conference. The announcement itself was inconsequential. Powell had a chance to get a bit more dovish in response to recent inflation data, but instead stuck to the exact same script (hoping tariff inflation is a one-off, but wants to wait and see, and has luxury of doing so based on 4.1% unemployment). Bottom line: no bone thrown to rate cut optimists = Fed Funds Futures priced in lower odds for near-term cuts.  This spilled into bonds only modestly, leaving 10yr yields in line with AM highs and leaving the broader trend as sideways as ever. 

Econ Data / Events

ADP Employment

104k vs 75k f’cast, -23k prev

Market Movement Recap

09:29 AM A hair weaker overnight with additional selling after data.  MBS down 5 ticks (.16) and 10yr up 5bps at 4.373

12:53 PM A bit of resilience heading into Fed announcement.  MBS down 2 ticks (.06) and 10yr up 4.3bps at 4.365

02:08 PM very small, friendly reaction to Fed.  MBS down 1 tick (.03) and 10yr up 2.6bps at 4.348

03:22 PM Weaker after Powell press conference.  MBS down 5 ticks (.16) and 10yr up 5.3bps at 4.374