Ultimately an Uneventful Week Despite Micro-Volatility

Ultimately an Uneventful Week Despite Micro-Volatility

This morning featured an overnight rally driven by weakness in European PMI data and a logical sell-off following much stronger PMI data in the U.S.  Specifically, S&P Global’s Services PMI rose to the highest level in more than 2 years.  This is some of the earliest available data for the month of June and the burden of refutation is on incoming data that is week’s away (for instance, next week’s headline report, PCE, is still for the month of May). Today’s selling never got out of hand, however, and that meant the week as a whole was wholly uneventful in the bigger picture. 

Econ Data / Events

S&P Services PMI

55.1 v s 53.7 f’cast, 54.8 prev

S&P Manufacturing PMI

51.7 vs 51.0 f’cast, 51.3 prev

Existing Home Sales

4.11m vs 4.10m f’cast, 4.14m prev

Leading Economic Indicators

-0.5 vs -0.3 f’cast, -0.6 prev

Market Movement Recap

09:36 AM Moderate overnight gains, following Europe.  10yr down 4bps at 4.22.  MBS up 3 ticks (.09).

10:43 AM Weaker after PMI data with 10yr now up 1.2bps.  MBS down 2 ticks (.06).

12:45 PM Sideways to slightly stronger after AM sell-off.  MBS unchanged.  10yr down 0.3bps at 4.258

04:37 PM Low volatility afternoon.  MBS up 1 tick (.03).  10yr down 0.4bps at 4.256

AI Product; Capital Markets; Wholesale and Correspondent News; Appraisals are Junk Fees?

Don Henley’s “Boys of Summer” was a hit 40 years ago. (Yes, 40 years.) There are plenty of beaches in Hawai’i, but here in Honolulu at the MBAH conference, it’s all business. MBA Chair Mark Jones reminded the audience that President Biden “declared war” on what he called “junk fees.” Sure enough, soon after the State of the Union Address, the CFPB announced that it would soon target what it called “junk fees” in mortgage closing costs. Unfortunately, what the CFPB calls “junk fees” include items required in the lending process, like flood certs, credit reports, appraisals. These help borrowers, investors, and taxpayers. At a recent hearing, House Financial Service Chair Congressman Patrick McHenry said to CFPB Director Chopra that his “so-called independent agency has become an arm of President Biden’s political operation.” To understand that accusation better, check out attorney Brian Levy’s most recent Mortgage Musing, where he describes how CFPB (Consumer Financial Politics Bureau?) appears to be putting politics over effective consumer protection policies with their junk fee, “name and shame” registry, and other policy initiatives. (Today’s podcast is found here after 8:30AM ET and this week’s is sponsored by Quontic whose mission is to help creditworthy borrowers obtain home loans and give them the “yes” they’ve been waiting for. Hear an interview with FundingShield’s Adam Chaudhary on new schemes and threats in the wire and title fraud space, and how both good players and bad players are attempting to use AI to their advantage.)

June Shaping Up Nicely, But Bigger Tests Are Yet to Come

After a rocky start to the year, things began to improve for rates and the inflation outlook in May. June took the improvement to the next level, but this week didn’t affect the bigger picture. Ahead of Wednesday’s market closure for Juneteenth, the most relevant economic report was Retail Sales on Tuesday morning.  It came in slightly below forecast and the previous month was revised lower.   Rates responded by moving back toward recent lows, but not below them. Some sources suggest mortgage rates are in fact at multi-month lows, but this relies on Freddie Mac’s weekly survey which is notorious for modest inconsistencies with reality due to the timing and methodology of the survey.  In both 10yr Treasury yields and mortgage rates, the reality has been more of a sideways fizzle as opposed to additional improvement. Apart from Retail Sales, Friday’s PMI data from S&P Global caused the most notable market reaction after coming in at the strongest levels in more than 2 years–albeit, just barely. Stronger economic data tends to coincide with rates moving up.  Using 10yr Treasury yields as a convenient intraday benchmark for mortgage rate momentum, we can see the impact relative to Retail Sales earlier in the week.  Neither were remotely on the scale of last week’s CPI data.  Additionally, they each argued opposite cases, thus helping the rate range remain subdued for now. In other words, most of June’s progress was already in place before this week began.  It gets rates within striking distance of a longer term uptrend–one that will be hard to definitively break unless June’s forthcoming economic data paints a picture of economic weakness and lower inflation.  It will be several weeks before most of June’s data starts coming in.

Logical Reaction to Much Stronger Services PMI

S&P Global (formerly Markit) PMIs are the standard PMI around the world, but have long been second fiddle to ISM PMIs in the U.S.  That’s certainly still the case, but in this era of ever-increasing data dependence, we’ve seen a drastic change in the market’s willingness to trade the preliminary S&P PMI releases, which are among the earliest economic indicators for any given month (it will be another two weeks before we get ISM PMIs for June). The current installment features a logical reaction, in which the highest Services PMI in more than 2 years is pushing bonds into weaker territory following overnight gains (ironically driven by weaker PMI data in Europe).