Thursday – July 18, 2024

UMBS were up 4 bps on the open.  Small number but at least it’s green.   S&P Stock Futures are up 8.50 points.

A mixed bag of data in the 8:30am time slot, but as we were expecting/hoping, the Jobless Claims data is carrying more weight than Philly Fed.  That said, if Philly Fed had been weaker, we might be seeing a better response.

As it stands, 10yr yields have rallied just over 1bp but are still 1.2bps higher on the day at 4.17%. MBS are up 2 ticks (.06) from the opening lows.

Jobless Claims = 243k vs 230k f’cast,        [223k f’cast]

Continued Claims = 1867k vs 1860k f’cast,      [1847k prev]

Philly Fed Index = 13.9 vs 2.9 f’cast,      [1.3 prev]

Philly Fed Prices Paid = 19.8 vs 22.5 prev

Fed Governor Christopher Waller said that rate cuts were coming and the US economy was experiencing a soft landing.

Industrial Production rose 0.6% MOM in June after rising 0.9% MOM in May. The number was above expectations. For the quarter, industrial production rose 4.3%. Capacity Utilization rose to 77.9%, which is still below the historical average. FWIW, the ISM data has been indicating manufacturing is still contracting however things are improving.

Business inflationary expectations increased to 2.4% from 2.3%, according to the Atlanta Fed. This is well below the peak of 3.8% we saw in 2022, but above the longer-term average of 2%.

For more than two years, inflation has been the primary focus of the Federal Reserve. However, a shift is anticipated as US central bankers are poised to cut interest rates in September, reflecting growing confidence in achieving price stability. Fed officials, including Chair Jerome Powell, have signaled this move through recent speeches, though they await consistent monthly price numbers trending towards their 2% annual inflation goal before committing. Powell emphasized the importance of considering the labor market’s condition, noting that while it has cooled to pre-pandemic levels, there is a risk of rising unemployment.

Fed Governor Christopher Waller and others suggest a rate cut is likely warranted soon, with September being a potential timeframe. This sentiment is echoed by economists like Jonathan Pingle, who note significant cooling in the labor market. Nonetheless, officials like Mary Daly and Lisa Cook stress the need to act cautiously to prevent substantial weakening in the labor market.

UMBS ended down 12 bps at 100.97