Monday – July 29, 2024

UMBS up 4 bps in early trading.  Small number but at least it’s green.  Stocks up 24 points.

The week ahead will be dominated by the FOMC meeting on Tuesday and Wednesday. Markets expect the Fed to maintain rates at current levels and will be looking for a signal that a rate cut is likely at the September meeting. We will also get decisions from the Bank of Japan and the Bank of England this week.

Aside from the FOMC decision, we will have a lot of data this week with house prices, ISM data and the jobs report on Friday. We will get earnings report from market heavyweights Meta, Mr. Softee, Amazon and Apple.

The Wall Street Journal’s Nick Timaros (aka Nickileaks) is one of the journalists closest to the Fed’s thinking. He doesn’t see a rate cut at the FOMC meeting this week, but thinks the Fed will start cutting in September. Aside from the 2005-2006 tightening, this is the longest the period of tightening in modern history. The spike in inflation during the beginning of the year seems to be a blip, and the Fed is getting worried that it might ruin its soft landing.

Rates are expected to remain unchanged at this meeting, however policy guidance and commentary post-meeting could begin to have more clues to the Fed’s approach and potential use of rate cut.

“We set this rate when inflation was over 4%, and inflation is now, let’s call it, 2.5%. That implies we have tightened a lot since we’ve been holding at this rate,” Chicago Fed President Austan Goolsbee said in an interview.

There have been a few occasions in the past few years where Treasury’s quarterly refunding announcement sent shockwaves through the bond market.  Today turned out not to be one of them.  Treasury showed traders the light at the end of the issuance tunnel late last year (part of the reason for the big rally in November) and now we’re simply seeing the general fruition of those predictions.  In fact, the Q3 borrowing estimate was more than $100bln LOWER than last time.  Markets don’t have a perfect way to predict how these estimates will change quarter to quarter, but the trading reaction tells us it was only a very small surprise, but also a pleasant one.

UMBS closed the day up 3 bps at 101.07