Wednesday – July 31, 2024
UMBS are in the green for early trading. Up 7 bps. Meanwhile stock futures are up 61 points.
These aren’t the biggest market movers, to be sure, but they’ve helped bonds improve just a bit after a flat overnight session. It also didn’t hurt that Treasury announced unchanged quarterly auction amounts for the first time since the upward issuance spiral began at the onset of the pandemic. The Fed announcement at 2pm and press conference at 2:30pm remain the biggest potential sources of volatility today.
ADP Employment = 122k vs 150k f’cast, [155k prev]
Annual pay increases fell to 4.8%, which is more evidence the labor market is cooling.
Employment Cost Index = 0.9 vs 1.0 f’cast, [1.2 prev]
Chicago PMI = 45.3 vs 45.0 f’cast, [47.4 prev]
Pending Home Sales = +4.8 vs +1.5 f’cast
Job openings fell from 8.23 million to 8.18 million in June. This was a touch above expectations. Hires fell from 5.65 million to 5.34 million while separations fell from 5.4 million to 5.1 million. The quits rate was steady at 2.1%. Overall, the report shows that the white-hot labor market of the post-COVID era is returning to Earth.
The homeownership rate ticked down in the second quarter to 65.6%, according to the Census Bureau. The rental vacancy rate ticked up to 6.6%. This is further evidence that the shortage of supply is easing. While the homeownership rate has improved from the depths of the Great Recession, we are still well below levels we saw prior to and during the housing bubble
The Federal Reserve decided to keep interest rates the same. Fed Chair Powell decisively went out of his way to avoid making any commitments about the timing of the next rate cut. At the same time, his cryptic answers are being interpreted by the market as suggesting a fairly logical reaction function with respect to the next 2 CPI reports.
In other words, if they’re OK, the Fed is cutting, even though Powell hasn’t directly said that.
This is all the market really needed to take away from today’s Fed events and it wasn’t perfectly possible after the announcement came out at 2pm. The clarification has been worth a return to the best levels of the day.
Opinions certainly vary as to whether today’s communications from the Fed and Fed Chair Powell were dovish or hawkish, so let’s focus on facts. The changes in the statement itself were bond-friendly but not enough for bonds to rally. In fact, there was modest selling until Powell began answering questions. Powell himself said a September rate cut was one possible scenario assuming the data remains consistent with recent progress toward goals. He was very clear, however, to say that no decisions have been made. A strong case can be made that today’s rally isn’t exclusively on Powell. Geopolitical headlines and month-end trading definitely had an impact. Still, history will remember that Powell did everything he could do to leave the door open for a September cut, short of promising that it would happen.
UMBS ended the day UP 37 bps at 101.46