UMBS opened flat on the morning.  S&P futures down 5.25 points.
US equity futures edged lower ahead of a key earnings release from Nvidia Corp., the $3 trillion stock at the forefront of the global artificial-intelligence frenzy.

Consumer confidence increased in August, according to the Conference Board.  Consumers’ assessments of the current labor situation, while still positive, continued to weaken, and assessments of the labor market going forward were more pessimistic. This likely reflects the recent increase in unemployment. Consumers were also a bit less positive about future income. Average Inflation expectations fell to 4.9% for the next 12 months, the lowest reading since March 2020.

There are no economic releases Today, but Fed officials Waller and Bostic are both scheduled for speaking engagements. The market is looking ahead to Tomorrow’s initial jobless claims and GDP revision as well as a fresh round of PCE inflation data on Friday. The Fed will continue to monitor economic releases as we move toward the September meeting and first expected rate cut

During Powell’s recent Jackson Hole speech, he repeatedly said the labor market is weaker than pre-Covid, when Fed funds was 1.75%! Currently, markets are expecting a terminal Fed funds rate of 3.25%, with 100bps of cuts through December and another 100bps in CY2025. 3.25% seems improbably high, as the neutral rate is maximally 2.75%. By invoking pre-Covid times, Powell’s hinting the terminal rate may well be lower than markets expect.

While it makes riveting analysis a challenge, it’s not necessarily a bad thing for the bond market to be incredibly boring sideways right now.  After all, we’ve had a stable run of rates near their longer-term lows for several weeks.  Volatility could creep back in with the upcoming economic reports, but today, it was nowhere to be found.

Bonds started slightly stronger and drifted slightly weaker throughout the session with MBS not even an eighth of a point away from yesterday’s latest levels for the entirety.  Data relevance increases sharply on Thursday with Jobless Claims and quarterly PCE (via GDP).

UMBS ended the day down 8 bps at 100.94