Tuesday – September 3, 2024
Markets recomputing after a holiday weekend. UMBS were up 15 bps in the first hour of trading. Stock futures are down 29 points
The 10am ISM Manufacturing report was today’s biggest ticket in terms of econ data. It was a bit of a mixed result with the headline suggesting bond buying and the price component pushing back in the other direction. The headline seems to be getting a bit more attention for now, but the reaction has been anything but swift.
Most of the movement was seen at the outset with “new month” trading bringing in the buyers.
S&P Manufacturing PMI = 47.9 vs 48.0 f’cast
ISM Manufacturing PMI = 47.2 vs 47.5 f’cast
ISM Prices = 54.0 vs 52.5 f’cast
In what is historically a poor month for stocks, traders are bracing for fresh bouts of volatility in the runup to the
anticipated start of the Fed’s rate-easing cycle this month. Swap traders are currently pricing a roughly one-in-five chance of a 50 basis-point opening cut, according to data compiled by Bloomberg. The jobs market takes center stage this week with JOLTS on Wed, ADP and initial jobless claims on Thurs, and Unemployment on Friday.
Right now rate sheets are pricing in market speculation that we’ll see a quarter point cut at the September meeting in a couple of weeks. If the jobs data this week though shows the labor market is weakening as bad as last month’s data showed we could see rates move lower on speculation of a bigger half point cut instead.
Potential homebuyers are in “wait and see” mode, which is driving down home sales. Since 6 out of 7 people with a mortgage have a rate below 6%, many potential sellers are reluctant to put their house on the market if buying a new home increases their costs. About 86% of mortgages have rates below 6%, and 76% have a rate below 5%. Once the Fed cuts rates, it probably won’t be dramatic enough to trigger a new refi wave unless the economy weakens meaningfully.
As with most “first weeks of the month,” this one has potentially significant economic data every single morning. With ISM Manufacturing kicking things off, today was no exception, but it didn’t end up having a big impact. Considering the near perfect alignment with expectations, that’s not much of a surprise. The flood of “new month” trading positions ended up being a much bigger market mover (well before the data). Weakness in the stock market also helped drive some safe haven buying in Treasuries.
UMBS closed the day up 13 bps at 100.88