Wednesday – September 4, 2024

UMBS are up 3 bp in early trading.   S&P futures are down 20.5 points.

Stocks are lower this morning after Nvidia announced the Department of Justice is conducting an antitrust investigation against the company. Bonds and MBS are up.

Construction spending fell 0.3% in July, which was below expectations. Private residential construction fell 0.4% in July, while public residential construction fell 2.6%.

The manufacturing economy continued to contract in August, albeit at a slower pace according to the ISM Manufacturing Survey. “While still in contraction territory, U.S. manufacturing activity contracted slower compared to last month. Demand continues to be weak.

Bottom line: while manufacturing doesn’t have the impact it used to on the US economy, it is still important, and slowing demand gives the Fed an added concern. Before, it was worried about inflation and not a slowing economy. The purpose of cutting rates was to maintain a steady state of financial restriction in order to cool inflation. With the economy appearing to weaken, the restrictive monetary policy is no longer appropriate, and they might have to cut more aggressively just to get back to neutral.

We are starting to see the Fed Funds futures price in a bigger chance for a 50 basis point cut at the September meeting, and the December futures see 100 basis points in cuts as the most likely outcome.

Job Openings  = 7.673m vs 8.100m f’cast

last mo revised to 7.91 from 8.18

Job Quits  = 3.277 vs 3.282m prev

(lower is better for bonds)

Wednesday ended up being almost exclusively about the Job Openings data in the morning.  Bonds were fairly flat before that and rallied sharply afterward.  Once the initial reaction ran its course (in mere minutes), the rest of the day was an uneventful drift in a rate-friendly direction.  Yields hit the 3pm close several bps under the 3.80% technical level in 10s, which makes this a bit of a “lead-off” to whatever extent you were planning on the 3.8-4.0 range remaining intact until Friday’s jobs report.   In other news, the yield curve uninverted at times–a fact that means nothing about the future even though you’ll certainly see claims to the contrary.

UMBS closed the day up 23 bps at 101.10