Oh what a day. UMBS opened up 31 bps on the day. S&P futures are up 12 points

Bonds were remarkably calm overnight, given the volatility that’s dominated the average overnight session recently. Bonds were modestly stronger ahead of the jobless claims data and although the rally wasn’t immediate, we’ve improved a bit since then.

Jobless Claims = 221k vs 221k f’cast, [218k prev]

Continued Claims = 1892k vs 1880k f’cast, [1853k prev]

The Fed Funds futures are pretty much a lock for another 25 basis point cut, and the December futures are handicapping a 2/3 chance of another rate cut in December. Jerome Powell will certainly be peppered with questions regarding the election in his press conference. Don’t forget that Trump jawboned the Fed into cutting rates in 2019, so there will be all sorts of questions regarding Fed independence and whether he will be re-nominated.

Nonfarm productivity rose 2.2% in the third quarter, according to the BLS. Output increased 3.5% and hours worked rose 1.2%. Unit labor costs rose 1.9% as compensation rose 4.2% and productivity increased 2.2%. Productivity is an important component in inflation – as productivity increases, inflationary pressures fall.

Asking rents fell 0.7% in October, according to Apartment List. The median national rent fell by $10 to $1,394. That number is expected to decline through the rest of the year due to normal seasonality. Pricing pressures should continue as the vacancy rate ticked up to 6.8%. This is the highest level since the pandemic, and we have a lot of multi-family construction still in the pipeline.

Fed lowered Fed Funds rate by .25%

• Fed says labor market conditions have generally eased as opposed to saying “job gains have slowed” previously
• Fed drops the phrase about gaining greater confidence that inflation is moving toward 2% and instead just says the risks to achieving the goal are roughly in balance.  This could be taken two ways… more later
• Fed now says “in support of its goals” instead of ” in light of the progress” toward goals…

The last bullet point suggests the Fed is happy with where things are at and would just like to keep it that way.

As intraday charts give way to daily charts in the coming weeks, it will be all too easy to look back on today’s calendar and conclude that it could only have been the Fed announcement that was capable of motivating a 10+bp rally in Treasuries and a half point gain in MBS.  As we here in the past know, that rally was largely already in place ahead of the Fed announcement. We can’t chalk it up to the high continued claims number, though that may have helped. The simplest theory is that there are “dip buyers” in bonds now that the election is over.

It’s not a bad one, but we could just as easily say that a glacial drift toward higher rates got ahead of itself yesterday and fell back in line with the trend today.  Either way, MBS and mortgage rates have outperformed the move in Treasuries, and there’s at least a moment of hope for optimists to imagine an inflection point.

UMBS closed the day up 57 much needed points.  Landing at 99.57.

Finally approaching the 25 day moving average. But resting right at a technical level that goes back to late October