Popular UMBS coupons were flat on the morning. Lower coupon 5.5 is up a quarter point on the morning. Though still below 100.
US equity contracts slid as traders pushed back on optimistic scenarios that central bankers will cut interest rates in time to avert recession. Bonds gained. Futures signaled another day of declines for the S&P 500, after the benchmark rose last week to its highest since March 2022 on bets the Federal Reserve would soon pivot to monetary easing.
Investors are awaiting jobs data due out this week, which has been the backbone of the Fed’s monetary approach. The Fed was wanting to slow the economy down with hikes to the point where the jobs market showed weakness. Despite market desires, the Fed continues to reiterate that talk of rate cuts is premature at this point and that we may not be done hiking rates.
ISM services PMI fell to a five-month low in October as slower increases were seen for business activity. Outlook amongst firms remains mixed as inflation, interest rates and geopolitical tensions continue to weigh on the market. Increasing labor costs and employment shortages also have plagued business growth.
Job openings (via JOLTS- the Job Openings and Labor Turnover Survey) came in lower than expected. The total was the lowest since 2021, when job openings were still on the way up amid post-covid labor market tightening.
We can safely rule out ISM Services data as the market mover, not only because it was stronger than expected, but also because it takes a few more seconds for the JOLTS headline to hit the wires. Bonds were sideways after ISM, and then dropped after JOLTS.
ISM Non-Manufacturing = 52.7 vs 52.0 f’cast [51.8 f’cast]
Job Openings = 8.733m vs 9.3m f’cast
last month revised from 9.553 to 9.350
We knew that today’s JOLTS and ISM reports were likely to cause a reaction if they were much higher or lower than expected. ISM ended up coming in right in line with forecasts, but job openings fell more significantly. At 8.733m, it was not only the lowest reading in more than 2 years, but also a big miss versus a median forecast of 9.3m. Bonds responded logically by extending the moderate AM rally with good volume. 10s ultimately moved down to 4.17% before hitting resistance and traded sideways near that floor for the rest of the day. It is a sign of the times that there was no concerted effort to push yields back in the other direction despite hitting the lowest levels since August.
UMBS 6.5 closed the day down 8 bps on a surprisingly calm day. The 6.0 and 5.5 coupons faired better