MBS down 5 bps after the first hour of trading. Stocks flat.
Bonds were already modestly weaker in the overnight session and are losing just a bit more ground after the slightly stronger Jobless Claims data. The ‘ex-transport’ line item on Durables is possibly an inconvenience for bond bulls as well.
Jobless Claims = 230k vs 240k f’cast, [239k prev]
- 4-week moving avg. at 236.8K in the week ending Aug. 19
- Continuing claims fell 9K to 1.702M in the week ending Aug. 12
Durable Goods = -5.2 vs -4.0 f’cast [4.7 prev]
Durable Goods, Excluding Transportation = 0.5 vs 0.2 f’cast
While house prices declined from $410,200 in 6/23 to $406,700 in 7/23, don’t be fooled, that’s the highest July price ever and is up from $403,800 in 7/22. Similarly, while inventory ticked up from 1.08 months in 6/23 to 1.11 months in 7/23, it’s again the lowest July level ever and well below the 1.31 months of supply in 7/22. After accounting for seasonality, the housing market is profoundly tight.
The Jackson Hole summit begins today, and the focus will be Jerome Powell’s speech tomorrow. “As we await Fed Chair Powell’s speech at Jackson Hole tomorrow, this challenge means that central bankers have a much harder time relative to last year,” Deutsche Bank’s Henry Allen said. “Bear in mind that a year ago, CPI inflation in both the US and the Euro Area was still running above 8%, so the way forward was pretty clear for policymakers. But now inflation has fallen by some distance, there’s much more doubt about how sticky it will end up proving, and thus how much more central bankers still need to do.”
Bond traders continue to mostly ignore signs of calmer inflation and are instead finding other reasons to be defensive. Hope is not a strategy even though it makes some sense to hope (or even expect) that a certain amount of selling will make yields attractive enough for a strategic shift among a broader swath of investors. Nonetheless, we need to see evidence of that in the charts and it has yet to show up for more than a few fleeting moments. It makes more sense to remain lock-biased until it does.
After Wednesday’s big rally ended with bonds near their best levels of the day, there was some small chance that the bond market would take a more exuberance approach to Thursday with a bit of a follow-through rally. That said, there was a better chance that Wednesday’s rally was a limited-time engagement to blow off the oversold steam. It would have made slightly better sense for bonds to hunker down today ahead of Powell’s Jackson Hole appearance on Friday, and that’s exactly what happened.
MBS ended the day down 21 bps. Stocks lost 6 points