MBS are pretty much flat on the AM.  Stocks are too.

Stock futures, bonds and the dollar saw small moves ahead of economic data that will help shape the outlook for Federal Reserve policy. S&P 500 contracts edged lower. The Bloomberg Dollar Spot Index was little changed after hitting the highest since March, prompting Japan and China to step up efforts to defend their currencies.

The market is hoping that the Fed could pause rate hikes at its next meeting as inflation seems to be slowing and the jobs market seems to be tightening. The Fed continues to point to the likelihood of higher rates for longer, reiterating its mission to bring inflation down to target and leaving room for the Fed to do what it feels is necessary based on its data dependent approach.

Trade Gap = -65b vs -68b f’cast  [-63.7b prev]

S&P PMI =  50.2 vs 50.4 f’cast   [52.0 prev]

ISM Services PMI =  54.5 vs 52.5 f’cast   [52.7 prev]

  • Business activity rose to 57.3 vs 57.1
  • New orders rose to 57.5 vs 55.0
  • Employment rose to 54.7 vs 50.7, the highest since Nov. 2021
  • Prices paid rose to 58.9 vs 56.8

The survey data sends a hint of rising stagflation risks, as stubborn price pressures are accompanied by a near-stalling of business activity. The PMI numbers for the third quarter so far point to a faltering of economic growth after a robust second quarter, as a renewed manufacturing downturn is accompanied by a deteriorating picture in the service sector.

The ISM Services PMI paints a brighter picture, showing the services economy expanded in August. New orders, employment, and activity all increased. That said, we saw a big jump in inventories and a big decrease in backlog, which suggests slower growth ahead. Pricing pressures increased again based on higher energy and transportation costs.

Student loan repayments are about to resume, and that should have a negative impact on services.

Bonds managed to begin the day sideways to slightly stronger, although the strength was more apparent in the longer end of the yield curve.  Perhaps market participants could sense the impending curve flattening bias in today’s big ticket econ data.  ISM Services beat the consensus and the inflation component rose for the second straight month, reaching the highest levels since March.  The implications for core services inflation go without saying and the market traded it as such with a obvious bump to implied Fed Funds rates for 2024 contracts.  The longer end of the curve fared better but still lost a bit of ground.  Corporate bond issuance remains a background problem.  Technicals may see some increased focus for the rest of the week without much by way of meaningful data until next week’s CPI.

MBS ended the day down 23 bps.  WE are just inside the ceiling of an ugly range with 98.086 as ceiling and 97.668 floor.

In California, home to plenty of insurance companies dropping insuring homes, the Insurance Commissioner is an elected position. Ricardo Lara doesn’t want to lose his job, so doesn’t allow insurance companies to raise their premiums to compensate for risk. So, they drop out. “With the average premium priced over $1,400, some homeowners are opting to drop home insurance altogether. But this decision comes with some serious risks…”

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