Markets expect high volatility this week

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Published Date 8/5/2024

At 8 am ET this morning in futures trading the DJIA -1,000 points, NASDAQ -1,000, SP -211. The 10 year note at 3.69% -10 bps. MBS prices began +11 bps at 8:30 am.

The equity markets in a huge correction pattern. Indexes climbed straight up for the last three months, now the big question, is the US in a recession and how deep will it extend. Investors aren’t waiting to find out, rates have plummeted the last five sessions, Friday’s July employment report shocked with the steep decline in job growth, expected at 180K from 200K in June, fell to +114K. Unemployment rate thought to be unchanged increased to 4.3% the highest unemployment rate in years.

Last Friday it became a surety the Fed will lower the FF rate by 25 bps. With the crumbling equity markets this morning and the further decline in rates there are some comments the Fed won’t wait until September and cut prior to the meeting (September 18th). Don’t buy that, it won’t occur, a move intermeeting would imply the Fed is in panic mode, something central banks won’t allow. There is a lot of data between now and the September meeting, inflation data, jobs data that will influence what the Fed will do. Presently as far as rates, it’s a good thing for home buyers, sellers, and mortgage lenders.

Recent data: manufacturing, services, construction spending, consumer confidence, job openings, and now Friday’s employment data, all combining to confirm the economy is slowing, and it isn’t just in the US, its global. The equity markets were overextended technically, one major data point is serious, but will it lead to recession? More data is needed, and we won’t get that this week.

This week promises to be volatile. Especially with the increasing tensions in the mid-east. The situation is worsening. Uncertainty always leads to volatility.

At 9:30 am the DJIA opened -1094, NASDAQ -1038, S&P -267. 10 year at 9:30 am 3.70% -9 bps. FNMA 6.0 FNMA coupon at 9:30 am +14 bps from Friday’s close and +29 bps from 9:30 am Friday.

At 10 am the July ISM services sector index better than thought and put some support in the equity markets, the index thought to be at 51.0 increased to 51.4; business Activity Index at 54.5%; New Orders Index at 52.4%; Employment Index at 51.1%; Supplier Deliveries Index at 47.6%. Economic activity in the services sector expanded in July, a trend that has been interrupted only three times — though twice in the last four months — since early in the coronavirus pandemic, say the nation's purchasing and supply executives in the latest Services ISM Report On Business. The Services PMI registered 51.4 percent, indicating sector expansion for the 47th time in 50 months.

This Week’s Economic Calendar:

Monday,

9:45 am July services sector index expected at 56.0 (The composite expected at 55.0 (as released 54.3)

10 am July ISM service sector index expected at 51.0 (Increased to 51.4)

Tuesday,

8:30 am June trade deficit expected at -$72.5B from -$75.1B in May

1 pm $58B 3 year note auction

Wednesday,

7 am weekly MBA mortgage applications

1 pm $42B 10 year note auction

3 pm June consumer credit (+$10.0B from +$11.3B in May)

Thursday,

8:30 am weekly jobless claims (240K from 249K the prior week)

1 PM $25B 30 year bond auction

Source: TBWS

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