Markets start the week under pressure

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Published Date 10/7/2024

Last Friday rates exploded higher on the very strong September employment data, the 10 year note yield increased 13 bps, the 2 year note up 22 bps, MBS prices ended the day down 41 bps. This morning continued to see rates increase, the 10 year note began at 4.03% +5 bps, MBS prices began 18 bps lower than Friday’s close.

The exceptionally strong jobs in September continue to rattle the November rate cut that was fully discounted in prices last Wednesday, now the outlook has muddied. The 10 year note and mortgage rates are back to levels in August when Powell at Jackson Hole essentially said rates will be cut and a soft economic outlook will be the case; the Fed would ‘recalibrate” focusing less on inflation because it is declining and more focus on the job market. Until the FOMC meeting last month the consensus thinking was another 50 bp cut, since then the odds have diminished substantially.

Markets now focusing on Thursday’s and Friday’s inflation data, early estimate see September CPI inflation slowing, core month/month +0.1% from +0.2%, year/year 3.2% unchanged from August. According to the Fed calendar several Fed officials are scheduled today and all through this week; today Minneapolis Fed President Neel Kashkari, Atlanta Fed President Raphael Bostic, St. Louis Fed President Alberto Musalem and Fed Board member Michele Bowman speak at different events. Fed officials according to schedules are dominant all week, traders will parse every word for clues about potential rate cuts.

At 9:30 am the DJIA opened -125, NASDAQ -46, S&P -15. 10 year at 9:30 am 4.02% +6 bps. FNMA 5.5 30 year coupon at 9:30 am -23 bps from Friday’s close and -28 bps from 9:30 am Friday; Friday MBS prices closed down 41 bps.

Since the FOMC meeting on the 16th of September when Powell announced his recalibration switch toward employment conditions from inflation worries rates have increased, the 10 year note on September 17th 3.63%.

Crude oil continues to increase awaiting the response from Israel against Iran’s missile attack.

This Week’s Economic Calendar:

Monday,

3 pm August consumer credit

Tuesday,

8:30 am August US trade deficit (-$71.0B, down from $-78.8B in July)

1 pm $58B 3 year note auction

Wednesday,

7 am weekly MBA mortgage applications

1 pm $39B 10 year note auction

2 pm FOMC minutes from September 16th FOMC meeting

Thursday,

8:30 am weekly jobless claims (226K from 225K)

September CPI (month/month +0.1% from +0.2%, year/year +2.3% from 2.5%; core month/month +0.2% from +0.3%, year/year core 3.2% unch from August)

1 pm $22B 30 year bond auction

2 pm September Treasury budget

Friday,

8:30 am September PPI (month/month +0.2% unch from August, year/year +1.6% from +1.7%; core month/month +0.3% from +0.3%, year/year +2.7% from +2.4%)

10 am Mid-month University of Michigan consumer sentiment index (in Sept 70.1)

Source: TBWS

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