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Last Friday the July employment data, one of the biggest misses we’ve seen; jobs increased 528K twice what was forecast, private jobs +471K almost twice the estimates; average hourly earnings +0.5% on thoughts of +0.3%, yr./yr. +5.2%. The reaction sent MBS prices down 78 bps, the 10 2.84% +14 bps. The unemployment rate at 3.5% is back to pre-covid levels and is generally considered by economists as full employment and is at a five-decade low. The increase mostly in service sectors; hiring in accommodation and food services, where companies are scrambling to beef up staffing levels against a backdrop of pent-up demand drove the increase. Government payrolls rose 57,000 - most since May of last year. Restaurants and bars employment climbed 74,100 - largest in five months. Health care payrolls climbed almost 70,000 - biggest gain since August 2020
This morning the 10 began at 2.81% -3 bps and initial MBS trading +3 bps from Friday’s closes. Stock indexes in futures markets were better.
Tomorrow July CPI, according to forecasts inflation will be lower than in June, and on Thursday July PPI is also expected to be less than in June. If the data is reported weaker, we can expect more debate over what the FOMC will do at the next meeting (Sept 21st). Should be many opinions and forecasts and probably volatility in financial markets.
At 9:30 am the DJIA opened +172, NASDAQ +47, S&P +17. 10 yr. 2.79% -4 bps. FNMA 4.5 30 yr. coupon +6 bps and +31 bps from 9:30 am yesterday. The 5 coupon -2 bps and +2 bps from 9:30 am Friday.
Tomorrow July CPI, today may be quiet ahead of it. Also, tomorrow China’s CPI and PPI. The estimates though are less inflation than in June and will bring out those that argue the Fed should slow its tightening that is tilting toward another 75 bp increase in Sept. Six weeks before the FOMC meeting, there won’t be any end to the debate about what the Fed will do, that will keep interest rates and equities choppy with no major trends. US inflation data this week could inject more market swings. The latest comments from Fed officials left a question mark over wagers on a policy pivot toward reducing borrowing costs next year. Still no consensus whether the economy will be defined as in recession, or how long it will persist.
This Week’s Economic Calendar:
- Tuesday,
6:00 am NFIB small business optimism index (89.2 from 89.5)
8:30 am Q2 preliminary productivity and unit labor costs (productivity -4.5% from -7.3% in Q1;unit labor costs +9.3% from +12.6% in Q1)
1:00 pm $42B 3 yr. note auction
- Wednesday,
7:00 am weekly MBA mortgage applications
8:30 am July CPI (+0.2% m/m, yr./yr.; 8.7%; June +1.3% m/m, yr./yr. +9.1%; ex food and energy +0.5% from +0.7% m/m, yr./yr. +6.1% from 5.9%)
1:00 pm $35B 10 yr. note auction
2:00 pm July treasury budget -$162.0B)
- Thursday,
8:30 am weekly jobless claims (260K unch from week before)
July PPI (+0.3% m/m from +1.1%, yr./yr. +10.3% from +11.3%; ex food and energy +7.8% m/m from +0.4%, yr./yr. +7.8% from +8.2%)
1:00 pm $21B 30 yr. bond auction
- Friday,
8:30 am July import and export prices (imports m/m -0.9%, yr./yr. +9.4%; exports +0.1% m/m, yr./yr. N/A)
10:00 am August mid-month U. of Michigan consumer sentiment index (52.2 from 51.5 in July)
PRICES @ 10:00 AM
10 yr. note: 2.97% -5 bp
5 yr. note: 2.92% -3 bp
2 Yr. note: 3.19% -2 bp
30 yr. bond: 3.01% -6 bp
Libor Rates: 1 mo. 2.369%; 3 mo. 2.866%; 6 mo. 3.425%; 3.859% (8/5/22)
30 yr. FNMA 5.0: 101.91 -2 bp (+2 bp from 9:30 Friday)
30 yr. FNMA 4.5: 100.94 +6 bp (+34 bp from 9:30 Friday)
30 yr. GNMA 4.0: 100.39 unch (+6 bp from 9:30 Friday)
Dollar/Yuan: $6.7579 -$0.0043
Dollar/Yen: 134.69 -0.32 yen
Dollar/Euro: $1.0211 +$0.0027
Dollar Index: 106.32 -0.30
Gold: $1797.90 +$6.70
Bitcoin: 24,165 +894
Crude Oil: $88.67 -$0.34
DJIA: 33,093 +290
NASDAQ: 12,835 +178
S&P 500: 4185 +40
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