Good Tuesday morning from your Hometown Lender,

Bonds on a three-day win.

The 10yr back to 4.34% (just two weeks ago we were at 4.67%) and mortgage bonds are better as well. The Jolts report was today’s catalyst with it showing fewer jobs available (and a downward revision to last month’s report). I think this is about as far as we go in the markets until Friday with the big daddy, Jobs report. Today’s improvement in Treasuries brings us to the 200 day moving average and that tends to be a hard line to crack without some real time data to push us through. Tomorrow brings the ADP payroll report, ISM non-manufacturing, and Rates decision from the Bank of Canada. I am likely to lock any outstanding loans today. If you float into tomorrow and the data is stronger than expected, you will likely consider floating into Friday’s jobs report and while that may be beneficial, it is a risk. There is a difference between investing and gambling.

Everyone is seeing the economy slowing.

So much that it is now being reported (always a delay for the media to get the point). Here are two interesting pieces from the WSJ and Blomberg.. Bottom line, the Fed will need to cut before inflation drops to 2%.

The Fed Might Soon Have to Worry About More Than Just Inflation

The WSJ shared that: Is the Federal Reserve’s agenda about to shift from fighting inflation to stimulating economic growth? That’s the question on my colleague Aaron Back’s mind.

Last week, the PCE price index rose 2.7% from a year earlier in April, in line with economists’ expectations and unchanged from the prior month. Personal spending rose just 0.2%, below expectations and slowing from 0.7% in March. The Chicago Business Barometer came in light, reaching the lowest level since 2020, as you can see in the chart below. And then on Monday, new data showed manufacturing activity contracted more than expected in May. Growth hasn’t yet slowed to the point where it would concern policymakers, according to Aaron – but it’s worth watching to see if this trend continues. Perhaps that school of thought will pick up steam if Friday’s jobs data comes in lower than expected. Economists polled by the Journal have forecast the U.S. added 190,000 jobs last month.

Great piece on current economics from Bloomberg:

Yesterday’s ISM manufacturing report was interesting for both micro and macro reasons. I’ll start with the micro reason. We still have a big electrical components problem in this country. This gear, which basically is crucial for every construction or capex project you can imagine, has now been in short supply for 44 months, nearly four years.

The macro reason is simply that the headline number (along with new orders, prices and backlog) showed softening in May. There are signs that the heat from first-quarter economic and inflation data is coming off a little bit. The question is whether that’s real, and how the Fed responds to it. In a note to clients, Neil Dutta of Renaissance Macro Research wrote about the rising risk of a Fed accident: “Now, given the likely outcomes, there is a potential accident brewing. The Fed is highly uncertain. As the nearby figure shows, the Fed’s recent rhetoric has largely been reflexive. Their hawkish rhetoric comes after the core inflation has already turned. They are following the dataflow as it comes in. I think this is a problem because I have some conviction that core inflation is slowing. Hawkish rhetoric will look offsides relative to the coming data.”

Meanwhile, the Atlanta Fed’s GDP Now estimate shows just 1.8% real growth for the second quarter.

Finally, adding to the overall softening vibes, oil has been getting hit reasonably hard ever since the OPEC+ meeting this past weekend.

Here’s WTI over the last few days. This is a good Javier Blas piece on why the recent meeting wasn’t particularly bullish.

Stay safe and make today great!