Good morning on this best day of the week, Wednesday, from your Hometown Lender,
A little data this morning, which was not bond-friendly.
ADP payrolls were higher than expected, GDP was higher than expected, and Core PCE was higher than expected. That the bond market has reacted as evenly as it has so far is a sign that traders are coiling and waiting for the 11 am Fed announcement and subsequent 11:30 news conference. It’s a gamble as the Fed could be a big help today or also be a big hurt. Normally, I am ok going into he fed meeting floating as there is always a few minutes to get loans locked once the announcement comes out. Today, I am not so sure it is worth the risk.
Matt Graham had a great piece this am Deceptively Strong GDP Causing Early (Possibly Unjustified) Weakness.
There were two key reports at the start of trading today. The 815am ADP data was fairly forgettable, coming in at 104k vs 75k f’cast, and -23k previously. This is well within a range of outcomes that are arguably inconsequential for bonds. Subsequent trading reflected that fact. 15 minutes later, GDP came out at 3.0 vs 2.4 f’cast, and -0.5 previously. Bonds are basically trading that GDP beat, even though we disagree that they should be. Reason being: true domestic demand metrics continued to fall. Q2 was inordinately helped by the same net export component that tanked Q1 numbers.
Contrast that to inflation adjusted sales to domestic purchasers, which continues a trend of contraction.
Since the bond market weakness doesn’t really make sense in this light, we can also consider that core PCE prices were 0.2 higher than expected which means tomorrow’s monthly PCE data runs a higher risk of coming in hotter. Either way, bonds have only erased about half of yesterday’s gains so far. The Fed announcement and press conference are more than capable of reversing this move or adding to the pain.
On who is buying, the WSJ had this to say…
The home-selling season has been a dud so far as high prices and mortgage rates deter traditional homebuyers. But there’s one group of buyers that’s still going strong: investors who buy homes to flip or rent out. They’re responsible for about 30% of single-family home purchases so far in 2025, the highest rate since at least 2011. Rebecca Picciotto talked to these investors to find out how the anemic selling season is boosting their businesses.
Stay safe and make today great!