Market Snapshot 6.12.23- Quiet For The Moment

Good Monday AM,

Things are quiet for the moment on the data front.

We have our monthly bond rollover which is making bond movement look far worse than it is, as that rollover is spread throughout the month, and doesn’t by itself, impact pricing. I am happy to share more on this anytime if you like, just shoot me a note. That said, not uncommonly, bonds are pulling back a bit before a big news week. Bonds tend to coil up/consolidate before big news so they can spring in either direction the news takes us.

The calendar is below and you can see that starting tomorrow, we are in the thick of it. CPI, PPI, Fed Meeting. ECB meeting, Bank of Japan, Retail sales, Consumer Sentiment, etc. All will move markets and the hope is we get more than half to show some weakness (and hopefully that starts tomorrow so the Fed can incorporate that into their decision and announcement on Wednesday). If so, pricing will improve this week.

A quick snippet of this week’s economic calendar is below.

The Labor Department releases the consumer-price index for May. The consensus estimate is for the CPI to rise 4.0% year over year, while core CPI, which excludes volatile food and energy prices, is seen rising 5.3%. This compares with gains of 4.9% and 5.5%, respectively, in April.

The National Federation of Independent Business releases its small-business optimism index for May. Expectations are for an 88.3 reading, just below the 89 reading in April.

The Federal Open Market Committee announces its monetary-policy decision, after raising its short-term interest rate in May to a range of 5% to 5.25%. The likeliest outcome, according to CME Group’s FedWatch tool, is for no change.

The Labor Department releases the producer-price index for May. Economists expect a 0.1% decline in May, compared with a 0.2% increase in April. Core PPI, which excludes food and energy prices, is seen climbing 0.2% in May, in line with April’s increase.

The European Central Bank announces its monetary-policy decision. The ECB is expected to raise its key short-term interest rate by a quarter of a percentage point, from 3.25% to 3.5%.

The Commerce Department reports retail sales for May. Economists expect a 0.1% decline in May after a 0.4% increase in April.

The Labor Department reports initial claims for unemployment benefits, a proxy for layoffs. Economists expect 248,000 first-time claims for the week ended June 10, down from 261,000 in the prior week.

The University of Michigan releases its consumer-sentiment index for June. Economists forecast a 60.8 reading, up from 59.2 in May.

Most of us didn’t know about last week’s National Association of Real Estate Investors conference in Las Vegas and it certainly didn’t get a lot of attention.

There were though some key takeaways from some credible speakers as one ot the topics was the all-important spread between the ten year note and 30yr mortgage rates. Currently at the highest spread I can remember in 25+yrs, the Fed doesn’t have to do much to let that spread normalize other than slow down the rhetoric.

A few bullet points…

  • Economists tell real estate editors to expect some improvement in the housing market in 2024.
  • MBA expects loan rates to average 5.6% by end of 2023.
  • NAR expects rates to average 5.6% in 2024.
  • The historic spread between the 10-year Treasury yield and 30-year mortgage rates should shrink by the end of the year, the Mortgage Bankers Association’s (MBA) deputy chief economist said here Thursday.
  • Joel Kan didn’t offer any prediction about how far the spread would shrivel, or if it would wither at all. But he did tell real estate journalists gathered at their annual conference that “even a 75-basis-point change will have a big impact.”
  • Traditionally, the 10-year Treasury rate is 180 basis points (bps) or so, but of late it has been more than 300 bps.

A snippet from the WSJ on this week’s Fed meeting:

Why the Fed Might Have to Choose Between Fighting Inflation and Averting Financial Instability

Federal Reserve Chair Jerome Powell finds himself in a place no central banker wants to be: working to avert a credit crunch, which calls for looser monetary policy, while fighting high inflation, which demands the opposite. Strains in the banking industry, which followed the collapse of three midsize lenders this spring, help explain why some central bank officials are leaning toward holding interest rates steady at their meeting this week—even though the economy and inflation haven’t slowed as much as they expected.

Current and former central bankers say if financial stresses worsen, the Fed will face a more difficult trade-off. Powell and his colleagues would have to choose between focusing on failing banks or high inflation. The economic expansion, the Fed’s credibility and Powell’s legacy are at stake.

Please remain safe and stay healthy, make today great!