Good Monday AM from your Hometown Lender,
If you are planning to make Nevada your home state and take advantage of among other things, the no state tax benefit, today is your day to close. You need 6 months and 1 day to qualify so hurry…
This is a shortened holiday week with Independence Day coming on Friday and all markets are closed.
Friday’s data (the most important of the month, the Jobs report) is being pushed forward to Thursday. That one report (although there is a slew of data coming out this week) will likely determine whether the Fed cuts at the end of July. The bar for new jobs is very low with expectations only at 129k. That is not a tough number to hit despite the higher unemployment claims over the past few weeks. If you remember last month, we were in the same place with job expectations and the print came in much higher. While I do see the number coming in low, this is not a report to float loans in to.
A very good recap from Rob Chrisman is below.
Broader macro forces are also shaping rate expectations. Easing geopolitical tensions and falling oil prices have reduced inflationary fears, supporting Treasury demand. At the same time, weakening consumer fundamentals (e.g., the lowest personal consumption since Q2 2020 and falling real incomes) point to emerging cracks in the economy. As the Fed maintains a cautious posture, the markets are pricing in only a 20 percent chance of a July rate cut, with most expecting action in September. Upcoming data, including CPI and Q2 GDP, will be important in determining whether rate cuts are delayed further or pulled forward. For now, the market remains balanced between hopes for easing and the need for clearer signals of economic deterioration.
In terms of last week’s data, new home sales fell to a seasonally adjusted annual rate of 623k in May, nearly 14 percent below April’s 722k annual pace. Inventory is currently at 9.8 months, and the median sales price is $426,600, roughly 3 percent above the May 2024 price of $414,300. Rising existing home inventory is slowing price appreciation and putting pressure on new home prices. Consumer spending declined 0.3 percent in May and spending from the third estimate of the first quarter GDP was revised significantly lower. The pullback May in spending suggests consumers were spending cautiously rather than reversing a pre-tariff spending bump from earlier in the year.
Markets this week are focused on Thursday’s June payrolls report, expected to show a modest 129k job gain, as investors weigh the potential for early Fed rate cuts. Even slight surprises in labor data have recently driven sharp moves in yields, with last month’s modest upside surprise triggering a Treasury selloff despite downward revisions. Although softening labor trends, like the highest jobless claims in a survey week since mid-2023, are reinforcing market expectations for weaker data, the ADP report, despite its poor correlation with private payrolls, is anticipated to rebound from last month’s weak print. A combination of a disappointing jobs report and a tame CPI reading could bring rate cuts back into play for July, especially as unemployment has climbed steadily for four months, hitting 4.24 percent in May, with forecasts pointing to another rise in June.
Today’s economic calendar consists of Chicago PMI for June, remarks from Atlanta Fed President Bostic and Chicago Fed President Goolsbee, and Dallas Fed manufacturing for June. Over the remainder of the week ISM manufacturing, construction spending, JOLTS, layoffs and ADP employment, the June jobs report, ISM services, international trade, and factory orders. Markets will get a break from coupon supply, though the Treasury will announce the mini-refunding details on Thursday. Markets are closed on Friday for Independence Day. We begin the week with Agency MBS prices are better than Friday’s close by about .125, the 2-year yielding 3.72, and the 10-year yielding 4.25 after closing last week at 4.29 percent.
