Ultimately an Uneventful Week Despite Micro-Volatility

Ultimately an Uneventful Week Despite Micro-Volatility

This morning featured an overnight rally driven by weakness in European PMI data and a logical sell-off following much stronger PMI data in the U.S.  Specifically, S&P Global’s Services PMI rose to the highest level in more than 2 years.  This is some of the earliest available data for the month of June and the burden of refutation is on incoming data that is week’s away (for instance, next week’s headline report, PCE, is still for the month of May). Today’s selling never got out of hand, however, and that meant the week as a whole was wholly uneventful in the bigger picture. 

Econ Data / Events

S&P Services PMI

55.1 v s 53.7 f’cast, 54.8 prev

S&P Manufacturing PMI

51.7 vs 51.0 f’cast, 51.3 prev

Existing Home Sales

4.11m vs 4.10m f’cast, 4.14m prev

Leading Economic Indicators

-0.5 vs -0.3 f’cast, -0.6 prev

Market Movement Recap

09:36 AM Moderate overnight gains, following Europe.  10yr down 4bps at 4.22.  MBS up 3 ticks (.09).

10:43 AM Weaker after PMI data with 10yr now up 1.2bps.  MBS down 2 ticks (.06).

12:45 PM Sideways to slightly stronger after AM sell-off.  MBS unchanged.  10yr down 0.3bps at 4.258

04:37 PM Low volatility afternoon.  MBS up 1 tick (.03).  10yr down 0.4bps at 4.256
Source: Mortgage News Daily

June Shaping Up Nicely, But Bigger Tests Are Yet to Come

After a rocky start to the year, things began to improve for rates and the inflation outlook in May. June took the improvement to the next level, but this week didn’t affect the bigger picture. Ahead of Wednesday’s market closure for Juneteenth, the most relevant economic report was Retail Sales on Tuesday morning.  It came in slightly below forecast and the previous month was revised lower.   Rates responded by moving back toward recent lows, but not below them. Some sources suggest mortgage rates are in fact at multi-month lows, but this relies on Freddie Mac’s weekly survey which is notorious for modest inconsistencies with reality due to the timing and methodology of the survey.  In both 10yr Treasury yields and mortgage rates, the reality has been more of a sideways fizzle as opposed to additional improvement. Apart from Retail Sales, Friday’s PMI data from S&P Global caused the most notable market reaction after coming in at the strongest levels in more than 2 years–albeit, just barely. Stronger economic data tends to coincide with rates moving up.  Using 10yr Treasury yields as a convenient intraday benchmark for mortgage rate momentum, we can see the impact relative to Retail Sales earlier in the week.  Neither were remotely on the scale of last week’s CPI data.  Additionally, they each argued opposite cases, thus helping the rate range remain subdued for now. In other words, most of June’s progress was already in place before this week began.  It gets rates within striking distance of a longer term uptrend–one that will be hard to definitively break unless June’s forthcoming economic data paints a picture of economic weakness and lower inflation.  It will be several weeks before most of June’s data starts coming in.
Source: Mortgage News Daily

AI Product; Capital Markets; Wholesale and Correspondent News; Appraisals are Junk Fees?

Don Henley’s “Boys of Summer” was a hit 40 years ago. (Yes, 40 years.) There are plenty of beaches in Hawai’i, but here in Honolulu at the MBAH conference, it’s all business. MBA Chair Mark Jones reminded the audience that President Biden “declared war” on what he called “junk fees.” Sure enough, soon after the State of the Union Address, the CFPB announced that it would soon target what it called “junk fees” in mortgage closing costs. Unfortunately, what the CFPB calls “junk fees” include items required in the lending process, like flood certs, credit reports, appraisals. These help borrowers, investors, and taxpayers. At a recent hearing, House Financial Service Chair Congressman Patrick McHenry said to CFPB Director Chopra that his “so-called independent agency has become an arm of President Biden’s political operation.” To understand that accusation better, check out attorney Brian Levy’s most recent Mortgage Musing, where he describes how CFPB (Consumer Financial Politics Bureau?) appears to be putting politics over effective consumer protection policies with their junk fee, “name and shame” registry, and other policy initiatives. (Today’s podcast is found here after 8:30AM ET and this week’s is sponsored by Quontic whose mission is to help creditworthy borrowers obtain home loans and give them the “yes” they’ve been waiting for. Hear an interview with FundingShield’s Adam Chaudhary on new schemes and threats in the wire and title fraud space, and how both good players and bad players are attempting to use AI to their advantage.)
Source: Mortgage News Daily

Logical Reaction to Much Stronger Services PMI

S&P Global (formerly Markit) PMIs are the standard PMI around the world, but have long been second fiddle to ISM PMIs in the U.S.  That’s certainly still the case, but in this era of ever-increasing data dependence, we’ve seen a drastic change in the market’s willingness to trade the preliminary S&P PMI releases, which are among the earliest economic indicators for any given month (it will be another two weeks before we get ISM PMIs for June). The current installment features a logical reaction, in which the highest Services PMI in more than 2 years is pushing bonds into weaker territory following overnight gains (ironically driven by weaker PMI data in Europe).
Source: Mortgage News Daily

Counterintuitive Weakness Early, But Inconsequential in Bigger Picture

Counterintuitive Weakness Early, But Inconsequential in Bigger Picture

The past two trading days each had their own version of counterintuitive movement.  Today’s installment featured bond yields rising after a batch of mostly weaker economic data.  The only way to justify it using the data itself would be to assume the market’s nearly exclusive focus was on the inflation implications associated with higher Philly Fed prices (a component of the Philly Fed Index). Apart from that, we can consider position-driven trading which may have been behind Tuesday’s gains and now today’s offsetting losses.  Regardless, none of the above matters considering the well-contained size of each move.  Yields remain just shy of recent lows and have been trading a narrow range ever since last week’s rally concluded.

Econ Data / Events

Jobless Claims

238k vs 235k f’cast, 243k prev

Continued Claims

1828k vs 1810k f’cast, 1813k prev

Philly Fed Index

1.3 vs 5.0 f’cast, 4.5 prev

Philly Fed Prices

22.5 vs 18.7 prev

Housing Starts

1.277m vs 1.37m f’cast, 1.352m prev

Market Movement Recap

09:46 AM paradoxically weaker after data.  10yr up 6bps at 4.284.  MBS down 6 ticks

11:39 AM gradually off the lows.  MBS down an eighth and 10yr up 4.5bps at 4.269

02:32 PM A bit more healing in Treasuries with 10yr up 2.6bps at 4.249.  MBS still down almost an eighth.
Source: Mortgage News Daily

Mortgage Rates Unchanged Versus Tuesday's Levels

The bond market was closed on Wednesday for the Juneteenth holiday.  As such, mortgage lenders were either closed or unable to update mortgage rates based on market movement.  Today’s rates are perfectly in line with Tuesday morning’s, on average, even though the bond market is slightly weaker.   Weakness in bonds refers to lower prices and higher yields/rates.  Mortgage rates almost always move with the bond market, but when the movements are small, there can be exceptions.  That’s the case today as the losses leave mortgage-backed bonds right in line with the levels seen on Tuesday morning.  Bonds did move on to stronger levels by Tuesday afternoon, but not to a sufficient extent for most lenders to update their pricing. The net effect is an average top tier conventional 30yr fixed rate that’s still a hair above 7%.  
Source: Mortgage News Daily

Hedging, Wholesale, Correspondent, Compliance Products; Pay Attention to the CFPB

Taylor Swift sang of a “Cruel Summer” and vendors and lenders hope that it isn’t. “If you ever get cold, stand in the corner of a room for a while. They’re normally 90 degrees.” Much of the U.S. is anything but cold. Today, depending on where you are on the globe, is the Summer Solstice, has to do with the tilt of the Earth’s axis and the Tropic of Cancer, an imaginary line circling the globe which marks the most northerly latitude where the sun can be directly overhead. Here in Hawai’i, in terms of daylight, the difference between summer and winter solstices is only about 2 ½ hours (versus 7 ½ hours in Seattle or 6 hours in Boston; nearly 0 at the equator). The U.S. Federal Reserve is not timeless like the seasons, but when it publishes something, people snap to. In this case, “Comparing mortgage rates that borrowers obtain to rates that lenders could offer for the same loan, the authors find that many homeowners significantly overpay for their mortgage, with overpayment varying across borrower types and with market interest rates.” Today’s podcast is found here, and this week’s is sponsored by Quontic whose mission is to help creditworthy borrowers obtain home loans and give them the “yes” they’ve been waiting for. Hear an Interview with Quontic’s James Hooper on innovative mortgage loan programs created to be adaptive to customers’ unique circumstances, reducing paperwork in the process. Software, Products, and Services for Lenders and Brokers
Source: Mortgage News Daily

Housing Permits and Starts Drift Lower

The rate of both construction permitting and residential construction starts fell in May, with permitting losing ground for the third straight month. The U.S. Census Bureau and the Department of Housing and Urban Development report that residential authorizations were issued at a seasonally adjusted annual rate of 1.386 million. This is a decline of 3.8 percent from the 1.440 million units estimated for April and 9.5 percent off the pace of the prior May. Permits for single-family construction were issued at the annual rate of 949,000 and multifamily approvals came in at 382,000. These were decreases of 2.9 percent and 6.1 percent, respectively. Thus, single-family permits increased year-over-year by 3.5 percent, but multifamily permits were 31.4 percent lower. [housingpermitschart] Housing starts fell from 1.352 million in April to 1,277 million, a loss of 5.5 percent . Starts declined 19.3 percent compared to the prior May. Single-family starts fell below 1 million for the first time since October at 982,000. This was a 5.2 percent decline from April and 1.7 percent lower than a year earlier. Multifamily starts, at a rate of 278,000 were down 10.3 and 51.7 percent from the two earlier periods. [housingchartall] Analysts polled by Econoday had expected both permits and starts to rise slightly above their April levels. The consensus forecast for permits was 1.450 million and.1.373 million for starts.
Source: Mortgage News Daily

Position-Driven Trading Likely Behind Today's Paradoxical Weakness

On Tuesday, bonds had an initial, positive reaction to the Retail Sales data that clearly ended mere minutes after the release.  Yields trended slightly higher in a narrow range into 11am at which point new rally momentum emerged, lasting through the close.  It was hard to explain that rally without relying on positional trading considerations. 
Specifically, we suspected traders were closing short positions as liquidity waned ahead of Wednesday’s holiday closure.  When this happens (usually leading into weekends and especially 3.5-day holiday weekends), it’s common to see a push back in the opposite direction on the other side of the holiday.  This morning’s paradoxical weakness fits the bill perfectly, albeit with a bit of extra momentum.
Source: Mortgage News Daily

Purchase Activity Rises, MBA Forecasts More of Same

There was a slight increase in mortgage application volume during the week ended June 14. For a change, it was accounted for by the home purchasing component.   The Mortgage Bankers Association says its Market Composite Index, a measure of loan application volume, increased 0.9 percent on a seasonally adjusted basis although it lost 0.1 percent before adjustment compared with the previous week. The Refinance Index decreased 0.4 percent from the prior week and was 30 percent higher than the same week one year ago. The refinance share of mortgage activity remained unchanged at 35.2 percent of total applications. [refiappschart] Purchase loan applications rose 2.0 percent from one week earlier, its second straight positive performance. The unadjusted Purchase Index decreased 0.1 percent compared with the previous week and was 12 percent lower than the same week one year ago. [purchaseappschart] “Mortgage rates dropped last week following the latest inflation data and the FOMC meeting, with the 30year conforming rate dropping to 6.94 percent and reaching its lowest level since the end of March,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “Purchase applications increased a small amount for the week, led by applications for conventional loans. Refinance application volume was also down slightly for the week but remains about 30 percent higher than this time last year.” 
Source: Mortgage News Daily