As I have mentioned repeatedly (too many times to link), the roller coaster ride of mortgage rates will get pretty wild this week with a slew of news coming through and today is the beginning.
This morning’s ADP report came in strong and that may weigh on the Fed decision later today as they certainly have to be wondering if another rate cut is a smart move, especially after being a little embarrassed last week with an emergency cut to minimize a financial meltdown created by a "rogue trader".
Why? The ADP, while not a very accurate predictor, is a good gauge as to how the Jobs Jamboree this Friday will turn out. As strong as it was, the jobs news is expected to beat expectations now and that spells bad news for mortgage rates.
The good news in that report is that it is time for the Fed to rethink their decision due out this afternoon. They may very well decide not to cut rates or only cut 25bp on the heels of the ADP report. That would be good for bonds as it will likely destroy the stock market like last month.
Tomorrow continues the ride with the release of the Personal Consumption Expenditures Index (PCE). Since this is the Fed’s favorite gauge of inflation, and since it has been ticking higher lately, it will likely move the markets with its release. It may also leave the Fed embarrassed again. Remember that they said inflation would remain a non-issue so long as the public kept faith in them and that faith is dwindling.
Then, of course, is the Friday Jobs Jamboree, where a whole plague of data will hit the airwaves showing what’s happening on the job front and, more importantly, the concerns surrounding wage-based inflation.
As you can see, make sure your seatbelts are fastened because this ride could be a rough one, or even a freefall for mortgage bonds. See you on the other side!
The ADP report has given huge overestimates over recent months which leave a 48K average miss over just the last 3 months. The Fed made it .50%, more to come for sure. Mortgage rates already had the .50% built in.
Onward…
Unfortuantly rates have already got this priced in. Many times they go up when the feds reduce rates at least in the short term. For more updates see
http://www.onlinefhaservices.com
It isn’t about just the ADP report folks. Yes, the ADP is not accurate which I stated, but combine it with lower than expected jobless claims and it paints a pciture contradictory to what traders may be expecting.
The markets had factored in a 50bp cut, with some starting to back away from that recently. My point was that if the Fed didn’t cut 50bp, the stock market would have tumbled like it did last month when the Fed’s didn’t cut as much as they wanted. The Fed appealed to the markets today, and bonds are down.
Next comes inflation and Jobs (which is speculative as well). PCE hits the airwaves tomorrow and that could very well show inflation higher than the Fed normally likes, possibly even ticking higher than last month.
Yes, the Fed will likely go for further cuts in the future, but alas, there is now dissention among there ranks as Fisher voted for no change at all and I think he is on the correct path right now.
Enjoy your posts Robert, we work the same market and I appreciate your insightful opinion. Discussing topics on this forum always proves interesting. You see rates this afternoon? I got notices worsening and then giving back what they took. It is insanity and we might as well enjoy ourselves while the market place plays Sybil.
Onward…
Thanks Howard. I didn’t realize you worked the same territory until you mentioned it, I will check out your site more later. If your down my way, maybe when can grab a cup of coffee sometime. Until then, let the madness continue…
It isn't about just the ADP report folks. Yes, the ADP is not accurate which I stated, but combine it with lower than expected jobless claims and it paints a pciture contradictory to what traders may be expecting.
The markets had factored in a 50bp cut, with some starting to back away from that recently. My point was that if the Fed didn't cut 50bp, the stock market would have tumbled like it did last month when the Fed's didn't cut as much as they wanted. The Fed appealed to the markets today, and bonds are down.
Next comes inflation and Jobs (which is speculative as well). PCE hits the airwaves tomorrow and that could very well show inflation higher than the Fed normally likes, possibly even ticking higher than last month.
Yes, the Fed will likely go for further cuts in the future, but alas, there is now dissention among there ranks as Fisher voted for no change at all and I think he is on the correct path right now.