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- 🪩 4th of July Week Movement & July Rate Forecasts
🪩 4th of July Week Movement & July Rate Forecasts
Michael DiLucchio
July 08, 2024
Morning! This is MF Lending - the fool-proof way to serve up mortgage and real estate market knowledge without any of the guesswork. So you’ll look like the smartest agent in the room (and you are!)
Here’s what we’ve got for you today:
Positive Movement from 4th of July Week 🎆
Rates in a Paradox: Why we saw negative pressure 🪢
Clips of the Week 🎥
By the way, this article on Fed Coffee Corner: June Meeting is the most clicked link in this newsletter, you should check it out if you are interested.
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[Read Time: 4-5 min]
Rates Today 📉
Positive Movement from 4th of July Week 🎆
Following negative pressure on June 28th and July 1st, we saw consistent positive news in the bond market, all the way through the holiday weekend.
Here are the major data points we got that helped the market:
ISM Manufacturing PMI
JOLTS Jpob Openings
Unemployment Rate
Non-Farm Payrolls
All of these economic data points were positive for rates. They all told the same story - that the economy is slowing down, the jobs market is not as strong, and that we are heading in the right direction.
After all this news, the CME group now shows the likelihood of a September rate cut at 75%.
THIS WEEK
This week we have the Feds favorite measure of inflation: CPI. Thursday, we get the June CPI report to show where inflation is heading. Good news on Thursday could all but solidify a rate cut in September.
Typically on CPI weeks we see volatility on Monday & Tuesday, little to no movement on Wednesday, and movement on CPI day. I’d expect that trend to continue.
Rates in a Paradox: Why we saw negative pressure 🪢
At the start of last week, inflation data was good for rates…yet bonds and rates were rising…this was the paradox we found ourselves in moving into the holiday week.
Forex Live writer Adam Button provided the best hypothesis on what may have been happening in the market. (full article in link). Here are the highlights:
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“US 10-year Treasury yields are now up 21 basis points from the PCE lows and you have to wonder: What would it look like if Friday's inflation data had been bad instead of good?
Yields are now at a one-month high and rising across the curve; which is helping to boost the US dollar.
Why?
Japanese selling
We know that Norinchukin Bank will be selling $63 billion in Treasuries in the year ahead but we don't know what the Ministry of Finance is planning in terms of yen intervention. I've heard arguments on both sides of whether they need to sell Treasuries to boost the yen but it's certainly a risk and something people are talking about with USD/JPY at 38-year highs and a new currency chief installed.
Politics
What's changed since Wednesday when the bond move really accelerated? The main thing may have been the debate. Now plenty of people will argue that debates don't matter but I've never seen this kind of a reaction to a US debate and it fits in perfectly with a Republican sweep.
All the TV talk is always about the Presidency but whether or not it includes a sweep is much more important for financial markets and that will continue to be the case as the House holds the purse strings.
The political argument is the one fixed income analysts at BMO are making:
"The selloff remains a function of the economic implications from a potential Trump victory in November and there isn't anything immediately on the horizon that would suggest one should fade the bear steepener," they write today.
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We don’t know exactly what caused this paradox. The data continues to be good, which is all we can hope for this week.
Clips of the Week 🎥
Thanks for reading - that is all we have for today 😎
Please forward this to your friends and colleagues if you found it valuable.
— Michael F DiLucchio
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