Looking at news over time, economic data released over the past month has exceeded expectations of many market participants and last week was no exception when it came to initial jobless claims. It hit a new low since the beginning of the pandemic, and, combined with a record number of job openings, point to a strong April payroll report. New home sales blew away market expectations, increasing over 20 percent as builders report selling out of new communities in days and limiting sales despite increasing materials and labor costs. Leading economic indicators increased 1.3 percent in March as all areas of the economy saw improvement during the month. The ISM manufacturing index increased nicely in March to a 16-year high, and the services index wasn’t far behind at 63.7. The faster than expected rebound in consumer spending has prompted many to increase their forecast for GDP with many economists now expecting greater than 6 percent growth for the year, which would be the highest annual rate in nearly 40 years. Initial worries about runaway inflation have begun to subside as current price pressures are expected to ease later this year as global supply chain bottlenecks improve. Despite all of this there is currently little market expectation that the Fed will deviate from its stated path to continue to support the recovery through the remainder of the year.
Looking at Friday, after Treasury yields surged to start the year due to large fiscal stimulus and a rapid vaccine rollout, the threat of President Biden imposing stricter regulations and higher taxes on the wealthy has seen those yields decline in April. Economic data to close last week added to evidence of a recovery, namely through the release of mostly better than expected Manufacturing and Services PMI surveys from major economies. By the close Friday, Treasury yields had pulled back a basis point while the MBS basis closed wider across the stack. We will have more on new home sales surging 20.7 percent month-over-month in March tomorrow.
This week’s month-end economic calendar sees a pick-up in Fed activity as well as data. Investors will receive updates on durable goods orders, house prices, consumer confidence, the first look at Q1 GDP and the PCE index. The latest two-day FOMC meeting takes place tomorrow and Wednesday. March durable goods orders kicked off the schedule (+.5 percent, ex-transportation +1.6 percent). Later this morning brings April Dallas Fed Texas manufacturing and a Treasury auction of $61 billion 5-year notes. Today’s Desk support is one of the largest on the current schedule at $8 billion over three operations, including two in UMBS30 2 percent and 2.5 percent for $3.3 billion each. The last week of April starts with Agency MBS prices worse/down over .125 and the 10-year yielding 1.59 after closing last week at 1.57 percent.
Market Commentary by Rob Chrisman
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