Slow Start for Rates Gives Way to Volatility With More to Come Next Week

The week began with a distinct absence of interest rate volatility, but things changed in a big way by Friday--at least compared to the previous week which was exceptionally quiet. 

20240628 NL6.png

In the bigger picture, however, it was just another week that felt volatility in the short term due to a surprising rate spike on Friday.

20250628 nl8.png

Incidentally, the fact that this week's rate spike occurred at the end of the week means that Freddie Mac's weekly mortgage rate index missed detecting the shift.  More timely daily data shows average mortgage rates trending slightly higher this week as opposed to lower.

20240628 Nl7.png

The most eagerly anticipated data was the PCE price index for May.  This is a similar measure of inflation to CPI (the Consumer Price Index) that came out 2 weeks ago.  Core PCE, which excludes more volatile food and energy prices, was even more favorable for the inflation outlook.

20240628 NL4.png

The chart above may make it seem that inflation has returned to the target level, but success is measured by the year over year numbers hitting 2%.  The Fed has indicated it would consider rate cuts when it was more confident about hitting 2%.  We're definitely not there yet, but arguably getting closer.

20240628 nl5.png

Friday afternoon saw an abrupt reversal in rates tied to the compulsory trading that often creates volatility at the end of a month/quarter (Friday was both).  There is no rhyme or reason to month-end trading when it comes to a typical impact.  In other words, it can be good or bad for rates.  We don't get to know ahead of time.  This time it was bad.

Some rate watchers entertained the notion that the presidential debate had an impact, but while that may have contributed to market volatility, the timing of the volume and volatility makes a strong case for month/quarter-end trading.  Simply put, if the debate were the x factor, we would not have expected the market to wait until the times of day typically associated with month-end trading to make the biggest trades. 

Up until Friday, we didn't see any notable reactions to economic reports or scheduled events.  There was a smattering of housing-related data with limited conclusions to be drawn.  Sales of existing homes are still in the historical basement according to the Pending Home Sales Index.

20240628 NL1.png

Sales of new homes are also near their recent lows, but remain much higher relative to pre-pandemic levels.  

20240628 NL3.png

Home price indices were updated for Case Shiller and FHFA.  Unlike the sales data above, which is for the month of May, price indices run a month behind (i.e. this is only through April).  Current annual appreciation is still historically high, but increasingly looks like it may have leveled off.

20240628 NL2.png

Looking ahead, next week brings just as much potential volatility--if not more--due to the release of several top tier economic reports.  Of those, Friday's big jobs report has the most power to send rates higher or lower.  Timing could add to the drama this time as markets are closed on Thursday for the 4th of July.

Recently Released Economic Data

Time Event Actual Forecast Prior
Tuesday, Jun 25
9:00 Apr Case Shiller Home Prices-20 y/y (% ) 7.2% 6.9% 7.5%
9:00 Apr FHFA Home Prices y/y (%) 6.3% 6.7%
Wednesday, Jun 26
7:00 Jun/21 MBA Purchase Index 147.8 146.0
7:00 Jun/21 MBA Refi Index 552.4 552.7
10:00 May New Home Sales (ml) 0.619M 0.64M 0.634M
Thursday, Jun 27
8:30 Jun/22 Jobless Claims (k) 233K 236K 238K
8:30 Jun/15 Continued Claims (ml) 1839K 1820K 1828K
8:30 May Durable goods (%) 0.1% -0.1% 0.7%
8:30 Q1 GDP (%) 1.4% 1.4% 3.4%
10:00 May Pending Home Sales (%) -2.1% 2.5% -7.7%
Friday, Jun 28
8:30 May Core PCE Inflation (y/y) (%) 2.6% 2.6% 2.8%
8:30 May Core PCE (m/m) (%) 0.1% 0.1% 0.2%
9:45 Jun Chicago PMI 47.4 40 35.4
10:00 Jun Consumer Sentiment (ip) 68.2 65.8 69.1
Monday, Jul 01
10:00 Jun ISM Manufacturing PMI 48.5 49.1 48.7
10:00 Jun ISM Mfg Prices Paid 52.1 55.9 57.0
Tuesday, Jul 02
9:30 Fed Chair Powell Speech
10:00 May USA JOLTS Job Openings 8.14M 7.91M 8.059M
Wednesday, Jul 03
8:15 Jun ADP jobs (k) 150K 160K 152K
8:30 Jun/29 Jobless Claims (k) 238K 235K 233K
10:00 May Factory orders mm (%) -0.5% 0.2% 0.7%
10:00 Jun ISM Services Prices 56.3 56.7 58.1
10:00 Jun ISM N-Mfg PMI 48.8 52.5 53.8
14:00 FOMC Minutes
Friday, Jul 05
8:30 Jun Average earnings mm (%) 0.3% 0.3% 0.4%
8:30 Jun Unemployment rate mm (%) 4.1% 4% 4%
8:30 Jun Non Farm Payrolls 206K 190K 272K

Event Importance:
No Stars = Insignificant   |   Low   |   Moderate   |   Important   |   Very Important