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Very Calm Week For Rates, Despite Hitting New 6 Month Low

While much of this week's news cycle was focused on politics, it was business as usual for the bond market and interest rates. At this time of year, that business often involves a lack of major movement outside the days with the most highly consequential economic data.

To be fair, there were a few economic reports that have at least some track record of inspiring market movement, but they weren't up to the task this week.  The best hope on the data front was Tuesday's Retail Sales report. Although it was in line with expectations overall, one of its closely-watched components (which excludes autos and gas) rose to match the highest level this year.

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In the market's defense, bond yields--a proxy for mortgage rates--moved higher initially, but then proceeded to drop to the week's lowest levels in 4 months by the end of the day.  Rates fell again on Wednesday and then moved gradually higher through the end of the week.

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As interesting as the chart above may look in the short term, it's much less interesting when removed from the microscope.

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A lack of excitement shouldn't be all that surprising, given that we are waiting on final confirmation that inflation has fallen enough for the Fed to cut rates and/or that the labor market isn't mysteriously surging.  Those revelations are most closely linked to economic reports that won't come out for several more weeks as far as the market is concerned.

In the meantime, we have comments from numerous Fed speakers who all offered different versions of the same thought: recent data shows welcome progress on inflation and that means we're getting closer to it being the right time to cut rates.

We can also watch other economic reports that play supporting roles for the headliners due out in early August.  For instance, investors tune into weekly Jobless Claims data to get a sense of how the big monthly jobs report might look.  It's far from a perfect science, but a noticeable shift in the trend is generally worth a market reaction.

With that in mind, one could argue that there's been a recent shift toward higher jobless claim numbers.

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This week's reading was among the highest since last summer in addition to being meaningfully higher than economists' forecasts.  But while the chart above makes it seem like something is changing, the chart below disagrees.  It is the same data.  The only difference is that the chart below is not seasonally adjusted.

20240719 nl4.png

Seasonal adjustments are neither good nor bad.  They usually help smooth out data that would otherwise be harder to interpret. In the case of jobless claims, however, the mid-summer seasonal adjustments are possibly in need of--well--an adjustment.  By looking at the pure, non-adjusted numbers, we can see that 2024's path of jobless claims is right in line with 5 other recent years (2020 and 2021 were thrown out because they'd look completely out of place due to lockdown/pandemic-related distortions).

All that to say that it is not yet a foregone conclusion that the labor market is losing enough steam to suggest the Fed accelerate its rate cut plans.  

While it's not a big market mover, this week also brought data of potential interest to those in the housing/mortgage markets.  Residential Construction numbers were reported for the month of June, showing a slightly higher pace of permitted homes and those entering the construction phase (officially, "housing starts").

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The potentially confusing part of the construction data is that both single and multifamily construction are reported in the headline even though they're often telling different stories.  According to single family starts, construction is beginning to cool after more than a year of solid improvement.  Multifamily starts were at the highest levels in decades at the end of 2022, and have gradually been declining since then. June's improvement is "nice," but still well within the prevailing downtrend.

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For all of the lack of drama in the data and the bond market, it was still a technically interesting week for mortgage rates--not because there was any big improvement from last week--but rather because the modest improvement meant that we technically hit another 6 month low. Rates were lowest on Wednesday afternoon or Thursday morning, depending on the lender, but had risen to the highest levels of the week by Friday.

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Recently Released Economic Data

Time Event Actual Forecast Prior
Monday, Jul 15
8:30 Jul NY Fed Manufacturing -6.60 -6 -6.00
Tuesday, Jul 16
8:30 Jun Retail Sales (%) 0% 0% 0.1%
8:30 Jun Import prices mm (%) 0% 0.2% -0.4%
8:30 Jun Export prices mm (%) -0.5% -0.1% -0.6%
10:00 Jul NAHB housing market indx 42 44 43
Wednesday, Jul 17
7:00 Jul/12 MBA Purchase Index 140.4 144.3
7:00 Jul/12 MBA Refi Index 613.0 532.3
8:30 Jun Housing starts number mm (ml) 1.353M 1.30M 1.277M
8:30 Jun Building permits: number (ml) 1.446M 1.40M 1.399M
9:15 Jun Industrial Production (%) 0.6% 0.3% 0.7%
Thursday, Jul 18
8:30 Jul/13 Jobless Claims (k) 243K 230K 222K
8:30 Jul Philly Fed Business Index 13.9 2.9 1.3
10:00 Jun CB Leading Index MoM (%) -0.2% -0.3% -0.5%
Tuesday, Jul 23
10:00 Jun Existing home sales (ml) 3.89M 4M 4.11M
Wednesday, Jul 24
8:30 Jun Wholesale inventories mm (%) 0.2% 0.5% 0.6%
9:45 Jul S&P Global Manuf. PMI 49.5 51.7 51.6
9:45 Jul S&P Global Services PMI 56 55 55.3
10:00 Jun New Home Sales (ml) 0.617M 0.64M 0.619M

Upcoming Economic Data

Time Event Forecast Prior
Thursday, Jul 25
8:30 Jun Durable goods (%) 0.3% 0.1%
8:30 Q2 GDP (%) 2% 1.4%
8:30 Q2 Core PCE Prices QoQ Final 2.7% 3.7%
8:30 Jul/20 Jobless Claims (k) 238K 243K
Friday, Jul 26
8:30 Jun Core PCE (m/m) (%) 0.1% 0.1%
8:30 Jun Core PCE Inflation (y/y) (%) 2.5% 2.6%
10:00 Jul Consumer Sentiment (ip) 66.5 68.2

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