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MBS Highway - Daily Update 10/5/22

Current position: Locking

Stocks and Bonds are both sharply lower, giving back much of their gains from yesterday. The OPEC + meeting concluded today, where they decided to cut 2M barrels per day, which is roughly 2% of the global daily supply. This is not a good thing for oil prices and inflation and is weighing on the markets today. Oil prices have risen 14% since last week.

ADP released their employment report, which showed that there were 208,000 job creations in the month of September, which was just above expectations. The gains were evenly spread between small, mid - sized, and large businesses. All of the gains were in service-producing sectors, which showed 237,000 job gains, while goods-producing was down 29,000. Last month's figure was revised higher from 132,000 to 185,000.

They also reported that annual pay for job stayers rose from 7.7% year over year in last month's report to 7.8%, while Job changers saw an average increase of 15.7%, down from 16.2%.

This report is independent from the BLS Jobs Report data, which uses a lot of modeling and could be more accurate... but it may not be a good gauge to forecast the BLS Jobs Report data this Friday, which is expecting 250,000 job creations. Last month, ADP was revised to 185,000, while BLS was at 315,000.

The number of job openings in August shrunk by more than 1mm to 10.05mm from a revised 11.17mm in July. The decline is the second sharpest on record, and openings have shrunk four out of the last five months. The level of openings is the least since June 202. Additionally, we feel the level of openings is inflated with work from anywhere in place for many companies. If a company lists a job opening in multiple states, it's likely being double counted.

CoreLogic released their Home Price Index report, showing that home prices declined by 0.7% in August and rose 13.5% year over year, which is a decline from 15.8%. The year over year number is still significant, but we will likely see some vacillation month to month.

CoreLogic forecasts that home prices will remain flat in September and rise 3.2% in the year going forward. This is important - Although we are seeing some negative readings month to month, they still forecast over 3% appreciation nationwide over the next year, which is in line with our expectations.

Remember that 3% appreciation can still be meaningful for wealth creation - If someone bought a $400,000 home, and put 10% down, that means they would gain $12,000 in appreciation over the next year and earn a 30% return on their investment due to leverage.

The MBA released their Mortgage Application data for last week, showing that Purchases fell 13% last week and are down 37% year over year. Interest rates moved higher from 6.52% to 6.75% and are roughly 3.625% higher than this time last year. Refinances decreased by 18% and are down 86% year over year. They still made up 29% of all transactions. A big reason for the decline in applications was the surge in rates last week, as well as hurricane lan. We know that there has been some relief since then, which could cause a spike in applications in the next report.

Mortgage Bonds

Mortgage Bonds are sharply lower after getting rejected from overhead resistance at 98.65. Bonds continue to trade in a very wide range, with support over 70bp beneath present levels. The 10 - year has moved back up to 3.77%, just beneath an important ceiling at 3.78%. With the OPEC news today, and ugly technical picture, begin the day locking.


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