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MBS Highway Daily Updates 04/04/2023

Current position: Floating

Stocks are lower and mortgage bonds are higher to start the day.



CoreLogic HPI

CoreLogic reported that home prices rose 0.8% in February and are now up 4.4% from this time last year, which is down from 5.5% in the previous report.


CoreLogic forecasts that home prices will rise again in March by 0.2% and rise by 3.7% over the next 12 months, which is revised up from 3.1% in the previous report. This is also in line with our estimates for what is in store for appreciation over the next year.

RBA Pauses

The Reserve Bank of Australia left interest rates unchanged at 3.6%, joining the Bank of Canada in calling a timeout.


Governor Lowe said, "The decision to hold interest rates steady this month provides the Board with more time to assess the state of the economy and the outlook in an environment of considerable uncertainty... The Board recognizes that monetary policy operates with a lag and that the full effect of this substantial increase in interest rates is yet to be felt."


We hope the Fed also takes a pause after their latest hike to assess the economic climate.

March Banking Conditions Survey

The Dallas Fed released their March Banking Conditions Survey, showing that loan demand declined for the 5th period in a row, citing worsening business activity. The survey of 71 financial institutions took place between March 21 and 29, a few weeks after SVB went under.

Loan volumes fell, driven largely by a sharp contraction in consumer loans. Loan nonperformance increased slightly overall, with the only notable rise over the past six weeks coming from consumer lending. Credit standards and terms continued to tighten sharply, and marked rises in loan pricing were also noted over the reporting period. Banking outlooks continued to deteriorate, with contacts expecting a contraction in loan demand and business activity and an increase in nonperforming loans over the next six months.

Overall, there is weakening demand for loans, and on the supply side, tighter conditions and higher borrowing rates lead to an obvious further slowing in business activity on top of an already fragile situation. This should lead to slower economic growth, a tighter money supply, lower inflation, and, in turn, lower mortgage rates.


Manufacturing Recession

The ISM Manufacturing Index fell from 47.7 to 46.3 in March, which was well below estimates of 47.5.


Not including COVID, you have to go back to 2009 to see a figure this soft, and we've now seen 5 months in a row of below-50 prints.


New orders at 44.3 are in contraction for the 8th month in the past 9 as companies continue to just work down their backlogs. Employment fell for a 3rd month, dropping by 2.2 points to 46.9, the slowest since September 2019 (not including COVID). Lastly, prices paid fell to below 50 at 49.2, with supplier deliveries also below 50 for a 6th straight month, showing lower inflation.

JOLTS

The Job Openings and Labor Turnover report showed that there were 9.9 million job openings in February, which was well below expectations of 10.4 million and is a 21-month low.


Leisure and Hospitality shed 87k job openings, which had been providing the biggest job gains of approximately 100k jobs per month.

Technical Analysis

Mortgage bonds are once again battling overhead resistance at the 200-day moving average after opening beneath it, following a weaker than expected JOLTS report.


The 10-year has moved beneath the 3.431% Fibonacci level and has a lot of room to run before the next level of resistance at 3.291%. Begin the day floating.


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