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MBS Highway Daily Updates 05/04/2023

Current position: Floating Ahead of Tomorrow's Jobs Report

Please take 30 seconds to fill out our May Housing Survey, and feel free to share the link with your Realtors for their input. Take the survey HERE!

Stocks are lower and mortgage bonds are trading near unchanged levels this morning following the Fed's statement and press conference yesterday.

Home Prices are on the Rise Again

Black Knight just reported that home prices rose 0.5% in March, following a 0.4% rise in February. Home prices have clearly reached an inflection point and are back on the rise once again. We are not just getting this data from one source; here is a list of some of the most prominent appreciation reports:

-MBS Highway Survey showed a turnaround in February, based on your input.

-Case - Shiller: + 0.2% in February

-FHFA: + 0.2% in January, + 0.4% in February

-CoreLogic HPI: + 0.8% in February, + 1.6% in March

-Black Knight HPI: + 0.1% in January, + 0.4% in February, + 0.5% in March

-Zillow Home Value Index: + 0.1% in February, + 0.9% in March

Fed Meeting Recap

-Fed hikes 25 bp, unanimous decision

-Determining whether additional firming policy may be appropriate... laid the groundwork for a pause. Powell denied rate cuts this year, but the market does not believe him and is estimating three cuts.

-Job gains are robust, and unemployment is low.

-US banking system is strong and resilient.

It's amazing to see Powell say that banking is strong and resilient. Following the hike, bank stocks moved much lower, as another 25 bp is only going to exacerbate their duration mismatch issues and give people more reason to withdraw their deposits. We now see two other big banks that could be in trouble, including PacWest, which would be the fourth-largest bank failure in history.

Initial Jobless Claims

Initial Jobless Claims, which measure individuals filing for unemployment benefits for the first time, rose 13,000 to 242,000.

Removing some of the noise, the 4-week moving average continues to be around 240,000.

Continuing Claims, or those that continue to receive benefits after their initial claim, fell by 38,000 to 1.805 million.This metric remains at some of the highest levels we have seen in a long time and shows pretty clearly that hiring has slowed as people continue to receive benefits and not find a new job.

US Productivity and Unit Labor Costs

US productivity in Q1 fell 2.7%, which caused unit labor costs to rise 6.3%. This does not help corporate profit margins, and the bond market gave back some of its gains as higher unit labor costs can cause wage pressure and inflation.

Jobs Report Strategy

The Jobs Report has been a tough one to handicap, as it has beaten estimates for most of the last year and has been running much hotter than ADP. But we feel that the risks favor a miss and that tomorrow's report will disappoint. We also believe that wage pressures may ease further and that the unemployment rate will rise from 3.5% to 3.6%. This should be bond-friendly.

Technical Analysis

Mortgage bonds continue to trade above their 200-day moving average after testing it earlier this morning. Bonds have quite a bit of room to the upside until reaching the next ceiling at 101.34.

The 10-year is trading at 3.367%, in a range between support at 3.35% and overhead resistance at 3.43%. There will likely be a lot of volatility tomorrow with the Jobs Report, but we feel the risks favor floating, as we are due for a miss.


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