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MBS Highway Daily Updates 11/30/2022

Current position: Carefully Floating


Stocks are mixed and Mortgage Bonds are lower to start the day.

Later this afternoon at 1:30 pm ET Fed Chair Jerome Powell will be speaking, which could shake up the markets. We will update you with any noteworthy comments in the Market News section of the website, as well as the Market Wrap.


ADP Employment Report

ADP released their employment report, showing that there were 127,000 job creations in the month of November, which was weaker than the 200,000 expected and almost half the creations seen in October. This is the slowest pace of job creation since January of 202. Declines were seen in some of the more interest rate-sensitive sectors like construction and manufacturing, while leisure & hospitality and healthcare were bright spots.


ADP also reported that annual pay for job stayers increased 7.6% year over year, while job changers saw an average increase of 15.1%. Both of these figures fell on tenth from the previous report, but remain very strong.


Nela Richardson, Chief Economist for ADP, said, "Turning points can be hard to capture in the labor market, but our data suggest that Federal Reserve tightening is having an impact on job creation and pay gains. In addition, companies are no longer in hyper-replacement mode. Fewer people are quitting, and the post-pandemic recovery is stabilizing." It's likely we will see a weaker BLS Jobs Report on Friday and we would not be surprised to see the unemployment rate tick up from 3.7% to 3.8%.


Job openings continue to decline as well and have moved from 10.7M in September to 10.3M in October.


Pending Home Sales

Pending Home Sales, which measures signed contracts on existing homes, fell 4.6% in October, which was in line with estimates. There was a positive revision to the September reading, and when factoring this in and looking at the change from the originally reported figure, sales are really only down 3%. Sales are now down 37% year over year. This factors in the peak in interest rates, and we believe the figures could get better from here as we have seen rates come down over 0.5% since then and anticipate them to continue lower.

Lawrence Yun, the NAR Chief Economist, said that he believes we should start to see buyers' return and activity increase, echoing our thoughts.


And we have already started to see activity return in purchase applications, as they have increased the last four weeks in a row... more on that below.



Mortgage Applications

The MBA released their Mortgage Application data for last week, showing purchases rose 4% last week, and are down 41% year over year. Interest rates declined from 6.67% to 6.49% week over week. Last year at this time, rates were roughly 3.31%, which means rates are between 3.125% and 3.25% higher today. Refinances fell 13% last week and are down 86% year over year. It's important to note that this is for last week, which was Thanksgiving, and the figures are most likely distorted. Additionally, many probably delayed signing contracts until this week. This means the next report we get could reflect more strength, especially with respect to refinances.


Q3 GDP

The Preliminary, or second reading of Q3 GDP, showed that the US economy grew by 2.9%. This was better than the 2.7% expected and follows two consecutive negative readings in Q1 and Q2. It's important to remember that this is the second of three readings, and there can be significant revisions. There is an inflation component within GDP, but it's old data looking quarter over quarter. This was elevated, as the inflation readings were high over the third quarter, and pressured Bonds. But remember, we saw inflation in the CPI report make a nice move lower in the month of October, and we think that tomorrow's PCE will show a better-than-expected decline. Another reason for this is that CPI moved low, but has a big weighting towards Shelter, which is lagging. But PCE has a much lower weighting towards shelter, so there is less potential upside pressure.


Technical Analysis

Mortgage bonds closed directly on support at the important 100.534 Fibonacci level. They are breaking beneath that level this morning, but are off their worst levels. The 10 - year Treasury is little changed at 3.75%, unable to break beneath support at 3.67%. We anticipate this to be a friendly Bond week, with a lower PCE inflation reading tomorrow and weaker BLS Jobs Report on Friday. Because of this, we will remain patient, even if things get slightly worse, and continue carefully floating.


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