Market Matters

This week was light with data, but we had plenty of Fed speakers as the Fed's quiet period begins on Saturday. The message was pretty much across the board that the Fed members are solely focused on inflation, keeping rates higher for longer to combat inflation and get it down to 2%. The market responded and is pricey in a 75-bps rate hike at 90%. We have found a trading range of about 3.20-3.36 on the 10-yr, and are now consolidating in that short term range, although if you look at a chart of the 10-yr, we are in an up-trend start on August 2nd. The increase in rates seems a bit overdone but we haven't broken this trend yet so best to be careful, especially in front of CPI data that we get next Tuesday.

 

Initial Jobless Claims

Initial Jobless Claims fell by -6k to 222k for the week ended September 3rd vs. the prior week's downwardly revised print at 228k (orig. 232k). The 4-week moving average of claims is now at 233k, a moderate decline from 240.5k in the prior week. Continuing claims, which lag a week, rose +36k to 1.473mln from a downwardly revised 1.437mln (orig. 1.438mln). This is now the highest count for continuing claims since the week of April 2nd.

 

ISM Services Index

ISM Services Index came in for August at a level of 56.9, beating the market expectations of 55.3. The index rose from 56.7 in July to 56.9, hitting its highest level since April. Employment, new orders, business activity and inventories all improved. Supplier deliveries fell a bit, which is indicative of declining delivery times and marginal improvement in supply chain bottlenecks. Overall, there is still very strong demand for services and continued difficulty in meeting all of that demand.

 

Mortgage Applications

The MBA weekly mortgage applications index declined by -.8% for the week ending September 2nd. Purchase applications fell -.7% and were -23.0% lower than the same week last year. Refinance applications decreased by -1.1% and were -83.0% lower vs. the same week a year ago. "Mortgage rates moved higher over the course of last week as markets continued to re-assess the prospects for the economy and the path of monetary policy, with expectations for short-term rates to move and stay higher for longer," said Mike Fratantoni, MBA Senior Vice President and Chief Economist. "With the 30-year fixed rate rising to the highest level since mid-June, application volumes for both purchase and refinance loans dropped. Recent economic data will likely prevent any significant decline in mortgage rates in the near term, but the strong job market depicted in the August data should support housing demand. There is no sign of a rebound in purchase applications yet, but the robust job market and an increase in housing inventories should lead to an eventual increase in purchase activity."

 

Trade Deficit

The international trade deficit was reported at $70.7bln in July, right in-line with expectations at $70.3bln, while the prior month's read was upwardly revised from $79.6bln to $80.9bln. July's print is now the smallest deficit since last October, as a strengthening dollar, soft consumer sentiment, and lower fuel prices have had strong impacts. Within the report, exports rose +.2% to another record high, while imports fell -2.9% on the month to their lowest since February. The goods deficit fell -8.2%, while the services surplus rose +11.2%.