We had a pretty light week of data and the biggest takeaway is that we closed last week with negative momentum for rates, and that momentum really carried the 10 year right up to 3% and that's where the market traded most of the week. The direction of rates, and the U.S. financial markets will be determined by the CPI data. Next week we have the Fed meeting as well, and it looks like we have a 50-bps rate hike for that meeting and the one coming in July. Oil is trading at 121 a barrel today; it seems if oil is this elevated inflation will also stay elevated, which means that rates will follow them in moving higher. Best to be defensive here, market is still very volatile and can move in either direction very quickly.
Initial Jobless Claims
Initial Jobless Claims rose +27k to 229k from a revised 202k in the prior week. The 4-week moving average of headline claims rose +8k to 215k, its highest since the week that ended February 5th. For comparison, the 4-week moving average on headline claims dropped as low as 170.5k back in early April, which was the lowest on record dating back to 1967. Continuing claims, which lag by a week, held steady at 1.306mln, revised from 1.309mln. The last two weeks' readings on continued claims have been the lowest since 1969. Overall, while job markets remain tight, its apparent that most of the top economic concerns right now (inflation, rising interest rates, war in Eastern Europe) are all still causing some stir.
The MBA weekly mortgage application index declined by -6.5% for the week ending June 3rd. It is noted that the week's results do include an adjustment for the Memorial Day holiday. Purchase applications decreased -7.0% and were -21.0% lower than the same week a year ago. Refinance applications fell -6.0% and were -75.0% lower vs. the same week last year. "Weakness in both purchase and refinance applications pushed the market index down to its lowest level in 22 years. The 30-year fixed rate increased to 5.4 percent after three consecutive declines. While rates were still lower than they were four weeks ago, they remain high enough to still suppress refinance activity. Only government refinances saw a slight increase last week," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting. "The purchase market has suffered from persistently low housing inventory and the jump in mortgage rates over the past months. These worsening affordability challenges have been particularly hard on prospective first-time buyers."
The Conference Board's Employment Trends Index, a second-tier report, fell -.7% in May to 119.77 from an upwardly revised 120.6 back in April. According to the Board, "The labor market may have less room for more growth with overall employment down only -.5% compared to the pre-pandemic level. However, leisure and hospitality and in-person services industries have yet to fully recover job losses incurred since the pandemic. Employment growth is still expected in these industries as consumer continue to shift more spending away from goods and toward services." Within the report, half of the eight components made negative contributions, while four made positive prints.