Morning Report: Fed Day

Vital Statistics:

 LastChange
S&P futures4,1789.25
Oil (WTI)106.94.59
10 year government bond yield 2.99%
30 year fixed rate mortgage 5.52%

Stocks are higher this morning as we await the FOMC decision. Bonds and MBS are flat.

The FOMC decision is due at 2:00 pm, so be careful locking around then. TBA bid / ask spreads are a little narrower today, but the market is skittish about the Fed’s plans for its holdings of mortgage backed securities.

The economy added 247,000 jobs in April, according to the ADP Employment Report. Small businesses lost 120,000 jobs while large businesses gained 321,000 jobs. ADP attributed the skew to the inability of small businesses to compete with big business for workers. Leisure and hospitality added the most employees, but education / health and professional / business services increased as well.

The Street is looking for 400,000 new jobs in Friday’s jobs report, so this was a bit of a miss. This report was the lowest reading over the past year. The report says this is due to the tight labor market and the shortage of workers overall. The demand is there, but the supply is not.

Mortgage Applications increased 2.5% last week as purchases rose 4% and refinances rose 0.2%. “Treasury yields eased slightly last week but remained close to 2018 highs, as financial markets await the news from the Federal Reserve on its latest plans for rate hikes and reducing its balance sheet holdings,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “Purchase applications increased for conventional, FHA, and VA loans and were up 4 percent overall,” he said. “This is potentially a good sign for the spring home buying season, which has seen a slow start thus far. The purchase market remains challenged by low levels of housing inventory and rapid home-price gains, as well as the affordability hit from higher mortgage rates that are forcing prospective buyers to factor in higher monthly payments.”

New Rez reported better-than-expected earnings for the first quarter, driven by a markup of its servicing portfolio. Book value per share rose 10%, which was a bright spot compared to some of the mortgage REITs like Annaly and AGNC Investment, which saw mid-teen % declines in book value per share.

The services economy expanded in April, but is decelerating according to the ISM Services Index. “The Prices Index reached an all-time high of 84.6 percent, up 0.8 percentage point from the March figure of 83.8 percent and surpassing the previous record of 83.9 percent in December 2021. Services businesses are continuing to replenish inventories, as the Inventories Index expanded for a third straight month; the reading of 52.3 percent is up 0.6 percentage point from March’s figure of 51.7 percent. The Inventory Sentiment Index (46.7 percent, up 6.5 percentage points from March’s reading of 40.2 percent) contracted in April for the second consecutive month, indicating that inventories are in ‘too low’ territory and insufficient for current business requirements.”

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