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Decent Recovery After Friday's PCE Numbers Clarify Thursday's PCE Numbers
Decent Recovery After Friday's PCE Numbers Clarify Thursday's PCE Numbers Thursday's quarterly PCE numbers were much higher than expected. That meant an increased risk that Friday's monthly numbers would follow suit. While today's PCE was higher than expected in places, the important month-over-month core PCE was in line with expectations (but only because last month was revised higher). In short, inflation is still higher than the Fed wants it and higher than the market expected, but not quite as high as yesterday's report suggested--at least not for the month of March (Jan and Feb, however, were even higher than the market previously traded). There was a moderately good rally after the data and then a sideways grind in the PM hours with yields remaining higher than they were before all this fun began on Thursday morning. Econ Data / Events Monthly Core PCE 0.3 vs 0.3 f'cast, 0.3 prev Annual Core PCE 2.8 vs 2.6 f'cast, 2.8 prev Market Movement Recap 09:00 AM A hair stronger overnight with additional gains after PCE data. MBS up 6 ticks (.19) and 10yr down 4.5bps at 4.66. 11:08 AM Best levels of the day. MBS up 9 ticks (.28) and 10yr down 4.1bps at 4.662. 01:53 PM Off the best levels, but very calm trading. MBS up a quarter point. 10yr down 3.1bps at 4.673 05:16 PM Out like a sideways little lamb. MBS up 10 ticks (.31). 10yr down 3.9 bps at 4.665Source: Mortgage News Daily | 26 Apr 2024 | 9:21 pm
Deep Dive on Thursday and Friday's PCE Discrepancy and Market Reaction
WARNING: once you get past the 1st paragraph here, things start to get a bit "mathy" and esoteric. The takeaway is that there's an actual way to reconcile today's 0.3 vs 0.3 monthly core PCE result against yesterday's 3.7 vs 3.4 annual result. Yesterday's GDP data included the Core PCE Price Index, which came in at 3.7% vs 3.4% forecast. It suggested that today's Core PCE Price Index reported in the Incomes/Outlays report would also be higher than forecast since it comes from the exact same underlying data. Surprisingly enough, the monthly change in March was right in line with the 0.3% expectation (.317% before rounding). This came down to a few issues with the most important change being upward revisions to January and February. Those accounted for most of yesterday's big beat. Today's new number for March also contributed but that's not reflected in the monthly headline due to rounding. It may seem like a big discrepancy given between forecasts and reality, but that is due to Q1's numbers being annualized to get the year over year number (3.7%) as opposed to simply looking at March 2024 vs March 2023 (2.8%). In other words, the core PCE price index for Jan-Mar is used to calculate a percent change from Oct-Dec 2023. That change is then annualized (multiplied by 4). So if Q4 was on the soft side and Q1 saw some acceleration, it makes for a bigger number than the actual year-over-year change. We now know the actual year over year change due to today's monthly release (the 2.8 vs 3.7 thing in the past paragraph). As for the size of the beat in yesterday's numbers, here's how it probably went down: Forecasters are trying to guess a number that would be just a bit higher than 121.165, which was February's core PCE index. They would then add that to Feb and Jan to get a quarterly total and multiply by 4 (annualize the quarter) to get Thursday's PCE forecast of 3.4%. Here's the data they knew before yesterday: If one were to take an average of the last 4 increases in line 6, it would be .2875. Let's add that to February to arrive at 121.4525. Now we take our hypothetical March number and add that to the rest of Q1 to arrive at 363.4665. We can divide that by the sum of Oct/Nov/Dec 2023, which is 360.442. The answer is ultimately a forecast of 3.35643%, which rounds up nicely to yesterday's 3.4% forecast. Boom, now you're an economist. Congrats. Now here's the issue. Not only was March's actual number higher than expected, but Jan and Feb were both revised up. The new Q1 total is 363.755. If we calculate the percent change versus the same Q4 of 360.442, we do indeed arrive at number that rounds up to yesterday's 3.7% shocker (3.67659706693449, if you must know). So how was today's monthly number of 0.3% an accurate forecast? This is partly due to February's upward revision and partly to the fact that 0.3167 rounds down to 0.3%. In reconciling the importance of annualizing shorter-term numbers and rounding issues, consider an example of two different 0.3% monthly readings where one comes from an unrounded number of 0.251 and another from 0.349. One of those adds up to 3% annual inflation and the other to 4.2%, but both would be reported as 0.3% month over month. Long story short, all the math works out and the forecasts even make sense between Thursday and Friday. The only new information (apart from March's PCE numbers, which were completely unknown), was the revision to the previous 2 months. It is true that traders were smart to expect a worse number on Friday based on the quarterly surge, but if they had known that Jan/Feb would both be revised up as much, they may not have been as panicked yesterday. This doesn't mean we just got good news on inflation, only that reality is not quite as scary as yesterday made it seem. Trading levels reflect this as MBS and Treasuries are still a hair weaker than they were before yesterday's data, but much stronger versus yesterday's close.Source: Mortgage News Daily | 26 Apr 2024 | 4:25 pm
Servicing, MISMO Consulting Products; STRATMOR and Decisioning; UWM and UMortgage; California on DU and LP
There seems to be a bit of a baby boom going on out there. Prospective home buyers who need a place for a growing family quickly find out that residential lending isn’t without its share of tears. Next time you’re dealing with an upset borrower or loan officer, here’s something you can try. “We are committed to solving the rental crisis in Australia. By providing high quality prefabricated homes, available for immediate hire or purchase, we fight the rental crisis one portable cabin at a time!” But combined, Australia and New Zealand’s population is only 31 million, about the same as Texas. In the States, Utah Gov. Spencer Cox and Lt. Gov. Deidre Henderson shared their goal of building 35,000 new starter homes by 2028. It seems that every house I see being constructed uses 2x4’s and the same materials I used when doing that in summer jobs. But here’s something: The world’s biggest 3D printer can a make a house in under 80 hours! Perhaps builders will take note. (Found here, this week’s podcasts are sponsored by Calque. With The Trade-In Mortgage powered by Calque, homeowners can buy before they sell, make non-contingent offers, and tap their home equity to fund the down payment on their next home.) Lender and Broker Products, Software, and Services Rocket Pro TPO helps its partners be stronger purchase pros. Its range of affordable products, including Purchase Plus, empowers brokers to find new opportunities. Purchase Plus helps expand reach to assist first-time homebuyers in underserved communities by offering credits towards their down payment or closing costs. With Rocket’s Product Compare tool, brokers can efficiently navigate all their affordable product options to identify the ideal fit for their clients. This level of service builds trust between brokers and their clients, reinforcing their expertise as Purchase Pros. Want to see it in action? Catch the demo in Rocket Pro TPO’s IGNITE Live replay. Rocket shares this and other innovative solutions to help brokers make the most of this purchase season. For more information, contact Rocket Pro TPO today!Source: Mortgage News Daily | 26 Apr 2024 | 3:52 pm
Bonds Rattled By Surprisingly Big Beat in Spending Data
Bonds Rattled By Surprisingly Big Beat in Spending Data Today's big surprise was the PCE price index component of Q1 GDP. GDP itself was weaker than expected, but even that was explained away by components not related to private domestic consumption. Focusing on the latter makes Q1 look just as strong as any of the past few quarters. PCE did the most damage for two reasons. It was MUCH higher than expected (3.7 vs 3.4) and that implies tomorrow's PCE data (a monthly version of today's quarterly report) is also at risk of coming in higher than expected. This "sneak peek" effect is only a concern once per quarter with the "advance" release of GDP. Econ Data / Events Jobless Claims 207k vs 214k f'cast, 212k prev Continued Claims 1781k s 1814k f'cast GDP 1.6 vs 2.5 f'cast, 3.4 prev Q1 PCE Prices 3.7 vs 3.4 f'cast Wholesale Inventories -0.4 v s +0.2 f'cast Market Movement Recap 08:41 AM Bonds losing ground quickly after 8:30am data. MBS down a quarter point. 10yr up almost 5bps at 4.691. 11:07 AM Weakest levels at 9:30am and pushing back slightly since then. 10yr up 6.4bps at 4.706. MBS down 10 ticks (.31). 01:28 PM No reaction to 7yr Treasury auction. 10yr up 6.1bps at 4.703. MBS down 11 ticks (.34) 03:35 PM Increasingly flat at the same old levels. 10yr up 6bps at 4.702 and MBS down 10 ticks (.31).Source: Mortgage News Daily | 25 Apr 2024 | 8:01 pm
Mortgage Rates Jump Up And Over 7.5% After Inflation Surprise
Interest rates care about quite a few different things, but inflation and Fed policy are two of the biggest considerations. One of the Fed's favorite ways to track progress on inflation is the PCE price index which comes out every month, but also every quarter. Oddly enough, the quarterly comes out a day before the monthly data on the 4 days of the year where a new quarter is reported. Today was one of those days and the quarterly data showed a big surge in inflation. The implication is that there's a much bigger risk that tomorrow's monthly inflation number also proves to be higher than expected. Bonds/rates don't like inflation to begin with, but it's even more problematic when it has a direct bearing on Fed policy decisions. This particular news is seen as pushing the Fed even farther into the future for its first rate cut of this cycle. In other words, both the data, and the Fed implications were bad news for rates today. The average lender jumped immediately higher by roughly an eighth of a point. This brings the top tier conventional 30yr rate index over 7.5% for the first time since November 13th. Tomorrow could add insult to injury, but it's also worth noting that markets are expecting worse news now, so if it's only a little worse, the injury might not be that bad.Source: Mortgage News Daily | 25 Apr 2024 | 7:50 pm
Electronic Bidding, MORA, Processing, Marketing Tools; CFPB and Servicing Fees, Mortgage Fraud Case
I travel a little bit, so it was with great interest that I read, “The Department of Transportation… will soon require airlines to quickly refund passengers if they cancel, delay, or make significant changes to flights.” “A book hit my head, and I have only my shelf to blame.” Odd things happen all the time. Someone puts their cup on the ground, leans over to pick it up, and hits their head on the counter and gets a concussion. If I was rich, I’d have someone pick it up for me. What does $65 million get you near Miami? Rob Branthover points out that the three lots are owned by Patrick Markert, of AmeriSave fame. Who’s gonna buy it? Men and women cite different challenges when purchasing a home. 55 percent of females said their biggest challenge when buying a home as a single individual was finding a home in their price range, but 51 percent of males said that their biggest challenge was saving up for a downpayment. There are some similarities. Over half of respondents believe the idea of waiting for a significant other to buy a home is outdated. And two-thirds of single homebuyers did not have financial assistance from family or friends with a downpayment for their home. (Found here, this week’s podcasts are sponsored by Calque. With The Trade-In Mortgage powered by Calque, homeowners can buy before they sell, make non-contingent offers, and tap their home equity to fund the down payment on their next home. Today’s has excerpt from yesterday’s Mortgage Matters show with Sterling Point Advisors Jeff Juliane and Brett Ludden on the M&A space and how to value mortgage companies.)Source: Mortgage News Daily | 25 Apr 2024 | 3:40 pm
Quarterly PCE Data Causing Concern Over Tomorrow's Monthly Numbers
It's a bit of a tricky morning in the bond market when it comes to reconciling the data with the market movement. At face value the headlines make a better case for lower rates with GDP at 1.6 vs 2.5, wholesale inventories missing big and Jobless Claims not too far from forecast. But the devil is in the details--specifically, the details inside the quarterly GDP data. GDP will be reported 3 times for Q1. Today was the first of those and as such, the PCE price data component offers a bit of a sneak peek at tomorrow's PCE inflation data. GDP is not a hugely important report, but PCE inflation is. With all that in mind, the PCE component in today's data was 3.7 vs 3.4. In a world where a 0.1 beat/miss can cause massive volatility for the bond market, that's a huge beat. Bonds will likely be feeling extra defensive until and unless tomorrow's Core PCE number tells a slightly less dramatic story. Stocks haven't loved the data either, due to the implications for the Fed's rate outlook. The following isn't the pattern normally associated with stocks and bonds, but it is prevalent at times when the market is actively refining its outlook for the Fed Funds Rate. In the slightly bigger picture, this morning's weakness constitutes the first significant break above the 4.65 level and it breathes a bit more life into the uptrend that had dominated the month of April (the one that looked to be defeated by the 4.65 ceiling.Source: Mortgage News Daily | 25 Apr 2024 | 3:37 pm
Uneventfully Weaker Regardless of Durable Goods Data
Uneventfully Weaker Regardless of Durable Goods Data Bonds were weaker in the overnight session on a combination of anxiety over potential sales of US Treasuries in Japan and European economic data. The domestic session brought actual selling of US Treasuries in the form of the 5yr Treasury auction, but the market already knew about that one. The auction was reasonably well received and had no impact on trading levels. Earlier in the morning, Durable Goods came out right in line with expectations and also had essentially no impact. Overnight weakness was maintained throughout the day with most of the momentum being sideways near recent highs yields. Econ Data / Events Durable Goods 2.6 vs 2.5 f'cast last month revised from 1.3 to 0.7 Durables, excluding defense and aircraft 0.2 vs 0.2 f'cast last month revised from 0.7 to 0.4 Market Movement Recap 09:06 AM Weaker overnight and little-changed after AM econ data. 10yr yield up 4.1bps at 4.644. MBS down 6 ticks (.19). 10:51 AM Weakest levels. MBS down 7 ticks (.22) and 10yr up 5.6bps at 4.657 01:04 PM Boring 5yr auction. No major reaction. MBS down 5 ticks (.16). 10yr up 4.8bps at 4.649. 03:55 PM Roughly unchanged from the last update and mostly flat since the late AM hours.Source: Mortgage News Daily | 24 Apr 2024 | 8:43 pm
Mortgage Rates Pleasantly Stable Despite Some Bond Market Weakness
The average mortgage lender was able to offer conventional 30yr fixed rates that were very close to yesterday's levels despite bond market movement that suggested a bigger spike. In a vast majority of cases, if the bond market is in weaker territory compared to the previous day, rates will be higher in proportion to that weakness. In today's case, rates moved higher by an arguably insignificant 0.01% on average. Bonds suggested the increase should be more like 0.03-0.05%. Lenders were able to hold the line due to the timing of yesterday's bond market improvement and the fact that it was not fully priced in to rate offerings. In other words, if mortgage lenders were painters, they got a delivery of some nice new paint yesterday but didn't have time or inclination to get it all on the canvas. Now today, some of that paint has gone missing, thus leaving the big picture to look almost exactly like yesterday's.Source: Mortgage News Daily | 24 Apr 2024 | 8:10 pm