Weak Treasury Auctions set markets back

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Published Date 5/29/2024

The markets got hit hard yesterday on the very weak 2 year and 5 year auctions and a huge increase in May consumer confidence index, expected at 95.3 from 97.5 in April, the index increased to 102.0. The 10 year note rate at its highest levels in a month. This morning the 10 year note began at 4.58% +3 bps and MBS prices started -13 bps lower than yesterday.

Weekly MBA mortgage applications last week declined 5.7% from the prior week that applications were +1.9%; purchase apps -1.1% after falling 1.2% the prior week, re-finance apps declined 13.6% after increasing 7.4% the prior week. Apps the lowest in three months.

Nothing new, Fed officials are saying rate cuts are not going to occur until there is a trend of lower inflation. Inflation has been choppy since the beginning of the year with little or no follow through from month to month. Yesterday Minneapolis Federal Reserve President Neel Kashkari emphasized the need for "many more months" of data showing declining inflation before contemplating rate cuts. He also indicated that he wouldn't rule out additional rate hikes if inflationary pressures resurface. The idea the fed will begin lowering rates has been rattled recently with Fed folks repeating the same comments, no cuts until inflation is seen as trending lower.

On Friday, the Fed’s go to inflation reading, the personal consumption expenditures (PCE); the estimates are not encouraging. Overall PCE month/month expected +0.3% the same as in March, year/year also the same as March at +2.7%; core excluding food and energy month/month 0.2% down from +0.3% but year/year at 2.8% also the same as in March. Estimates are just that, estimates, but if the actual data matches forecasts it doesn’t take away the Fed’s concerns. At 2.8% inflation and no improvement the rate cut outlook will fade further.

At 9:30 am the DJIA opened -374 after declining 217 yesterday, NASDAQ opened -126, S&P -42. 10 year note at 9:30 am 4.58% +3 bps. FNMA 6.0 30 year coupon at 9:30 am -28 bps from yesterday’s close and -67 bps from 9:30 am yesterday; the 6.5 coupon -20 bps and -48 bps from 9:30 am yesterday.

At 10 am the Richmond Fed manufacturing index expected at -6 from -7, reported at 0.

NY Fed President John Williams scheduled to speak at 1:45 pm but not likely to say anything out of the norm from Fed officials recently.

At 2 pm the Fed’s Beige Book, details from all 12 Fed districts, usually doesn’t get much of a response from traders.

Yesterday’s increases drove all our short-term technical indicators into bearish positions. If we are going to see improvement today it will come from a strong $44B 7 year auction at 1 pm.

Source: TBWS

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