10-Year Treasury Yield
The 10-year Treasury rose to its highest level since May 2019 on Tuesday as investors weighed remarks from Federal Reserve Governor Lael Brainard, which indicated an aggressive approach to shrinking the central bank’s balance sheet. The 10-year Treasury note yield hit a high of 2.562% before settling at 2.55%. The move put the benchmark rate well above its 2-year counterpart, which traded around 2.528%. The 2-year had recently been trading above the 10-year triggering a so-called yield curve inversion. The yield on the 5-year U.S. government bond moved about 15 basis points higher to 2.7% and the 30-year Treasury yield rose to 2.592%, adding almost 12 basis points. .Yields move inversely to prices and 1 basis point is equal to 0.01%.
The average rate on the popular 30-year fixed mortgage just crossed 5%, now standing at 5.02%, according to Mortgage News Daily. This is the first time it has crossed that threshold since 2011, save two days in 2018. It stood at 3.38% one year ago today. Mortgage rates, which follow loosely the yield on the U.S. 10-year Treasury, have been climbing since the start of the year, partially due to the Federal Reserve’s policies to curb inflation as well as the global economic turmoil resulting from the Russian invasion of Ukraine
Factory Orders
U.S. factory orders fell for the first time in 10 months. Orders for manufactured goods fell 0.5% in February 2022, the Commerce Department said Monday. Economists surveyed by the Wall Street Journal were expecting a 0.6% decline. This is the first decline in factory orders following nine consecutive monthly increases. The factory sector has been a bright spot during the pandemic even with supply-chain woes. Economists are seeing signs that demand in the sector could be weakening. Durable-goods orders fell a revised 2.1% in February, slightly better than the initial estimate of a 2.2% decrease. Orders for nondurable goods were up 1.2% in the month. The closely-watched orders for nondefense capital goods, excluding aircraft , fell a revised 0.2% in February, up slightly from the prior reading of a 0.3% fall.
U.S. Trade Balance | Balance of Payments
U.S. Trade Gap Stays Close to Record as Services Surplus Narrows. Goods and services deficit at $89.2 billion in February 2022. Broadcast rights for Olympics boost services imports. The U.S. trade deficit held close to a record in February 2022 as the merchandise shortfall shrank and the surplus in services declined, partly reflecting the impact of broadcast rights for the Olympics. The February 2022 gap in goods and services trade was little changed at $89.2 billion after a record shortfall in January, Commerce Department data showed Tuesday. The median estimate in a Bloomberg survey of economists called for a $88.5 billion February shortfall. The figures aren’t adjusted for prices.
PMI Composite Final | Business Actvity
US Private Sector Growth Accelerates to 8-Month High. The final services PMI for March 2022 is expected to hold at the 58.5 flash which showed no significant Ukraine effects. The S&P Global US Composite PMI was revised lower to 57.7 in March of 2022 from a preliminary of 58.5, but was still up from 55.9 in February, to signal a sharp expansion in business activity across the private sector. The rate of growth was the fastest since last July, as manufacturers and service providers recorded steeper upturns in output. Supporting the sharper uptick in activity was the quickest rise in new business since June 2021. Domestic and foreign client demand strengthened as easing COVID-19 restrictions continued to boost new sales. Meanwhile, inflationary pressures intensified as supplier costs soared. Input prices rose at one of the fastest rates on record, whilst costs passed through to customers drove up output charges at the joint-sharpest pace since data collection began in October 2009. Although private sector employment grew at a steep pace, pressure on capacity mounted amid severe raw material shortages, with backlogs of work expanding at a series record rate.
ISM Non Manufacturing | Business Activity
ISM Services PMI rises to 58.3 in March 2022 vs. 58.4 expected. The headline ISM Services PMI figure rose to 58.3 in March 2022 from 56.5 the month before, a tad lower than the expected rise to 58.4, according to the latest release from the Institute of Supply Management. U.S. services industry activity picked up in March, boosted by the rolling back of pandemic restrictions, but businesses continued to face higher costs as supply strains persisted. The Institute for Supply Management said on Tuesday its non-manufacturing activity index rebounded to a reading of 58.3 last month from a one-year low of 56.5 in February. That ended three straight months of declines in the index and also signaled a shift in spending back to services from goods.
MBA Purchase Applications
Mortgage applications to purchase a home declined 3% for the week and were 9% lower than the same week one year ago. Rising interest rates are crushing the mortgage market, as precious few homeowners can now benefit from a refinance and more potential homebuyers become priced out. Total mortgage application volume fell another 6% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Volume was down 41% from the same week one year ago. Applications to refinance a home loan, which have been falling steadily for months, dropped another 10% week to week. Refinance demand was 62% lower than the same week one year ago.
A strong employment market with continuing wage growth is keeping housing demand hot, but the supply of existing homes for sale is still extremely lean. Bidding wars tend to be the rule, rather than the exception. Affordability is falling fast, and entry-level buyers are being sidelined. The elevated average purchase loan size, and steeper 8% drop in FHA purchase applications, are both indicative of first-time buyers being disproportionately impacted by supply and affordability challenge The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 4.90% from 4.80%, with points decreasing to 0.53 from 0.56 (including the origination fee) for loans with a 20% down payment. That rate was just 3.36% one year ago. That is the fourth consecutive week of increases.
FOMC Minutes
Stocks fall as the Fed gives plan to shrink balance sheet, considers bigger rate hikes. Fed officials plan to shrink the balance sheet by $95 billion a month, meeting minutes indicate. Fed officials plan to shrink the balance sheet by $95 billion a month, meeting minutes indicate. At the meeting, the Fed approved its first interest rate increase in more than three years. The 25 basis point increase — a quarter percentage point — lifted the benchmark short-term borrowing rate from the near-zero level where it had been since March 2020. In addition to the balance sheet talk, officials also discussed the pace of interest rate hikes ahead, with members leaning toward more aggressive moves. That means potential rate hikes of 50 basis points at upcoming meetings, a level consistent with market pricing for the May vote. In fact, there was considerable sentiment to go higher last month. The Fed expanded its holdings to about $9 trillion, or more than double, during monthly bond purchases in the wake of the pandemic crisis. Those purchases ended only a month ago, despite evidence of roaring inflation higher than anything the U.S. had seen since the early 1980s, a surge that then-Chairman Paul Volcker quelled by dragging the economy into a recession.
Jobless Claims
Initial unemployment claims decreased by 5,000 to 166,000 in the week ended April 2, Labor Department data showed Thursday. The level matched the lowest in 54 years. The median estimate in a Bloomberg survey of economists called for 200,000 initial applications. Applications for U.S. state unemployment insurance fell last week by more than forecast, showing that employers are retaining workers in an increasingly tight labor market. Initial unemployment claims decreased by 5,000 to 166,000 in the week ended April 2, Labor Department data showed Thursday. The level matched the lowest in 54 years. The median estimate in a Bloomberg survey of economists called for 200,000 initial applications. The government’s report included annual revisions dating back to 2017.
Consumer Credit
Consumer credit jumps well above consensus in February 2022. February Consumer Credit expanded by $41.82B M/M vs. $16.65B expected and $8.93B in January (revised from $6.84B).Total consumer credit increased $ 41.8 billion in February, up sharply from 8.9 billion in the prior month, the Federal Reserve said Thursday. That translates into an 11.3% annual rate in February, up from a 2.4% gain in the prior month. Economists had been expecting a 15 billion gain, according to the Wall Street Journal forecast. Revolving credit, like credit cards, rose at a 20.7% rate in February after 4% gain in the prior month. Nonrevolving credit, typically auto and student loans, rose 8.4% after 1.9% growth rate in the prior month. This category of credit is much less volatile. It only fell briefly at the start of the pandemic before returning to steady growth. The Fed data does not include mortgage loans, which is the largest category of household debt.
Americans got into a lot more debt in February 2022 as rampant inflation kept up the pressure, the Federal Reserve's consumer credit report showed Thursday. Debt levels jumped by nearly $42 billion to a total of almost $4.5 trillion. That's an annual increase of 11.3%, seasonally adjusted, far outperforming economists' expectations and setting a new high. In January, total credit had grown only 2.4%. Americans have been challenged with a rapid pace of price increases everywhere, from the grocery store to the gas station. Year-over-year inflation has increased at a pace not seen in 40 years. Consumer spending has kept up the pace so far, but it is not immediately clear whether that's because people are paying more for the same items that got more expensive or are actually buying more goods and services. In late February, Russia's invasion of Ukraine jolted global energy markets and boosted the price of gasoline. With prices at the pump rising higher in March, credit card spending is unlikely to have gone down after the February jump.Economists will be watching consumer spending carefully in coming months to see how households fare as the Fed raises interest rates and tries to move away from its easy policy stance.
Oil
Oil prices edged up on Friday in choppy trading but remained on course for a second weekly fall after countries announced plans to release crude from their strategic stocks. Brent crude futures were up 66 cents, or 0.66%, at $101.24 a barrel by 13:06 p.m ET (1706 GMT). U.S. West Texas Intermediate (WTI) crude futures rose 78 cents to $96.81. Both contracts are set to fall for a second consecutive week, with Brent on course for a 3% slide and WTI for a 2.5% decline. The benchmarks have been at their most volatile since June 2020 for weeks. The drop in crude oil prices is in anticipation of more barrels coming from the U.S. reserves. Crude oil priced on Commodities markets dropped to $95.60 per barrel on Thursday, down from a high of $103.28 on Monday, according to NASDAQ.
Fixed Mortage Rates
The yield on the 30-year Treasury bond advanced about 6 basis points to 2.746%, while the 5-year rate climbed 6 basis points to about 2.75%. Yields move inversely to prices and 1 basis point is equal to 0.01%. The 10-year rate hit a fresh 3-year high on Friday as investors continued to digest minutes from the previous Fed meeting. The yield on the benchmark 10-year Treasury note traded above 2.7% on Friday, near its highest level since March 2019 as it continues its jump following recent comments from the Fed. The 2-year rose about 4 basis points to 2.50%.
Wholesale Inventories Preliminary
U.S. wholesale inventories increased more than initially thought in February, but inventory investment probably offered little or no boost to economic growth in the first quarter. The Commerce Department said on Friday wholesale inventories rose 2.5% in February, instead of 2.1% as reported last month. Stocks at wholesalers advanced 1.2% in January. Economists polled by Reuters had expected inventories would be unrevised. Wholesale inventories surged 19.9% in February on a year-on-year basis. Inventories are a key part of gross domestic product. Wholesale motor vehicle inventories rebounded 1.4% after declining 2.3% in January. Wholesale inventories, excluding autos, increased 2.6% in February. This component goes into the calculation of GDP.
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