FOMC Meeting and Jobs Report Headline Busy Week

FOMC Meeting and Jobs Report Headline Busy Week

• Treasury yields are modestly higher on the news that JPMorgan was the winning bidder for the failed First Republic Bank. With the resolution of the troubled bank that has some of the flight-to-safety trades from last week being reversed this morning. Currently, the 10yr is yielding 3.47%, down 12/32nd in price while the 2yr is yielding 4.09%, down 5/32nds in price.

• The FOMC meeting headlines a busy week with an expected 25bps rate hike coming on Wednesday afternoon. The market is pricing 93.6% odds of a rate hike, and with the resolution of First Republic Bank the runway is clear for Powell and Company to deliver. The question is whether that will be the last of the hikes, or at least a pause. It will be interesting to see how much light Powell will shed on that topic in the press conference. In addition, the futures market still sees slightly more than 50bps of rate cuts by year-end and that too will be interesting to see how much pushback Powell delivers on that assessment.

• The first week of a month always brings a few first looks at the prior month’s activity and this morning the ISM Manufacturing Report will be the first item out of the gate. It’s expected to tick up to 46.8 vs. 46.3 in March.  Last month’s print represents the lowest since in May 2020 and has been in contractionary territory (<50) since November. In addition to the headline number, the prices paid component will provide some inflationary information while the new orders and employment component will provide early insight into both the latest in sales and jobs in the manufacturing sector.

• Speaking of jobs, tomorrow brings the Job Openings and Labor Market Turnover (JOLT) Report for March. The headline job openings number is expected dip lower to 9.725 million vs. 9.931 million in January. If the expectation is met that would be lowest openings number since May 2021.  The expected downtick is also consistent with much in the labor market these days. It’s moving in the right direction for the Fed but at a much slower rate than they would like. Job openings peaked at 12.027 million a year ago.

• On Wednesday, the ISM Services Report will be released with a slight improvement expected with the index moving to 51.8 from 51.2 in March. While the index made a brief dip below 50 in December, it’s generally been above the contractionary line, although the dip in March was nearly 4 points and is the lowest result since the lockdowns, except for that one-off in December. Again,  the prices paid, new orders, and employment sub-indices will be looked at just as much as the headline number for what they will tell us about inflation, employment, and activity trends. With the Fed’s focus on core services ex-housing inflation, the prices paid component will get a long look. It printed a strong 59.5 in March but that’s well off the high of 84.5 in December 2021.

• Finally, the April Employment Report on Friday headlines the weeks new data.  Job growth is expected to dip from 236 thousand to 180 thousand for April. If that expectation is met it would be the lowest job growth since December 2020 and would be approaching the 150 thousand level that represents the pace needed just to keep with population growth.  The unemployment rate is expected to tick up to 3.6% from 3.5% while average hourly earnings are expected to remain at 0.3%MoM for the third month out of four this year. The YoY pace is expected to remain at 4.2% for the second straight month. That YoY rate is the lowest since June 2021 and will be welcomed by a Fed worried about wage-price pressures, but the YoY rate is still above the long run average of 3.0% and that will keep the more hawkish Fed members saying that more work is still needed (read: more rate hikes).

Average Hourly Earnings (YoY) – Trending Lower But Still Above 3%  Long-Run Average

Agency Indications — FNMA / FHLMC Callable Rates