Volatility extremely high ahead of FOMC

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Published Date 11/1/2023

Prior to 8:15 am ET when ADP reported private jobs for October the 10 year note traded unchanged from yesterday. ADP private jobs expected +150K increased just 113K. The reaction pushed the bellwether 10 year note from 4.92% to 4.85%.

Treasury announced the details on refunding over the next two quarters. $776B in borrowing needs for the fourth quarter — less than it had expected in July. The department also expects to borrow $816B for the January-March period, bringing the total that needs to be raised through the first three months of 2024 to $1.59 trillion. The estimates come after $1.01 trillion in borrowing during the third quarter gave way to greater anxiety about the U.S. fiscal trajectory. Less need for borrowing led by higher receipts, not less spending which has to occur otherwise the US debt will continue to increase. If the economy falls into recession more borrowing will be the result.

The commission rates, long a given for real estate sales, are about to change. Yesterday a jury in Missouri ruled against the arrangements. The NAR, the largest industry group in the U.S., as well as brokerages HomeServices of America and Keller Williams, were found guilty Tuesday by a Kansas City, Missouri jury of colluding to inflate or maintain high commission rates. The practice of sellers paying commissions is under assault; the listing agent and the buying agent get a 3% commission each, both of which are paid for by the seller. The stage is set for the buyer’s agent to receive a 3% commission no longer automatically. The attorney representing the plaintiffs filed a new suit against NAR, Compass, Douglas Elliman, ExP, Redfin, Weichert Realtors, United Real Estate and Howard Hanna Real Estate Services, claiming that they had committed a conspiracy. NAR saying it will appeal the ruling. It is unlikely the jury ruling will stand as is, expect this to be drawn out over the next few months.

At 9:30 am the DJIA began +42, NASDAQ +36 S&P +9. 10 year note 4.88% -5 bps. FNMA 6.5 30 year coupon at 9:30 am +18 bps from yesterday’s close and +23 bp from 9:30 am yesterday.

The FOMC is the key today but before then three data points at 10 am. September JOLTs job openings expected at 9.375 million, as reported openings 9.553 million. October ISM manufacturing index expected 49.0 declined to 46.7. September construction expected +0.4% was right on at 0.4%, year/year +8.7% from 7.6% in August.

The Fed is done increasing interest rates but those expecting the Fed will think about lowering rates anytime within the next six months will be disappointed. Continuing to increase rates won’t get the Fed where it wants to be and would potentially send the economy into recession. The Fed facing a key pivotal point now, borrowing costs less than thought a week ago, wages increasing with the settlement of the UAW and other strikes, consumers still spending even as credit debt is increasing and payments on credit slowing. Japan decided to keep rates low, the ECB decided to keep rates steady last week. Government spending will increase as the Hamas war expands and there is no stomach in Washington to address spending.

Source: TBWS

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