Surprisingly Strong Reaction to Equivocal Powell

Opinions certainly vary as to whether today’s communications from the Fed and Fed Chair Powell were dovish or hawkish, so let’s focus on facts.  The changes in the statement itself were bond-friendly but not enough for bonds to rally.  In fact, there was modest selling until Powell began answering questions.  Powell himself said a September rate cut was one possible scenario assuming the data remains consistent with recent progress toward goals.  He was very clear, however, to say that no decisions have been made.  A strong case can be made that today’s rally isn’t exclusively on Powell.  Geopolitical headlines and month-end trading definitely had an impact.  Still, history will remember that Powell did everything he could do to leave the door open for a September cut, short of promising that it would happen.

Econ Data / Events

ADP Employment

122k vs 150k f’cast, 155k prev

Employment Cost Index

0.9 vs 1.0 f’cast, 1.2 prev

Chicago PMI

45.3 vs 45.0 f’cast, 47.4 prev

Pending Home Sales

+4.8 vs +1.5 f’cast

Market Movement Recap

08:17 AM Flat overnight and a hair stronger after ADP.  MBS up 1 tick (.03) and 10yr down 1bp at 4.126.

12:27 PM Best levels of the day for MBS, up 5 ticks (.16).  10yr down 3.4bps at 4.101.

02:10 PM Slightly weaker after Fed announcement.  MBS still up 2 ticks (.06) and 10yr still down 1bp at 4.125

03:26 PM Stronger after press conference.  MBS up a quarter point.  10yr down 5.7bps at 4.079

05:00 PM Strongest levels of the day at the close.  MBS up 3/8ths and 10yr down 10.5bps at 4.031.