Morning Report: The 10 year yield rises above 4% again

Vital Statistics:

Stocks are lower this morning after the FOMC minutes from June indicated that some members wanted to hike rates. Bonds are down, and the 10 year has a 4-handle on it again.

The FOMC minutes were released yesterday, and the market reacted to the revelation that the unanimous decision to pause was not without some opposition:

Some participants indicated that they favored raising the target range for the federal funds rate 25 basis points at this meeting or that they could have supported such a proposal. The participants favoring a 25 basis point increase noted that the labor market remained very tight, momentum in economic activity had been stronger than earlier anticipated, and there were few clear signs that inflation was on a path to return to the Committee’s 2 percent objective over time.

Separately, Dallas Fed President Laurie Logan said it would’ve been “entirely appropriate” to raise the benchmark lending rate at the Fed’s June meeting. However, she said “in a challenging and uncertain environment, it can make sense to skip a meeting and move more gradually.”

The July Fed Funds futures are close to a lock for another 25 basis point hike at the July meeting in 3 weeks.

The private economy added almost half a million jobs in June, according to the ADP Employment Report. This is well above the 213k the Street is looking for in tomorrow’s jobs report. “Consumer-facing service industries had a strong June, aligning to push job creation higher than expected,” said Nela Richardson, chief economist, ADP. “But wage growth continues to ebb in these
same industries, and hiring likely is cresting after a late-cycle surge.” As usual, leisure / hospitality was the biggest contributor to job growth, adding 232k jobs, while construction added 90k. White collar and manufacturing jobs fell. Wage growth fell to 6.4% from 6.6% for job stayers, and fell to 11.2% for job changers. Job changers received the lowest annual increase since October 2021.

In other labor-related indicators, announced job cuts fell 49% to 40,709 according to Challenger and Gray. Tech, retail and finance have seen the most job cuts this year. Initial Jobless Claims remain low at 248k.

Mortgage Applications fell 4.4% as purchases fell 5% and refis fell 4%. “Mortgage applications fell to their lowest level in a month last week as rates for most loan types increased. As mortgage-Treasury spreads remained wide, the 30-year fixed rate increased to 6.85 percent, the highest rate since the end of May,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Purchase applications decreased for the first time in a month, as homebuyers remained sensitive to rate changes. Rates are still over a percentage point higher than a year ago, and housing affordability is still a challenge in many parts of the country. However, the average loan size for a purchase application declined to $423,500 – its lowest level since January 2023. This was likely driven by reduced purchase activity in some high-price markets and more activity in some of the lower price tiers as buyers searched for more affordable options.” The composite index is at the lowest levels since 1997.