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Pensford Weekly Round-Up (July 22nd-29th)

Welcome to Pensford's Weekly Round-up. I’m Josh.
It's been a relatively benign week for economic data and interest rates. Markets are holding their breath for next week's FOMC meeting, and economic data from the homebuilder's index, existing home sales, and housing starts all receded, falling below expectations. Homebuilder confidence fell for the seventh straight month, we had the second declining print of housing starts, and then there have been signs of waning confidence in the housing sector - another signal of slowing demand.
The Philly Fed manufacturing index sank deeper into negative territory, declining to -12.3. This is despite the expectation of a positive print and signals that manufacturing sectors demand is also waning.
Lastly, leading economic indicators fell for the fourth straight month. Many interpret this as a sign that we are clearly headed toward a recession. Meanwhile, the Fed has downplayed the likelihood of a full point hike at its next meeting. Despite this, a 30% chance of a full point cut has been priced to the market. As of this time last week, the market had only priced in a 15% chance, according to Bloomberg measures.
Meanwhile, the European Central Bank has hiked 50 basis points. This is despite an expectation for a 25-basis point hike. In response, U.S. yields rose slightly. After a modest climb to start the weak both the long and short end of the curve have retraced the entirety of their gains. This is being driven by the trifecta of weakening labor markets, signs of less demand, and mounting recession signals.
Borrowers should feel mostly indifferent from last week to this week, with rates remaining range bound. Cap pricing is held pretty steady along with interest rates.
Looking forward to next week, borrowers should enjoy the break leading up to next week's Fed meeting. We're also expecting GDP and core PCE, which is the Fed's preferred measure of inflation. So buckle up. It's going to get pretty wild. Markets are expecting a 75 basis point hike, which the Fed has signaled, so everyone will be looking toward the post-meeting conference for any signals on the future path of rates.
If you're buying a cap, bare in mind that volatility does begin to rise around a Fed meeting with liquidity drying up pretty severely the day of the meeting. So pricing could be impacted if you're looking to purchase that cap Tuesday or Wednesday.
Be sure to keep an eye out for our post FOMC recap, which we'll publish on Wednesday. That's it for this week's Weekly Round-up. Have a great weekend.