Member Services Desk
Weekly Market Update

This MSD Weekly Market Update reflects information for the week ending October 25, 2024.

Economist Views

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With the Fed now squarely focused on the employment side of its dual mandate, the Bureau of Labor Statistics’ November 1st update on the hiring environment in October will be the marquee event of the week. The median Street projection calls for a 135K increase in nonfarm payrolls after the larger-than-expected 252K jump witnessed in September. The civilian unemployment rate is expected to remain steady at the 4.1% posted in the prior month. Such a result would place the Sahm Rule unemployment rate recession indicator at a four-month low of .43% – below the critical .5% value previously associated with the beginning of a cyclical downturn in the economy. Average hourly earnings are expected to post a .3% increase during October, but an extremely early canvassing period implies that the risks probably lie on the low side of that estimate. The average private workweek, which is expected to hold at 34.2 hours, should be watched closely for an impact from Hurricane Milton, which made landfall on October 9. Federal Reserve officials will observe the traditional blackout period ahead of the November 6-7 FOMC meeting.

Merchandise Trade Balance: The merchandise trade deficit is expected to have widened to $96bn in September from the $94.2bn shortfall posted in the previous month.

S&P CoreLogic Case-Shiller (SPCLCS) 20-City Home Price Index: Home price increases probably slowed further across the twenty major metropolitan areas canvassed by SPCLCS in August, rising by .12% after a .27% increase in July. That projection, if realized, would place the SPCLCS barometer 4.9% above the level posted 12 months earlier.

JOLTS Job Openings: A reported decline in online help-wanted postings suggests that nationwide job openings contracted by 130K to 7.91mn in September, reversing a little over one-third of August’s surprising rise. At an estimated 1.08mn during the reference period, the excess of vacant positions nationwide would represent a three-month high of 1.16 jobs per unemployed person.

Conference Board Consumer Confidence: Preliminary soundings from the University of Michigan suggest that this gauge was little changed in October from the 98.7 reading recorded in September. Pay attention to the labor differential – the percentage of respondents believing that jobs are plentiful less those feeling positions are hard to get – for clues to any potential change in the civilian unemployment rate in the upcoming Bureau of Labor Statistics’ report.

Real GDP Growth: Estimates of real GDP growth during Q3 have moved progressively higher as economic soundings for the July-September period have been released. Indeed, over the past month, the median forecast has climbed from a seasonally adjusted annual rate of 2% to 3%, matching the reported Q2 clip.

Pending Home Sales: Home purchase mortgage applications suggest that contract signings probably climbed by 2.3% in September, after a modest .6% uptick in August.

Personal Income & Spending: Capped by a slowdown in wage and salary disbursements, personal income likely climbed by .2% in September after a similar increase in August. By contrast, consumer spending probably quickened during the reference period, rising by .5% following a .2% prior-month gain. With the PCE chain price index expected to move .2% higher, real consumer spending likely rose by .3% last month, placing September inflation-adjusted spending a healthy 1% annualized above its implied Q3 average.

Construction Spending: Hampered by adverse weather, the nominal value of new construction put-in-place probably fell for a fourth straight month in September, adding to the 1.7% decline witnessed over the June-August span.

ISM Manufacturing Activity Index: Available canvasses suggest that the gauge remained in contractionary territory for a seventh straight month but improved to 47.8% from the 47.2% reading recorded in September.

Key Market Trends

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CHART 1 UPPER LEFT and CHART 2 UPPER RIGHT
Source: National Multifamily Housing Council; National Bureau of Economic Research; FHLB-NY. Notes: The diffusion indexes are calculated by taking one-half the difference between positive and negative responses and adding 50; blue-shaded areas denote recessions, and orange-shaded areas highlight current expansion. Apartment market conditions showed signs of improvement in the National Multifamily Housing Council’s (NMHC’s) October 2024 Quarterly Survey of Apartment Market Conditions, released this past week. All but the Market Tightness Index at 37 indicated more favorable conditions at the beginning of the fourth quarter, with Sales Volume (67), Equity Financing (63), and Debt Financing (77) all registering well above the breakeven level of 50. According to the NMHC, with 10-year UST yields retreating over the past three months and the Federal Reserve enacting its first rate cut, survey respondents experienced more favorable conditions for debt financing for a third straight quarter and more available equity financing for the first time in two-and-a-half years. Elevated levels of multifamily deliveries, however, resulted in the ninth consecutive quarter of looser conditions, especially in the South and Sun Belt markets. Nonetheless, strong demand for apartments has meant that much of this new supply is being absorbed.

CHART 3 LOWER LEFT
Source: Bloomberg. Top pane is yield (LHS, %), bottom pane is change (LHS, bps). As of Thursday afternoon, the UST term curve was higher week-on-week by 4 to 14 bps, led by the 3- to 7-year sector. The past few sessions have generally been devoid of either first-tier economic data or consequential Fedspeak, and rates slowly continued their upward trend of this month. While the Fed will be in blackout mode in the upcoming week, a few influential economic data releases are in store. In terms of market-implied pricing of the Fed, for end-2024, the market forwards now price for Fed Funds ~4.41%, now a tad above the Fed’s latest “dot plot” projection of 4.375%. The market prices end-2025 ~3.47%, or 10 bps higher than last week and now above the Fed’s last median projection from its September FOMC meeting of 3.375%.

CHART 4 LOWER RIGHT
Source: Bloomberg. As a result of a rebound higher in rates over the past month, driven by sturdy economic data, along with the unknowns of elections and an FOMC meeting in early November, implied volatility levels in the options markets have increased this month. Shown here is the ICE BofA MOVE Index, a yield curve-weighted index of the normalized implied volatility on 1-month UST options on 2/5/10/30-year tenor securities. The index has reached its highest level for the calendar year 2024, and its ascent accelerated after the early-October stronger-than-expected employment report and once the 1-month expiry crossed the timeline of election and FOMC dates. The increase in implied vol levels can be helpful to more attractive putable advance levels, but the rise in rates has more than offset that impact.

FHLBNY Advance Rates Observations

Front-End Rates

• Short-end rates were mixed week-over-week. The 3-week to 2-month zone fell a few bps, while the 4- to 6-month sector rose a few bps. Net T-bill issuance has been increasing, but sturdy demand for short-end paper has and should limit any serious impact on issuance spreads; this dynamic has been reinforced by robust Money Market Fund AUM levels.
• The market will monitor data, especially Friday’s jobs report. Fedspeak will be in blackout mode in the upcoming week.

Term Rates

• The longer-term curve, generally mirroring moves in USTs and swaps, continued to trend higher. The 3- to 7-year sector, for instance was 11 to 13 bps higher week-on-week. Kindly refer to the previous section for color on market dynamics and changes. We encourage members to engage with the Member Services Desk for current rate levels and market dynamics.
• On the UST term supply front, the upcoming week serves 2/5/7-year auctions. Note that UST auctions usually occur at 1pm and can occasionally spur volatility around that time. Please contact the Member Services Desk for further information on market dynamics, rate levels, or products. Note that our “800 number” is again ready for use at 1-800-546-5101 option 1.

Price Incentives for Advances Executed Before Noon: In effect as of Tuesday, September 5, 2023, the FHLBNY is pleased to now offer price incentives for advances executed before Noon each business day. These pricing incentives offer an opportunity to provide economic value to our members, while improving cash and liquidity management for the FHLBNY. For further details, kindly refer to the Bulletin.