Not much interesting news today in early trading; the stock indexes in futures trading generally unchanged. The interest rate market with minor price gains in MBSs with the 10 yr. note -2 bps to 0.67%.
The Q2 current account thought to be -$159.0B, increased to -$170.5B, up 52.9%, and was the highest level since the third quarter of 2008. The current account measures the United States' international trade balance in goods, services, and unilateral transfers on a quarterly basis, a total that includes all US international trade. US trade with foreign countries holds important clues to economic trends here and abroad. The data can directly impact all the financial markets, especially the dollar's foreign exchange value. The dollar can be particularly sensitive to changes in the chronic trade deficit run by the United States since this trade imbalance creates greater demand for foreign currencies. The bond market is very sensitive to the risk of importing inflation or deflation. When Asian economies collapsed at the end of 1997, bond and equity investors feared that deflation in these economies would be transported to the United States. While goods inflation did decline modestly and momentarily, service inflation kept on ticking. Thus, the linkage is not so direct. A chronic current account deficit also suggests that consumers and businesses in the United States are outspending their income. We are living on credit while foreigners are paying for our profligate ways. All that said, it is rare that this data causes any significant move in markets; it is, however, significant in the eyes of deep thinking economists. As usual, there was no movement in the markets on the report.
At 9:30 am ET, the DJIA opened -14, NASDAQ +42, S&P +4. 10 yr. 0.67% -2 bps. 2.5 30 yr. FNMA coupon at 9:30 +2 bps from yesterday's close and -5 bps from 9:30 yesterday; the 2.0 coupon +2 bps and -9 bps from 9:30 am yesterday.
At 10:00 am ET, the U. of Michigan consumer sentiment mid-month index, expected at 75.0 from the final August reading at 74.1; the index jumped to 78.9. Good news for the economic outlook.
A debt spending bill is likely to be achieved this afternoon, avoiding a government shutdown next month. Both political parties have come to an agreement that was widely expected. More stimulus though still mired in politics and far apart; many Republicans are opposing Trump's new call for increasing the Republican plan for $550B to $1.1 trillion, and Democrats so far unwilling to back off $2.2 trillion. Nancy Pelosi is urging House Democrats to wait for a better deal on the coronavirus aid package when they return to work Monday. They may still be waiting on Election Day the way it appears presently.
No matter how you skin that cat, interest rates are not moving. Look at the chart of the 10 yr. for the last two weeks. Inflation isn't happening now, the Fed back-stopping any potential for rates to increase.
This is quadruple trading day; expirations of cash and futures options. Talk of volatility today, so far, not much.
PRICES @ 10:00 AM ET
10 yr. note: 0.67% -2 bp
5 yr. note: 0.26% -1 bp
2 Yr. note: 0.13% unch
30 yr. bond: 1.43% -1 bp
Libor Rates: 1 mo. 0.156%; 3 mo. 0.227%; 6 mo. 0.275%; 1 yr. 0.376% (9/17/20)
30 yr. FNMA 2.5: @9:30 104.77 +2 bp (-5 bp from 9:30) 2.0 102.97 +2 bp (-9 bp from 9:30 yesterday)
30 yr. GNMA 2.5: @9:30 104.50 +5 bp (+7 bp from 9:30 yesterday)
Dollar/Yuan: $6.7734 +$0.0084
Dollar/Yen: 104.39 -0.35 yen
Dollar/Euro: $1.1832 -$0.0017
Dollar Index: 92.97 unch
Gold: $1953.70 +$3.80
Crude Oil: $41.22.+$0.25
DJIA: 27,850 -51
NASDAQ: 10,930 +21
S&P 500: 3355 -2
Richard Sardella has been actively managing and providing services in the mortgage industry for over 27 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.
All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.
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Interest rate markets opened better this morning after the FOMC yesterday; the 10 yr. yesterday increased 3 bps on the initial reaction that the Fed will champion low rates for years and wants inflation to increase to over 2.0%. Nice wish list, but the Fed has been cheering for some inflation for years now. Officials held interest rates near zero and signaled they would stay there for at least three years, vowing to delay tightening until the U.S. returns to maximum employment and 2% inflation. At the end of last month, at the Jackson Hole conference, Powell announced the Fed’s plans to keep interest rates low. At the meeting yesterday, the Fed and Powell expanded on those plans to keep rates low until inflation hits or exceeds 2.0%, and employment is back to “full employment” levels. Of course, full employment is what the Fed says it is; last year, unemployment fell to 3.0% before the virus hit in March.
Weekly jobless claims this morning are the driving force in the bond and mortgage markets this morning; claims were expected at 850K from 884K the prior week; those claims were revised to 893K. As reported, claims were 860K down 33K from the revision. The previous three weeks, claims increased or flatlined, worrying investors that hirings were slowing—the slight decline in new filings supporting markets this morning.
August housing starts and permits were lower than forecasts. Starts were expected at 1.486 mil, totaled 1.416 mil -5.1% from the slightly lower revision in July (from 1.496 mil to 1.492 mil). Permits were expected at 1.530 mil, as reported 1.470 mil -0.9%. The NAHB index yesterday showed confidence among single-family homebuilders increased to a record high in September. The index at 83 was the strongest index reading in 35 years. Builders, however, remained concerned about rising costs for materials and delivery delays, especially for lumber. Construction of single-family housing units, which accounts for the largest share of the housing market, increased 4.1% to a rate of 1.021 million units. Multi-family starts were down 22.7%, dragging the headline down. Single-family building permits increased by 6.0% to a rate of 1.036 million units. Multi-family building permits decreased 14.2% to a rate of 434,000 units.
The Sept Philadelphia Fed business index declined from 17.2 in August to 15.0; it isn’t much of a market mover, though.
At 9:30 am ET, the DJIA opened -360, NASDAQ -222, S&P -53. 10 yr. at 9:30 am 0.66% -4 bps. FNMA 2.5 30 year coupon at 9:30 +5 bp from yesterday’s close and -11 bp from 9:30 yesterday. 2.0 FNMA at 9:30 am +8 bp from yesterday’s close and -4 bps from 9:30 am yesterday.
Pelosi is standing her ground on another stimulus package totaling $2.2 trillion. Republicans in turmoil about agreeing on a $1.5B plan. Republicans have upped their $550B package, trying to get something accomplished before the election, but the party is divided. Trump urged Republicans yesterday to “Go for the much higher numbers” in new coronavirus stimulus. He followed up at a White House news conference by saying he liked “the larger numbers” in a compromise $1.5 trillion stimulus plan from a bipartisan group of House lawmakers. White House Chief of Staff Mark Meadows said the $1.5 trillion figure wasn’t a “show-stopper,” but it appeared that way to some Republicans. Pelosi is rejecting moves within her caucus to vote on something smaller than the $3.4 trillion initiative the House backed in May. She and Senate Democratic leader Chuck Schumer, who now favor $2.2 trillion in relief, quickly applauded Trump’s new flexibility on the top-line number, issuing a joint statement expressing encouragement Powell stepped into it yesterday; “My sense is that more fiscal support is likely to be needed.”
10 yr. note: 0.67% -3 bp
5 yr. note: 0.26% -2 bp
2 Yr. note: 0.14% -1 bp
30 yr. bond: 1.43% -4 bp
Libor Rates: 1 mo. 0.150%; 3 mo. 0.233%; 6 mo. 0.270%; 1 yr. 0.378% (9/16/20)
30 yr. FNMA 2.5: @9:30 104.81 +3 bp (-13 bp from 9:30 yesterday 2.0 103.5 +6 bp (+4 bp from 9:30 yesterday)
30 yr. GNMA 2.5: @9:30 104.41 unch (-12 bp from 9:30 yesterday)
Dollar/Yuan: $6.7700 +$0.0152
Dollar/Yen: 104.68 -0.27 yen
Dollar/Euro: $1.1812 -$0.0004
Dollar Index: 93.23 +0.02
Gold: $1942.90 -$27.70
Crude Oil: $39.98 -$0.18
DJIA: 27,818 -214
NASDAQ: 10,889 -161
S&P 500: 3349 -36
The FOMC meeting is at 2:00 pm ET, and Powell's press conference is at 2:30 pm. Those are the headlines and the dominant influence today.
Not so good news this morning for August retail sales. Sales were expected to have increased 1.0%, as reported +0.6%; ex-auto sales expected 1.0%, up just 0.7%. The control group that excludes food services, autos, gasoline, and building materials, expected +0.5%, declined by 0.2%. The control group is more reliable as a measure of demand. The slowdown due to the end of the relief for jobless Americans and small businesses at the end of July; without them, millions of unemployed Americans will have significantly less cash to spend. Also, federal support for small businesses is running dry with the Paycheck Protection Program closing in early August.
Sales are slipping on continued consumer concerns and money withheld from another stimulus bill that is dying in Washington. Nancy Pelosi refuses to bend, Republicans also ridged. She is not going to compromise in any way, according to news sources and her remarks. Trump has offered $1.5 trillion in assistance, but it falls short of the cement wall of $2.2 trillion that Democrats passed in a bill last May. Pelosi calling $1.5 trillion a "skinny" offer by Republicans, saying "the skinny deal is a Republican bill: That's not a deal at all." There was a bi-partisan of 50 House members backing the "skinny" plan, Pelosi told the committee chairs to dismiss it out of hand.
At 9:30 am ET, the DJIA opened +66 after trading +130 prior to the retail sales data, NASDAQ +36, S&P +13. 10 yr. 0.67% -1 bp. 2.5 30 yr. FNMA coupon at 9:30 am +2 bp and -8 bps from 9:30 am. 2.0 coupon at 9:30 am+3 bps from yesterday's close and -9 bp from 9:30 yesterday.
Earlier this morning, MBA mortgage applications last week; the composite -2.5%, purchases -1.0%, and re-finances -4.0%.
At 10:00 am ET Sept NAHB housing market index expected unchanged at 78 from August as released, the index increased to 83, the strongest index reading in 35 years.
There's nothing to do now but wait for the FOMC policy statement at 2:00 pm ET this afternoon. Not likely there will be any significant movements in US financial markets until this afternoon after the 2:30 pm Powell's presser. Usually, there are brief bouts of volatility after the event(s).
10 yr. note: 0.67% -1 bp
5 yr. note: 0.26% -1 bp
2 Yr. note: 0.13% -1 bp
30 yr. bond: 1.42% -2 bp
Libor Rates: 1 mo. 0.150%; 3 mo. 0.246%; 6 mo. 0.273%; 1 yr. 0.385% (9/15/20)
30 yr. FNMA 2.5: @9:30 104.94 +2 bp (-8 bp from 9:30 yesterday) 2.0 FNMA @ 9:30 103.02 +3 bp (-9 bp from 9:30 yesterday)
30 yr. GNMA 2.5: @9:30 104.53 unchanged (-14 bp from 9:30 yesterday)
Dollar/Yuan: $6.7587 -$0.0231
Dollar/Yen: 104.86 -0.58 yen
Dollar/Euro: $1.1849 +$0.0003
Dollar Index: 92.94 -0.11
Gold: $1976.70 +$10.50
Crude Oil: $39.30 +$1.02
DJIA: 28,091 +96
NASDAQ: 11,213 +21
S&P 500: 3413 +11
Stock indexes in pre-open trading this morning continued to increase. At 8:00 am ET, DJIA +200, NASDAQ +120. The Treasury market quiet with rates across the curve unchanged from yesterday, 0.68%. FNMA MBS prices at 8:00 am -2 bps.
At 8:30 am ET, the often watched NY Empire State Sept. Manufacturing Index, although it really isn't that much of importance in the larger perspective, was expected at 6.5 from 3.7 in August, it increased to 17. It is a volatile series, and big swings are not unusual. Also at 8:30 am August import and export prices; imports were forecast +0.5%, as reported +0.9%; yr./yr. estimate -2.1% as reported -1.4%. Export prices were expected +0.4% as released +0.5%; yr./yr. exports were thought to be -3.6%, as released -2.8%. That both import and export prices were stronger than forecasts isn't a major concern but interesting that July prices were also revised. August PPI and CPI were released last week and were also notching up from estimates. The data is something to keep in mind when thinking about inflation; so far, just a sidebar but possibly a clue for the outlook.
At 9:15 am ET, August industrial production and capacity utilization in factories. Production consensus was +1.2%, as released +0.4%, July revised from +3.0% to +3.5%; manufacturing production, expected +1.9% increased just 1.0% and July revised from +3.4% to +3.9%. August capacity utilization at 71.4% against forecasts of 71.6%, but as with production, July factory use was revised better to 71.1% from 70.6%.
At 9:30 am ET, the DJIA opened +203, NASDAQ +126, S&P +28. 10 yr. note 0.68% unchanged. FNMA 2.5 30 yr. coupon unch from yesterday's close and -7 bps from 9:30 yesterday; the 2.0 coupon -12 bps from 9:30 yesterday.
The FOMC meeting begins today; tomorrow, the FOMC policy statement and Powell's press conference should keep markets in check today. Expect Powell to field questions about inflation outlooks at the Fed. Inflation is one of Powell's prime emphasizes; the Fed wants it to increase but hasn't been able to get it moving for years. Recently though, we see and read more and more market economists paying more attention. This morning's data on import and export prices and revisions higher from prior months adds another focal point. The low US and global interest rates and the slowly increasing thoughts that inflation may increase as the Fed wants to see, and an increasing desire to avoid fiat currencies have and will support rising gold prices.
This afternoon at 1:00 pm ET, Treasury will auction $22B of 20 yr. bonds; Treasury revived the 20 yr. bond two months ago to its array of notes and bonds it issues.
10 yr. note: 0.68% unch
5 yr. note: 0.27% +1 bp
30 yr. bond: 1.42% unch
Libor Rates: 1 mo. 0.152%; 3 mo. 0.237%; 6 mo. 0.274%; 1 yr. 0.402% (9/14/20)
30 yr. FNMA 2.5: @9:30 105.02 unch (-7 bps from 9:30 yesterday) 2.0 103.05 -2 bp (-12 bps from 9:30 yesterday)
30 yr. GNMA 2.5: @9:30
Dollar/Yuan: $6.7829 -$0.0276
Dollar/Yen: 105.37 -0.37 yen
Dollar/Euro: $1.1842 -$0.0021
Dollar Index: 93.03 -0.03
Gold: $1958.00 -$5.70
Crude Oil: $37.45 +$0.019
DJIA: 28,138 +144
NASDAQ: 11,203 +146
S&P 500: 3413 +29
Forbearance numbers continue to show improvement
The rate of forbearances (delaying the repayment of mortgage loans) are dropping HousingWire’s Kathleen Howley cites Black Knight in reporting a drop of 22% from May’s peak of 4.7 million. “The total weekly drop was 66,000 loans, a slower pace than the decline of 150,000 in the prior week, the report said. Measured as a share of all mortgages, 7% of home loans are in forbearance, down from 7.1% in the prior week,” says Howley.
She goes on to report that the rate for home loans in Ginnie Mae securities, primarily mortgages backed by the Federal Housing Administration (FHA) or the Veterans Administration (VA) also dropped, along with the forbearance share for mortgages held in bank portfolios or in private-label bonds.
Howley quotes FTN Financial’s Walt Schmidt, saying, “We’re seeing a bifurcation in the numbers, with GSE forbearances lower than the rates for the Ginnie space and the private-label space.” There is a correlation between the drop in the overall number of mortgages in forbearances and job market gains, with the unemployment rate in August dropping to 8.4%.
Howley adds that while the economy has added 10.6 million jobs since April, it’s not even halfway toward replacing the 22.2 million jobs lost between February and March, according to government data. “Most economists are predicting the soft jobs market will persist into 2021. Fannie Mae Chief Economist Doug Duncan forecasts the unemployment rate will average 8.8% in 2020 and 7.1% next year,” she says.
Source: HousingWire | BlackKnight | TBWS
How Rates Move:
Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I’m among few mortgage professionals who have access to live trading screens during market hours.
Rates Currently Trending: Neutral
Mortgage rates are trending sideways this morning. Last week the MBS market worsened by -1bps. This caused rates to move mostly sideways for the week. We saw a bit of elevated rate volatility last week.
This Week's Rate Forecast: Neutral
Three Things: These are the three areas that have the greatest ability to move rates this week. 1) Central Bank, 2) Geo-Political, and 3) Domestic
1) Central Bank: We hear from the Central Banks from 3 of the 6 largest economies in the world. The Bank of Japan (with a fresh new PM) and Bank of England (with Brexit looming) will be interesting this week, but it will be our Federal Reserve on Wednesday that will be the week's biggest market driver. We get their interest rate decision (no suspense there, they have already beaten us over the head with the idea that they are not going to touch rates for a very long time), live press conference with Fed Chair Powell, and we'll get their Economic Projections (the famous "dot plot" chart).
2) Geo-Political: Brexit is back in the spotlight as they have an important Parliamentary procedural vote today as the Brexit FINALLY concludes this month. Domestically, we have movement on keeping our government open past the end of the month and no movement on a new COVID stimulus bill.
3) Domestic: We get some key economic releases this week to focus on, including retail sales, which is expected to moderate into more realistic levels now that the $600 weekly "helicopter" money has stopped. Also, Initial Weekly Jobless Claims will continue to get a lot of attention.
This Week's Potential Volatility: Average
Rate markets last week ended mostly unchanged; however, we did see volatility spike. This week we get retail sales and jobless claims numbers that will help determine the medium-term direction of rates and could once again spike rate volatility.
If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.
There was not much movement in early activity; interest rates remained unchanged at 8:00 am ET, and stock indexes were trading higher.
We're still waiting for another stimulus package. Presently it doesn't look like there's a deal as both parties dig in deep to hold their lines on what they want, and likely won't get what they want. The question is, will there be any deal? Right now, the differences are so wide, and both parties don't appear to want to sit down and get something accomplished. Republicans and Democrats both are testing a risky strategy that the public -- and voters -- will blame the other side for failing to deliver help to millions of households and companies. Will Trump back down given his poll numbers are still low (although gaining these days); that is improbable as long as the economic numbers continue to improve. Some moderate Republicans are bending, and Democrats are betting that the president will be forced to go along with the largest stimulus yet proposed -- beyond the $2 trillion enacted in March -- crippled negotiations, which broke off August 7th. Senate majority leader McConnell; "I wish I could tell you we're going to get another package,"…... "But it doesn't look that good right now.". Pelosi: "I'm optimistic. I do think we should have an agreement. That's what we all want." The differences are so extreme and the present optimism Democrats have in the polls, a deal seems highly unlikely.
Kick the can; a game we played as kids, has risen to adult in Washington. On October 1st 2021, the fiscal year begins, and as has been the case for years, there will be no budget. Both parties don't want a government shutdown, so there will be another continuing resolution to keep the government from closing, a month ahead of the election. There is no way in the world (past, present, and future) there will ever be a balanced budget as deficit spending is our way of life. Pelosi and Mnuchin have agreed to work to avoid a government shutdown until after the election; neither want the heat of a shutdown. The issue will resurface again in Dec.
At 9:30 am ET, the DJIA opened +200, NASDAQ +160, S&P +34. 10 yr. at 9:30 am ET 0.67% unchanged. 2.5% FNMA 30 yr. coupon unchanged from Friday and +4 bps from 9:30 am ET. The 2.0 coupon +11 bps from 9:30 Friday).
Some economists and Wall Street analysts are pushing the Federal Reserve to provide even more simulative "forward guidance" at its policy meeting this week. Lots of crying from economists and investors that the Fed could do more, true it can, but Powell resists and continues to point to fiscal aids rather than policy tools. The more the Fed goes down the road on its own to support the economy, the greater the risks to economic well-being and its own credibility. Also, the challenges are not limited to domestic problems. With a rise in both initial and continuing filings, jobless claims added to a growing set of indicators suggesting that the pace of economic recovery from the pandemic is slowing. The ongoing stalemate in Congress on the next relief package adds to concerns about what lies ahead. Markets want to extend the anticipated period of zero policy rates and showing greater inclination to again expand the size and scope of its large-asset purchase program. In the meantime, as it does with every critical issue, Congress is dumping it all onto the Fed.
10 yr. note: 0.66% -1 bp
5 yr. note: 0.25% +1 bp
2 Yr. note: 0.13% unch
30 yr. bond: 1.41% -1 bp
Libor Rates: 1 mo. 0.152%; 3 mo. 0.250%; 6 mo. 0.281%; 1 yr. 0.413% (9/11/20)
30 yr. FNMA 2.5: @9:30 105.08 unch (+4 bp from 9:30 Friday) 2.0 103.20 +3 bp +3 bp from 9:30 Friday)
30 yr. GNMA 2.5: @9:30 104.77% +5 bp (+9 bp from 9:30 Friday)
Dollar/Yuan: $6.8116 -$0.0228
Dollar/Yen: 105.68 -0.48 yen
Dollar/Euro: $1.1881 +$0.0033
Dollar Index: 92.90 -0.43
Gold: $196800 +$20.10
Crude Oil: $37.22 -$0.11
DJIA: 27,985 +320
NASDAQ: 11,075 +223
S&P 500: 3392 +51
Early this morning, stock indexes were trading better, the 10 yr. note and MBSs were both unchanged at 9:00 am ET.
At 8:30 am ET, August CPI; +0.4% on estimates of 0.3%; yr./yr. CPI expected +1.2% increased 1.3%. The core (ex-food and energy) was expected at +0.2% increased 0.4%, yr./yr. +1.7% on forecasts of +1.6%. Like yesterday’s August PPI, CPI slightly firmer, implying inflation edged higher in August, although minor. In August, consumer prices rose for a third month, driven by the sharpest gain in used-vehicles since 1969 and consistent with a gradual pickup in inflation as the economy recovers from the pandemic. Core CPI, +0.4% after +0.6% in July. Used cars +5.4% accounts for 40% of CPI. Inflation based on CPI and PPI is slowly increasing but with the Fed on record not worrying about any minor inflation concerns now. Powell is saying the Fed would tolerate inflation exceeding its former 2.% inflation target. The economy is not even close to 2.0% price increases. But inflation is increasing.
This afternoon at 2:00 pm ET, Treasury will report its August deficit expected at -$315B from -$63B in July; the increasing debt, while a concern, isn’t bothering investors yet. This year the annual debt will exceed $3 trillion. I am still concerned over the increasing Treasury debt and how it will be paid, but as long as interest rates are this low, it won’t cause near term concerns. If (when) interest rates begin to increase, we expect there will be more concerns. Concerns that the country can’t afford much more spending have been voiced by officials from both political parties in recent weeks, as stimulus efforts ground to a halt. The CBO predicts a deficit of about $3.7 trillion this year, or 16% of GDP.
At 9:30 am ET, the DJIA opened +146, NASDAQ +101, S&P +23. 10 yr. 0.68% unchanged from yesterday. FNMA 2.5 30 yr. coupon at 9:30 am +2 bps from yesterday’s close and -12 bps from 9:30 am; the 2.0 FNMA coupon -2 bps from 9:30 am yesterday.
Odds of another round of fiscal stimulus for the U.S. economy dropped on Thursday as senators headed out of Washington for the weekend following a partisan split over a slimmed-down package proposed by Republicans. Several GOP senators offered pessimistic comments after yesterday’s vote about the likelihood of a revival in talks before the election.
Not likely there will be any movement in the bond and mortgage markets today.
10 yr. note: 0.68% unch
2 Yr. note: 0.13% -1 bp
30 yr. bond: 1.42% unch
Libor Rates: 1 mo. 0.151%; 3 mo. 0.249%; 6 mo. 0.284%; 1 yr. 0.414% (9/10/20)
30 yr. FNMA 2.5: @9:30 105.03 +2 bp (-12 bp from 9:30 yesterday) 2.0 103.11 +5 bp (-2 bp from 9:30 yesterday)
30 yr. GNMA 2.5: @9:30 104.73 +2 bp (+14 bp from 9:30 yesterday)
Dollar/Yuan: $6.8323 -$0.0021
Dollar/Yen: 106.11 -0.03 yen
Dollar/Euro: $1.1842 +$0.0026
Dollar Index: 93.20 -0.14
Gold: $1962.50 -$1.80
Crude Oil: $37.17 -$0.13
DJIA: 27,592 +58
NASDAQ: 10,907 -12
S&P 500: 3343 +4
Weekly claims at 8:30 am ET were unchanged from the prior week at 884K but were expected to have declined to 828K. The 4-week average of continuing claims 970.75K down from 992.5K the week before. Claims have leveled off the last few weeks, implying extensive job losses persist as the nation continues to struggle to control the coronavirus. Many businesses are hiring or bringing back workers. Yet, millions remain unemployed, and others are on the chopping block as more companies announce job cuts and small-business aid runs dry.
August PPI was up 0.3% stronger than 0.2% expected, yr./yr. PPI -0.2% with forecasts of -0.3%; the core PPI +0.4%, higher than 0.2% forecasts, yr./yr. +0.6% against 0.3%. The figures signal producers are becoming slightly more successful at passing along higher raw materials costs to their customers. While recent data shows an acceleration in consumer prices, returning inflation to the Federal Reserve 2% target will likely be a slow process; nevertheless, prices are creeping high. Tomorrow August CPI is more significant for end-use consumer costs.
There was no reaction to the 8:30 am ET reports; 10 yr. 0.71% +1 bp; FNMA 2.5 30 yr. coupon -3 bps from yesterday’s close.
At 9:30 am ET, the DJIA opened +110, NASDAQ +92, S&P +16. 10 yr. note at 9:30 am 0.71% unchanged. FNMA 2.5 30 yr. coupon at 9:30 am -5 bps from yesterday’s close and -10 bps from 9:30 yesterday.
The Senate is poised to vote today on whether to advance a slimmed-down Republican-crafted pandemic relief bill, opening what’s likely to be the final stage of the months-long partisan battle over fiscal stimulus. It may not even get to the Senate floor; Democrats have the votes to block it. It looks like Dems do not want a deal unless it’s their $2.2 trillion plan. Keeping the politics going, Chuck Schumer, Senate minority leader, said yesterday, “If it’s defeated, there’s a decent chance they will come back to the table and we get a better bill. That’s what we’re hoping for.” The McConnell bill features some of the aspects of a $1 trillion GOP proposal that many in the party balked at a month ago. It’s expected to cost $500B to $700B, with some of that covered by unspent funds allocated to support U.S. Federal Reserve facilities.
At 1:00 pm ET, Treasury will auction $23B of 30 yr. bonds (29 yrs. 11 mos). Yesterday’s 10 yr. auction was sloppy and not well bid.
10 yr. still holding in its six-month range but close to 0.74%, the top of the range. Technicals remain slightly on the negative side.
10 yr. note: 0.71% unch
5 yr. note: 0.28% +1 bp
2 Yr. note: 0.15% +2 bp
30 yr. bond: 1.47% +2 bp
Libor Rates: 1 mo. 0.151%; 3 mo. 0.250%; 6 mo. 0.285%; 1 yr. 0.414% (9/9/20)
30 yr. FNMA 2.5: @9:30 105.13 -5 bp (-10 bp from 9:30 yesterday)
30 yr. GNMA 2.5: @9:30 104.63 -41 bp (-33 bp from 9:30 yesterday)
Dollar/Yuan: $6.8296 -$0.0037
Dollar/Yen: 106.14 -0.05 yen
Dollar/Euro: $1.1914 +$0.0011
Dollar Index: 92.79 -0.47
Gold: $1970.10 +$14.50
Crude Oil: $37.94 -$0.11
DJIA: 28,083 +144
NASDAQ: 11,249 +109
S&P 500: 3418 +20
The past three sessions drove stock indexes down 10%, traditionally seen as correction territory. This morning in pre-open trading, the indexes were trading a little better, the DJIA +200, NASDAQ +159 at 9:00 am ET.
Known as the bond king, Jeffery Gundlach, commenting on the stock market and retail investors, saying the buying frenzy among retail investors this year is an ominous sign for the stock market. "Of course, retail investor activity is downright terrifying," he commented this morning on his webcast. Gundlach alluded to some of the blame for the retail trading boom falling in the lap of the federal government's unprecedented stimulus. The funds aided many struggling Americans, but for others, the stimulus money reportedly made its way back into the stock market. Gundlach likened the newbie investors to a kid who is offered candy from a stranger. "This is a terrible sign for the condition of the market for anybody who's experienced a significant number of cycles, which I've definitely experienced." The coronavirus rout brought a copious amount of new accounts to online brokers this year as amateur investors sought to get a slice of the epic market comeback. Many on Wall Street have raised red flags on the rise in speculative behavior as the retail crowd piled into some of the riskiest corners of the market. At one point, some bankrupt stocks and penny names saw their shares double in one session, while the most beaten-down shares were also bid up drastically. The buying stampede also spilled into more sophisticated options markets.
The last three days of selling in the equity markets shouldn't be a surprise, except when it would happen. The stock market rally was narrow in scope, mostly driven by tech stocks known as FAANGs ((Facebook, Apple, Amazon, Netflix, Google) that propelled investors to dive in and look for the next stock that would fuel additional unrealistic gains when measured against time. The equity markets were in technically bearish positions no matter what technical signals one used. They had been screaming bearish as the indexes made new all-time highs daily, NASDAQ 43 new highs, the S&P set its new high one week ago. Increases in the indexes looked unstoppable, and market technicians were vilified for speaking heresy that the turn was coming. It came with deep, swift selling beginning last Thursday; the interesting thing though, there was no reaction in the treasury markets. Hedging looks like it was in ETFs, gold actually receded, the long end of the yield curve (10 yr. note) didn't change (just a couple of basis points). Those FAANGs have lost $1trillion in value since last Thursday. We doubt those stocks will continue to fall and could be a buying opportunity since there isn't anywhere else for investment money to go.
At 9:30 am ET, the DJIA opened +272, NASDAQ +198, S&P +44. 10 yr. note 0.68% unchanged. FNMA 2.5 30 yr. coupon at 9:30 am -2 bps from yesterday, and +14 bps from 9:30 am yesterday.
Earlier this morning, weekly MBA mortgage apps last week; the composite +2.9%, purchase apps, and refinance apps both up +3.0%.
AstraZeneca's Phase III trial of a coronavirus vaccine was suspended due to an adverse reaction in one trial participant. A person participating in one of the company's studies got sick, a potential adverse reaction that could delay or derail efforts to speed an immunization against Covid-19. The move was intended to give researchers time to examine safety data while maintaining the integrity of the trials, the company said. The vaccine was considered one of the leading candidates, enrolling as many as 50,000 participants for late-stage trials that are underway in the U.K., the U.S., Brazil and South Africa, with others planned for Japan and Russia.
July JOLTS job openings, old data, but it's a look at a month ago; expected at 5.95 mil from 5.889 mil in June; as released job openings were 6.618 mil and June revised better to 6.001 mil.
This afternoon at 1:00 pm ET, Treasury will sell $35B of 10 yr. notes, demand will be closely watched.
10 yr. note: 0.68% unch
5 yr. note: 0.27% unch
2 Yr. note: 0.14% unch
30 yr. bond: 1.43% unch
Libor Rates: 1 mo. 0.155%; 3 mo. 0.249%; 6 mo. 0.301%; 1 yr. 0.427% (9/8/20)
30 yr. FNMA 2.5: 105.27 -3 bp (+14 bps from 9:30 yesterday)
30 yr. GNMA 2.5: 104.95 -5 bp (+23 bps from 9:30 yesterday)
Dollar/Yuan: $6.8337 -$0.0130
Dollar/Yen: 106.16 +0.12 yen
Dollar/Euro: $1,1821 +$0.0046
Dollar Index: 93.25 -0.20
Gold: $1952.60 +$9.40
Crude Oil: $37.34 +$0.58
DJIA: 27,905 +404
NASDAQ: 11,064 +217
S&P 500: 3385 +54
Record high home prices dominate the real estate landscape
Despite the country being mired in a recession as well as a pandemic, U.S. home prices seem oblivious. According to Realtor's Clare Trapasso, prices are defying logic, expectations, and even belief, as they shoot up to record highs amid an unprecedented health and economic crisis. She asks, "It has all led some to wonder: Are some markets getting too hot? Could a significant correction be around the corner?"
In high-priced California and even less expensive Rust Belt, Midwestern, and Southern metro areas, prices have shot up by more than 20% in the past year alone, according to Trapasso.
"Nationally, the median home list price rose 10.1% year over year in the week ending Aug. 15, according to the most recent realtor.com® figures. No one predicted such a dramatic increase compared with 2019—when the economy was strong, no one had heard of COVID-19, and social unrest hadn't exploded, "she says. "In fact, many experts predicted prices would flatten, if not fall."
"This year's sky-high prices are driven by a rush of buyers competing for a very limited supply of properties. More demand than supply equals higher prices," she says.
Trapasso predicts that instead of another real estate fire sale, certain parts of the country could see price hikes slow down or flatten, or prices even come down—by just a little. "That could happen if prices rise so high that homeownership becomes too expensive for the majority of would-be buyers. So instead of a bubble popping, it's more that home prices could come back to reality."
Historically low-interest rates are a factor, driving more buyers into the market and allowing them to stretch higher on what they're willing to pay. Of course, lower rates mean lower monthly mortgage payments. "Those who weren't able to buy in the spring because of the pandemic—along with buyers desperate for larger, single-family homes with big backyards after sheltering in place for months—are adding to the rising demand," says Trapasso.
Some areas are benefitting from a mass exodus from urban centers, where a large number of office buildings remain vacant and homeowners who bought homes nearby to take advantage of the short commute no longer need to occupy their city cubicles. Remote work is booming.
Source: Realtor, CoreLogic, TBWS
Mortgage rates are trending sideways so far today. Last week the MBS market worsened by -19bps. This was enough to move rates or fees slightly higher for the week. We saw elevated rate volatility throughout the week.
Three Things: These are the three areas that have the greatest ability to impact your backend pricing this week. 1) The Fed, 2)Jobs and 3) Geopolitical.
1) The Fed: Last week, Fed Chair Powell unleashed the Fed's new stance on how they will meet their inflation target mandate. This week, the bond market will be looking for more clarification and to see if the Fed will be stepping up their assets purchases to keep pace with the big increase in Treasury issuance. Here is this week's schedule:
2) Jobs: We get an avalanche of jobs and wage-related data all week long with ADP Private Payrolls, Challenger Job Cuts, Initial Weekly Jobless Claims, and internal readings in ISM Manufacturing and Unit Labor Costs. Of course, Big Jobs Friday will get the most attention from traders as the markets are looking to see if the unemployment rate can dip below 10%.
3) Geopolitical: There are a lot of stories for bond markets to focus on, including our Presidential Election. No movement on another stimulus bill, China Trade Talks, Turkey vs. Greece, China vs. India, and many more.
This Week's Potential Volatility: High
As noted above, there's a lot going on this week that could move rates. Friday, we could see a lot of rate volatility if the jobs numbers don't fall in line with expectations.