Early trade had stocks generally unchanged after the S&P and NASDAQ broke into new all-time highs yesterday. In the bond market there was a good start with the 10-yr at 7:30 am ET at 2.53%, below the pivotal 2.55% level; MBS prices opened this morning up 8 bps from yesterday’s close on the back of the better 10-yr note.
Weekly MBA mortgage applications were weak this morning, for the week ending 4/19 the overall composite apps were down -7.3%. Purchases applications were down -4.0%, the first decline in purchase apps in five weeks. Refinance apps dropped -11.0% the third decline in refinance apps. Disappointing but it is just one week of weaker purchases, and that may be attributable to Spring breaks and Holy Week.
There is no scheduled data today except the weekly EIA report on crude oil supplies. This afternoon at 1:00 pm ET the Treasury will auction $40B of 5-yr notes. Yesterday’s 2-yr note wasn’t bad, but didn’t show much demand, comparatively speaking.
Yesterday the US stock market hit new record highs (S&P and NASDAQ). This morning there was not much follow-through in early activity. Were the new highs meaningful or were they just more exaggerated optimism? The next couple of weeks should clear the air. Earnings in Q1 are coming in better than expected, but many of the companies reporting better than expected results are built on the backs of companies down-playing their outlooks so as not to disappoint investors. The economic expansion is becoming long in the tooth after 10 yrs — not normal when viewed from a historical perspective but neither is it normal to have interest rates at these historically low levels. Nowhere to go to for safety while stock returns out-pace all other options.
Rates are going to stay low, and likely will decline more particularly at the long end of the curve, 10s and 30s will push mortgage rates lower, although MBSs will lag the 10 as rates decline. The US is the only bond market that is safe compared to other key sovereign debt. US debt is climbing, this year likely the annual debt level will move to over $900B and is expected to increase next year. Rates normally would be rising as debt increases lessening the safety aspect; this is not the case this time. Under all of the euphoria of climbing stocks, there is an increasing demand for safe investments; the expansion can’t continue to last much longer. An aging population lessens the desire for risk and increases the need to protect. If our assessment is correct, we can expect interest rates to continue to fall, although the pace of declines will likely be less than what we have seen this year so far. And as long as investors continue to ignore the increasing risk in equities at these historic highs, interest rates will hold in the present ranges across the curve. That said, we expect that the 10-yr note rate to eventually fall to 2.40%, the major long term technical resistance.
At 9:30 amthe DJIA opened down -26, the NASDAQ dropped +4, and the S&P was lower by -2. The 10-yr stood at 2.53%, dropping -4 bp.
U.S. Trade Representative Robert Lighthizer Treasury Secretary Steven Mnuchin will travel to China for another round of trade talks on April 30. Germany's IFO Business Climate Index decreased to 99.2 in April (expected 99.9) from 99.6 in March. Current Assessment decreased to 103.3 in April (expected 103.6) from 103.9 in March while Business Expectations decreased to 95.2 (expected 96.0) from 95.6. France's Business Survey decreased to 101 in April (expected 102) from 103 in March.
The 10-yr has broken its resistance at 2.55% after running to 2.60%, returning our positive bias and pointing now to the real possibility that the rate will decline to its recent support at 2.34%. Technically the 10 has also broken below its 20-day average. It is still dependent on how money flows into equities, but rates are more likely to decline than increase. There is no inflation except in the price of crude, and that doesn’t change the view that inflation isn’t going to increase; focus on inflation is always the core that excludes food and energy.
PRICES @ 10:00 AM
10 yr. note: +13/32 (41 bp) 2.52% -5 bp
5 yr. note: +7/32 (22 bp) 2.31% -5 bp
2 Yr. note: +2/32 (6 bp) 2.33% -3 bp
30 yr. bond: +22/32 (69 bp) 2.95% -3 bp
Libor Rates: 1 mo. 2.476%; 3 mo. 2.580%; 6 mo. 2.619%; 1 yr. 2.735% (4/23/19)
30 yr. FNMA 4.0: @9:30 102.50 +8 bp (+9 bp from 9:30 yesterday)
15 yr. FNMA 3.5: @9:30 101.99 +4 bp (+3 bp from 9:30 yesterday)
30 yr. GNMA 4.0: @9:30 102.91 +8 bp (+8 bp from 9:30yesterday)
Dollar/Yuan: $6.7206 -$0.0053
Dollar/Yen: 111.81 -0.5 yen
Dollar/Euro: $1.1194 -$0.0034
Dollar Index: 97.75 +0.15
Gold: $1274.80 +$1.60
Crude Oil: $66.27 -$0.03
DJIA: 26,634.32 -22.07
NASDAQ: 8109.92 -10.91
S&P 500: 2931.14 -2.54
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.
MLO of record MLO.100007700 / NMLS#233568 / CHM NMLS#127716.
Reprising the March housing starts and permits released last Friday: Housing starts came in far below expectations in March at a 1.139 million annual rate — nearly 30,000 below consensus range. And permits aren't any better at a 1.269 million rate and nearly 20,000 below the low estimate. The trend is clearly downward with starts the weakest since May 2017 and permits the weakest since August last year. Year-on-year rates are minus 14.2 percent for starts and minus 7.8 percent for permits. Good news in the report is scarce but does include a welcome 11.9 percent monthly jump in single-family completions at a 938,000 rate for a new home sales market that needs a fresh supply. But another key reading, permits for single-family homes, fell 1.1 percent in March and are down 5.1 percent year-on-year. Low mortgage rates may be helping purchase applications but have yet to trigger much response from home builders. However, as strong as the jobs market may be, residential investment was the consistent tail-ender in last year's GPD statistics and doesn't look like it will be improving in the first quarter. Regional data show a March uptick for starts and permits in the West, where home prices have completely flattened, though year-on-year rates here remain deeply negative. All regions, in fact, are in the negative year-on-year columns whether for starts or permits. (Econoday)
This morning the stock indexes began weaker, the rate markets also weaker (price), the 10-yr yield 2.57%, up +1 bp, and MBS prices in very early trading -5 bps from last Thursday’s close.
The US is moving to end Iran’s oil exports. Six months after the U.S. shook oil markets by letting Iranian exports continue, its decision to end sanctions waivers that allowed shipments is also set to reverberate across the globe. According to reports, the US won’t renew exemptions from its sanctions to buyers of Iranian crude after they expire on May 2. It marks a change in direction from November last year when the Trump administration granted waivers to eight importers as it sought to temper fuel prices ahead of American mid-term elections. The immediate result is sending crude oil prices climbing today, up $1.40, a new high price this year.
At 9:30 the DJIA opened down -92, the NASDAQ dropped -28, and the S&P was down by -8. The 10-yr stood at 2.575%, up +1.5 bps from Thursday.
The Mueller Report will not go away, but we don’t see any of the comments or actions now or in the future having much direct influence on markets. It will, however, keep the media busy with news as details surface. Already there are talks of impeachment about obstruction of justice escalating, even though Democratic leaders are yet not pushing it, waiting for more information from the unredacted report that Barr said he would let Congressional leaders see.
The news of the day; March existing home sales; another weaker-than-thought report on the housing sector. Sales were expected at 5.300 mil, as reported 5.210 mil -4.9%, -5/5% yr./yr. High prices and low inventories continue to keep the housing sector on its heels. February existing home sales were revised lower, from 5.510 mil to 5.480 mil.
The Treasury will sell $113B 0f 2s, 5s, and 7s this week beginning tomorrow.
The first look at Q1 GDP will be released on Friday. Expectations are for +2.2% growth; the advance report is generally subject to revisions when the preliminary report is released next month.
The 10 yr. note, the driver for mortgage rates, continues to hold in a narrow range for the last five sessions, unable to move below 2.55%/2.56% yet not increasing either. This morning there was an announcement from the administration that it is cutting off Iran’s oil exports, shaking markets a little although stocks are strong and will likely continue improving. This week there are 142 S&P stocks that will report earnings. GDP on Friday will most likely beat current expectations (+2.2%). Last week the North Korean’s launched a tactical missile and commented talks with the US would be better served without Secretary of State Pompeo, saying he isn’t competent.
This Week’s Calendar:
10:00 am March existing home sales (expected 5.300 mil -3.8%,as reported 5.210 mil -4.9%)
9:00 am Feb FHFA housing price index (+0.4%)
10:00 am March new home sales (645K -3.2%)
1:00 pm $40B 2 yr. note auction
7:00 am weekly MBA mortgage applications
1:00 pm $41B 5 yr. note auction
8:30 am weekly jobless claims (+17K)
March durable goods orders (+0.8%, ex transportation orders +0.2%, core capital goods +0.1%)
1:00 pm $32B 7 yr. note auction
8:30 am Q1 advance GDP (+2.2%, price index 1.7%, real consumer spending +1.1%)
10:00 am U. of Michigan consumer sentiment index (97.1 from 96.9 at mid-month)
10 yr. note: 2.58% +2 bp from Thursday
5 yr. note: 2.37% unch from Thursday
2 Yr. note: 2.39% unch from Thursday
30 yr. bond: 2.96% unch from Thursday
Libor Rates: 1 mo. 2.480%; 3 mo. 2.581%; 6 mo. 2.629%; 1 yr. 2.746% (4/18/19)
30 yr. FNMA 4.0: @9:30 102.39 -8 bp (-6 bp from 9:30 Thursday)
15 yr. FNMA 3.5: @9:30 101.96 +2 bp (+1 bp from 9:30 Thursday)
30 yr. GNMA 4.0: @9:30 102.83 -9 bp (-11 bp from 9:30 Thursday)
Dollar/Yuan: $6.7107 +$0.0063
Dollar/Yen: 111.93 +0.03 yen
Dollar/Euro: $1.1256 +$0.0012
Dollar Index: 97.35 -0.02
Gold: $1277.80 +$1.80
Crude Oil: $65.36 +$1.36
DJIA: 26,489.88 -69.66
NASDAQ: 7987.44 -10.62
S&P 500: 2902.13 -2.90
Car-charging stations raise home prices where electric cars are popular
Need a charge? It seems the latest amenity to boost housing prices even higher these days is close proximity to electric-vehicle charging stations. A recent analysis by realtor.com finds that listings in markets where electric vehicle-friendly housing is popular make homes there sell at a premium.
Forbes Real Estate’s Brenda Richardson reports on this phenomenon. “The top 20 housing markets fall within nine states, with a majority of the Zip codes in California. Zip code 92618 in Irvine, California has the most charging stations, 77,” says the report, “while the top 20 zip codes have an average of about 30 charging stations each. The combined median listing price for the areas that are most accommodating to electric vehicles is $782,000, 1.5 times higher than their surrounding metro areas and 2.6 times higher than the rest of the country.” Realtor.com used data from OpenChargeMap to track 19,743 charging stations mapped across 6,980 Zip codes. Then they analyzed the housing markets of the top 20 areas with the most electric-vehicle charging stations.
“Our data shows there’s definitely a link between the prevalence of electric-vehicle charging stations and higher home prices,” says Danielle Hale, chief economist at realtor.com. “But there’s a difference between correlation and causation. The trend we’re seeing in the data is most likely a result of the fact that wealthier homeowners are more likely to purchase expensive electric vehicles. But regardless of the cause, if you’re shopping for a home in a zip code with an abundance of electric-vehicle charging stations, you’ll likely pay a premium.”
From an investment standpoint, nreionline.com's Laura Khouri reports that as multifamily owners and investors look for new and innovative ways to add value to their communities, they are seeing that the continued growth in electric vehicle sale is fueling value to their communities by implementing car-charging stations throughout their communities. Like all other value add amenities, adding car charging stations can assist owners in providing better customer satisfaction, while also creating an opportunity for increased revenue.
“A new amenity, car-charging stations add value for owners and investors in a variety of ways,” she says. “First, the charging stations provide the opportunity to increase prospective resident interest in a community, by adding an element to the community that many residents are currently demanding. Secondly, the installation of the charging stations creates an additional revenue stream that will continue to grow with the popularity of electric vehicles.”
Source: Forbes, Nreilonline, TBWS
How Rates Move:
Conventional overnment (FHA and VA) lenders set their rates based on the pricing of Mortgageand G-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 -5bps. This was not enough to move rates higher last week. We saw low rate volatility throughout the week.
This Week's Rate Forecast: Neutral
Three Things: These are the three areas that have the greatest ability to impact mortgage rates this week. 1) GDP, 2) Geopolitical and 3) Central Bank.
1) GDP: We will get our first look at the 1st QTR GDP this week. Around a month ago, market expectations were for a growth rate of only 0.4%, but now that has boomeranged into 1.8% to 1.9%. Any reading above 2.00% would be negative for rates.
2) Geopolitical: No Waivers for You! For the past six months, the United States has let 10 nations know that their waivers (exemptions from having to abide by the trade embargo against Iranian oil exports) would expire. 3 of those nations have already stopped purchasing ahead of the deadline but 5 of them including China and India have still been purchasing until now. This is not a new policy at all and well telegraphed to everyone, but as usual, everyone rides it until the last possible minute. Markets will be sensitive to rising oil prices and any heightened military prospects. The U.K. Parliament is now back from Easter Break, and we will start to get some more Brexit headlines after about 10 days of quiet on that front.
3) Central Bank: This week, we will get the Bank of Japan's (third largest economy) interest rate decision and policy statement as well as the Bank of Canada (tenth largest economy).
Treasury Auctions this Week:
This Week's Potential Volatility: Average
Last week, we saw almost no movement in rates. This week, we do have some news noted above that can increase rate volatility and push rates higher. This is a bit technical, but we're right on the 50-day moving average for rates. If we jump above that number, we could see rates spike on high volatility. We'll be keeping a close watch on the economic news to see if anything comes out and surprises the markets.
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.
Today the Mueller report was released at 11:00 am ET. Early this morning before 8:30 am the 10 yr note rate was at 2.56% down 3 bps from yesterday and US stock indexes in the futures markets were essentially unchanged.
At 8:30 March retail sales were a huge miss to the upside; expected to be +0.8%, it was twice as strong +1.6%. Excluding auto sales expectations were +0.7% as reported +1.2%, excluding autos and gas expected +0.4% increased 0.9%, the control group that includes services the forecast was +0.5% as reported +1.0%. This report shocked most with its strength especially after yesterday’s Beige Book commented on sluggish consumer spending.
Not only the major increase in sales, weekly jobless claims were thought to have increased 10K to 206K but declined -5K to another record 192K.
Finally at 8:30 the only report that was weaker than thought, the April Philadelphia Fed business index was expected at 10.2 from 13.7 in March; as reported +8.5.
The reaction to all of the 8:30 data didn’t have much impact on the interest rate sector, the 10 yr before 8:30 am at 2.56%, at 9:00 2.57%, MBS prices at 9:00 +9 bps from yesterday’s level.
Two things this morning supporting the rate markets; the Mueller report and the news that North Korea launched a tactical missile yesterday that renews concerns that had ebbed recently with comments from North Korea’s Kim and Trump talking about a suspension of North Korea’s missile programs. The regime hasn’t launched a missile since November 2017—a fact that the Trump administration has pointed to as a sign that its diplomacy with the isolated regime has been successful. Before yesterday, the North’s most recent weapons test came about five months ago during a time of uncertainty in the diplomatic process. Pyongyang had canceled an early November meeting in New York with Secretary of State Mike Pompeo. North Korea said today it no longer wanted to deal with U.S. Secretary of State Mike Pompeo and said he should be replaced in talks by someone more mature, hours after it announced its first weapons test since nuclear talks broke down.
At 9:30 AG Barr held a press conference before the full redacted release on the Mueller Report as the stock market was opening; the press conference waited until the opening bell. At 9:30 the DJIA opened +58, NASDAQ unch, S&P +4. 10 yr at 9:30 2.56% -3 bps from yesterday. Fannie 4.0 30 yr coupon conventional +9 bps from yesterday’s close and +7 bps from 9:30 yesterday.
Barr in his press conference saying the full report will be released at 11:00 am ET this morning. In his press conference, Barr clearly indicated there was no evidence the Trump campaign had any involvement with his campaign, and no American had any involvement with Russia in the 2016 election. No obstruction of justice was found with the Trump campaign and no collusion. There are redactions as expected, Barr said he would allow Congressional Committees to see the unredacted report with the exception of grand jury testimonies (likely not for publication by those committees) Let the politics begin.
The bond and MBS markets scheduled to close at 2:00 this afternoon, stocks go through the normal day.
10 yr. note: +11/32 (34 bp) 2.556% -3.5 bp
5 yr. note: +7/32 (22 bp) 2.36% -4 bp
2 Yr. note: +2/32 (6 bp) 2.37% -2 bp
30 yr. bond: +20/32 (62 bp) 2.96% -3 bp
Libor Rates: 1 mo. 2.487%; 3 mo. 2.591%; 6 mo. 2.633%; 1 yr. 2.761% (4/18/19)
30 yr. FNMA 4.0: @9:30 102.45 +9 bp (+7 bps from 9:30 yesterday)
15 yr. FNMA 3.5: @9:30 101.95 +1 bp (-3 bps from 9:30 yesterday)
30 yr. GNMA 4.0: @9:30 102.95 +4 bp (+3 bps from 9:30 yesterday)
Dollar/Yuan: $6.7080 +$0.0198
Dollar/Yen: 111.88 -0.18 yen
Dollar/Euro: $1.1254 -$0.0042
Dollar Index: 97.33 +0.32
Gold: $1276.40 -$0.40
Crude Oil: $63.85 +$0.09
DJIA: 26,500.63 +51.29
NASDAQ: 7966.64 -29.44
S&P 500: 2897.54 -2.91
Overnight the bond market was unchanged from yesterday; in US early trade the 10-yr note edged up a basis point to 2.60%. US stock indexes in pre-open trade were fractionally better.
We noted yesterday that China would likely report more positive data overnight. China’s economic growth held to a 6.4% rate in the first three months of the year as factory production picked up significantly amid signs authorities worked forcefully to stabilize business. It is the second quarter at 6.4% but still below 6.6% in 2018, that it has stabilized and is seen as a step forward for the world’s GDP growth. The Chinese economy once grew at over 15% yr./yr. before the 2008 financial crisis. China has an overload on debt, and a lot of excess capacity as its growth has fallen 8.6% from its zenith. US/China trade talks are thought to be moving closer to an agreement but not much news this week. Markets and traders are increasingly optimistic about a trade pact. When it is complete, the House will likely toss grenades as it has with the NAFTA deal the administration worked out. Pelosi wants Mexico to increase and secure Mexican labor pay.
Weekly MBA mortgage applications declined 3.5% on the composite. Purchase applications were up by +1.0% while refinance apps dropped 8.0% following the prior week's 11.0% pullback. This index, as mortgage rates dropped, rose 39 and 12% in the last two months of March. Purchase apps increased to their highest level in almost nine years last week even as mortgage rates increased for a second week.
At 8:30 am ET February the US trade balance was better than forecasts at -$49.4B. The consensus was -$53.6B. Exports of goods rose 1.5% to $139.5B; Imports rose only 0.2% in the month, totaling $259.1B. Nice to see the decline in the balance. Today's results are certain to lift first-quarter GDP estimates which had been roughly at the 2%. And the easing deficit with China may well ease immediate tensions in U.S.-Chinese trade talks. The US trade gap is now at an 8-month low.
The economies in the EU continue to contract; Germany's Economy Ministry lowered its 2019 forecast for German GDP growth to 0.5% from 1.0%, in-line with speculation from last week. Germany is the largest and strongest economy in the EU based on any number of factors.
At 9:30 am ET the DJIA opened up stood at 2.60%, +1 bp from yesterday.
Not a market-mover but at 10:00 am February wholesale inventories are expected to be up +0.3%.
There are two Fed officials speaking today, but neither will have anything that will influence markets; James Ballard and Patrick Harker (St. Louis and Philadelphia respectively) at 12:30 pm ET.
At 2:00 this afternoon the Fed Beige Book will be released, in which 12 Fed districts report on details. Not likely there will be anything in the Book that will have any major news that will change the view about the economy but does provide specifics around the country.
Near term techs continue to reflect negative very near term outlook. We expect the 10-yr note that drives MBS rates to continue to increase to 2.63% before there is support. The wider outlook for interest rates remains positive. With no worries about rising inflation, the Fed is more likely to lower the Federal Funds rate than increase it. Presently equity markets are pointing to making new highs, swinging money out of safe havens in sovereign debt (treasuries) and currently, the fear factors that drove rates lower are not much of an influence. The momentum oscillators are now at their most negative since back on March 1st. Trade this week is thin with the bond market closed tomorrow at 2:00 PM and closed Friday. The stock market is closed Friday.
10 yr. note: unch 2.60% unch
5 yr. note: unch 2.40% unch
2 Yr. note: unch 2.40% unch
30 yr. bond: +4/32 (12 bp) 2.99% unch
Libor Rates: 1 mo. 2.479%; 3 mo. 2.600%; 6 mo. 2.631%; 1 yr. 2.755% (4/16/19)
30 yr. FNMA 4.0: @9:30 102.83 -2 bp (-3 bp from 9:30 yesterday)… @10:00 +3 bp better than 9:30 yesterday
15 yr. FNMA 3.5: @9:30 101.98 -1 bp (+7 bp from 9:30 yesterday)
30 yr. GNMA 4.0: @9:30 102.92 +2 bp (-2 bp from 9:30 yesterday)
Dollar/Yuan: $6.6883 -$0.0239
Dollar/Yen: 111.98 -0.03 yen
Dollar/Euro: $1.1302 +$0.0020
Dollar Index: 96.95 -0.10
Gold: $1277.90 +$0.40
Crude Oil: $64.14 +$0.09
DJIA: 26,405.72 -46.94
NASDAQ: 8012.64 +12.42
S&P 500: 2907.03 -0.03
Yesterday the 10-yr for the second session held the major technical support at 2.55% this morning, though the 10 yr is moving higher at 2.58%, up +3 bps. The stock market yesterday was flat. This morning in early pre-open trading the indexes were better with the DJIA up by +144.
At 9:15 am ETwe saw March industrial production and capacity utilization; production was expected to have increased 0.3% but fell 0.1%. Capacity utilization was thought to have increased to 79.1% from 78.2%. As reported it was at 78.8%. This report hardly ever generates any movement in stocks or bonds.
At 9:30 am the DJIA opened up +130, the NASDAQ increased by +27, and the S&P gained +9. The 10-yr was at 2.58%, up +3 bps.
At 10:00 am the April NAHB housing market index was expected at 63 and was reported as such. Late last year the index was in the high 60s and low 70s.
This is a very short week for the bond and mortgage markets; bonds will close Thursday at 2:00 pm ET for the remainder of the week. On Thursday the Mueller Report will be released to Congress and the public with a lot of redactions, mostly grand jury testimony. Democrats already are saying they will issue a subpoena for the entire report with no redactions. It eventually it will end up in the courts, possibly ending up at the Supreme Court.
Bank earnings continue to impress.This morning Band of America reported strong earnings following most of the rest that have reported. The pendulum may be swinging from earnings concerns that were worrisome before the banks reported to a more positive view that overall earnings will be good and not disappoint. Net income gained 5.7 percent to $7.31 billion, or 70 cents a share, surpassing estimates of 66 cents. Revenue fell slightly to $23.2 billion, matching the median analyst forecast. The optimism outlook is increasing; BlackRock Inc.’s Chief Executive Larry Fink said most investors are under-invested in the markets globally; another voice added to the outlook. Every major market around the world rallied today; not one declined. Fink thinks there will be a huge inflow into equity markets this year; if that is correct it has to be on the back of low-interest rates; increasing interest rates would more provide options for investors.
Not good for the interest rate markets; the 10 yr is now solidly above its recent support at 2.55%; and, of course, not good for mortgage rates although we don’t expect mortgage rates will increase much. US interest rates are likely to remain low compared to where they were at the end of last year. The Fed won’t even think about increasing rates. Inflation is not going to engage; there is a view that is slowly growing that the Fed may actually lower rates later this year. In the meantime, with the break of support today for the 10-yr note, mortgage rates will edge a little higher. Global sovereign rates are substantially lower than US rates giving the US bond market some lead way in terms of keeping rates reasonably low.
Stock indexes are off their early morning highs. Prior to the 9:30 am open the DJIA was up 144. At the 9:30 open they were up +130, and by 10:00 am up +58. The slippage in stock indexes will keep interest rates from increasing. As you know, now our models and momentum oscillators are negative, particularly after the 10-yr has pushed above 2.55%.
10 yr. note: -7/32 (22 bp) 2.58% +3 bp
5 yr. note: -2/32 (6 bp) 2.39% +2 bp
2 Yr. note: unch 2.39% unch
30 yr. bond: -7/32 (22 bp) 2.98% +1.5 bp
Libor Rates: 1 mo. 2.473%; 3 mo. 2.588%; 6 mo. 2.637%; 1 yr. 2.754% (4/15/19)
30 yr. FNMA 4.0: @9:30 102.41 -5 bp (-1 bp from 9:30 yesterday; lenders pricing more conservative)
15 yr. FNMA 3.5: @9:30 101.91 -11 bp (-9 bp from 9:30 yesterday)
30 yr. GNMA 4.0: @9:30 102.94 +3 bp (-2 bp from 9:30 yesterday)
Dollar/Yuan: $6.7116 +$0.0029
Dollar/Yen: 111.96 -0.08 yen
Dollar/Euro: $1.1300 -$0.0004
Dollar Index: 96.97 +0.03
Gold: $1277.50 -$13.80
Crude Oil: $63.51 +$0.11
DJIA: 26,442.24 +57.47
NASDAQ: 8010.41 +34.39
S&P 500: 2912.79 +7.21
March prices: supply and demand for homes don't always match up
Some things don’t happen the way they are supposed to. Remember how a housing slowdown was slated to calm things down and stem the tide of bidding wars going on all over the country?
According to a recent realtor.com report by Clare Trapasso, home list prices aren't coming down. Instead, they reached a new all-time high as the busy spring market begins. While median list prices crossed the $300,000 mark for the first time in March, annual price growth had been slowing. Truth be told, that actually is still happening in a few parts of the country. Nationally, however, list prices shot up 7.2% year over year in March, making it significantly more than inflation, which was just 1.5% in February.
"Prices are continuing to rise and they're going to get higher," says Danielle Hale, chief economist of realtor.com. "The same property today that's for sale is more expensive, and we're seeing more higher-end homes for sale. In a slowing market, it's not uncommon to have a gap between list prices and sale prices. It can take sellers a little bit of time to catch up to the reality.”
As sellers rushed to list their properties before things changed drastically, causing a rise in inventory. Sellers were trying to capitalize on high prices while many buyers took a pause when prices and mortgage rates simply got too high. “The result?” says Trapasso. “There were price cuts in some of the most expensive markets, and prices didn't climb quite as high as they did in previous years.”
The 4% bump in the number of homes for sale in March should have been a boon for buyers, since the greater the supply, the more prices are likely to fall. But when it comes to affordability, buyers are still on the short end of the stick. The number of affordable homes priced at $200,000 and below was down 9% annually, making it harder for first-time and other cash-strapped buyers to become homeowners.
At the opposite end of the spectrum is the luxury market which is, not incidentally where the biggest increase in housing inventory occurred. “There was an 11% yearly rise in the number of $750,000-and-up residences going on the market in March,” says Trapasso.
For the rest of us, there is still a beacon of light. Mortgage rates fell on 30-year, fixed-rate loans—giving buyers some much-needed financial relief.
A spot-spot-check on pricing starts at the top: the San Jose, CA metropolitan area saw prices plummeted 12% in March compared with the previous year, even though homes still cost a median $1.1 million at last look. Prices were also down 3% in San Francisco, Dallas, Houston, and Jacksonville, FL; 2% in Nashville, TN, and Austin, TX; and 1% in Miami and Orlando, FL.
“On the other end of the spectrum, Milwaukee saw the biggest jump as median home prices were up 16% year over year in March,” says Trapasso. “That's likely due to the shortage of properties for sale as listings were down 8% annually.” So it seems that equation does work in some markets.
Mortgage rates are trending sideways to slightly higher so far today. Last week the MBS market worsened by -35bps. This was enough to move rates or fees higher last week. We saw good deal of rate volatility at the end of the week.
Three Things: These are the three areas that have the greatest ability to impact your rates this week: 1) Trade, 2) Across the Pond and 3)Fed
1) Trade: Speculation, leaks and any actual announcements of progress (meeting dates set, etc.) can have a significant impact on rates.
2) Across the Pond: We have a lot of big economic releases that will hit this week which will give us a better understanding of global growth (or lack thereof) which includes GDP data out of China and preliminary PMI data out of Germany and the Eurozone.
3) Fed: The highlight of the week will be Wednesday's release of the Fed's Beige Book which is prepared ahead of their next FOMC meeting. But we also will hear from a few key voting members this week.
We have a shortened holiday week. The bond market will close early on Thursday and reopen on Monday. Short of something unexpected with trade or overseas economic numbers, look for rates to trade in a narrow channel.
Early trade (7:00 am ET) was quiet, no change in the stock indexes and no changes in the interest rate sector.
Friday the 10 yr. edged above 2.55% to close at 2.56% widely considered a key level and very key in our technical analysis; this morning in early activity (8:45) the 10 yr. at 2.57%. MBS mortgage prices opened this morning -2 bps from Friday’s close. Pre-open trading in US stock indexes, the DJIA generally unchanged from the 269 point improvement last Friday.
Earnings season began last week with banks that lead all earnings reports that will go on now for the next few weeks; this morning Goldman Sachs missed estimates for sales and trading revenue, sending its shares lower in pre-market trading, while Citigroup Inc. revenue matched expectations. Earnings season is to confirm the resilience of corporate America in the face of numerous challenges to growth. JPMorgan Chase & Co. posted strong first-quarter results last week, and Bank of America Corp. is up tomorrow.
The only data today; April NY Empire State Mfg. index was expected at 6.8, as reporte4d 10.1. It is the first manufacturing data for April but doesn’t light any fires.
At 9:30 the DJIA opened +5, NASDAQ +5, S&P +2. 10 yr. note at 9:30 unchanged at 2.56%. Fannie 4.0 30 yr. coupon at 9:30 unchanged from Friday’s close and -11 bps from 9:30 Friday.
Looking at all the news this morning, there isn’t any new market-driving news. Same stuff; US/China trade watch, Treasury Secretary Steven Mnuchin said the countries were “getting close to the final round of concluding issues.” Two phone calls are scheduled this week, but in-person meetings will likely be needed to seal any deal. The US/EU trade talks look like they will escalate this week, tariffs on auto imports to the US appears to be the centerpiece. Last week the IMF once again lowered its global growth outlook. Jamie Dimon last week said the US economy and equity markets could continue to grow for years to come (those kinds of comments make me nervous, too excessive and usually seen at major market turning points).
This week is Holy Week; trading and market movements likely to remain in narrow ranges. The bond and mortgage markets close at 2:00 pm Thursday and will be closed until next Monday.
Friday the 10 edged up to 2.56% 1 bp above 2.55% so far it is holding, breaking 2.55% the key market focus by 1 bp isn’t definitive. We noted Friday the next day or two from a technical perspective will be key, unless the 10 moves back below 2.55% our forecast is the next support for the note is a move up to 2.63%; MBS prices if that scenario happens will drop about 60 bps and 30 yr. rate back to 4.50% area.
8:30 am April NY Empire State manufacturing index (expected 6.8, as reported 10.1)
9:15 March industrial production and capacity utilization (production +0.3%, cap utilization 79.2% from 78.2%)
10:00 April NAHB housing market index (63 from 62 in Mar4ch)
7:00 weekly MBA mortgage applications
8:30 Feb US trade balance (-$53.7B)
10:00 Feb US wholesale inventories (+0.4%)
2:00 Fed Beige Book
8:30 March retail sales (+0.8% from -0.2% in Feb; excluding auto sales +0.7%, less autos and gas +0.4%)
10:00 Feb business inventories (+0.3%)
2:00 PM US bond market close
Bond Market Closed
8:30 March housing starts and permits (starts 1230K +5.5%; permits 1300K +0.4%)
10 yr. note: +4/32 (12 bp) 2.55% -1 bp
5 yr. note: +2/32 (6 bp) 2.37% -1 bp
2 Yr. note: unch 2.40% unch
30 yr. bond: +5/32 (15 bp) 2.97% -1 bp
Libor Rates: 1 mo. 2.477%; 3 mo. 2.601%; 6 mo. 2.637%; 1 yr. 2.748% (4/12/19)
30 yr. FNMA 4.0: @9:30 102.41 unch (-11 bp from 9:30 Friday)
15 yr. FNMA 3.5: @9:30 102.00 +1 bp (-12 bp from 9:30 Friday)
30 yr. GNMA 4.0: @9:30 102.95 unch (-14 bp from 9:30 Friday)
Dollar/Yuan: $6.7093 +$0.0051
Dollar/Yen: 112.04 +0.04 yen
Dollar/Euro: $1.1301 unch
Dollar Index: 96.88 -0.04
Gold: $1286.40 -$8.80
Crude Oil: $63.43 -$0.45
DJIA: 26,371.68 -40.62
NASDAQ: 7974.54 -9.36
S&P 500: 2904.18 -3.23
Interest rates this morning started out higher. The 10-yr was at 2.54%, up +5 bps from yesterday and once again pushing 2.55%, the key technical support. In pre-open stock indexes on a strong rally, the DJIA added +205 points at 8:00 am ET. Credit growth in China and the first major U.S. bank earnings both beat expectations. China reported better-than-expected lending growth, signaling a further firming of its weak economic recovery, and China's March trade surplus totaled $32.65B (expected $7.05B; last $4.08B). March Imports fell 7.6% yr/yr (expected -1.3%; last -5.2%) while Exports grew 14.2% yr/yr (expected 7.3%; last -20.8%). March new loan creation totaled CNY1.69 trillion (expected CNY1.20 trillion; last CNY885.80B) while outstanding loans grew 13.7% yr/yr (expected 13.4%; last 13.4%)
The shift in sentiment in the bond market solidified after JPMorgan Chase & Co. said adjusted revenue for the first quarter beat analyst estimates. Wells Fargo & Co. reported a 16.4% increase in quarterly profit on Friday.
Interest rates in Europe are increasing, pulling the US 10-yr note higher; Germany’s 10-year yield gained four basis points to 0.03% on the biggest advance in more than a week. Britain’s 10-year yield rose four basis points to 1.187%.
The G-20 finance ministers are meeting today in Washington; Japan’s finance minister saying that Japanese firms are eager to invest in the U.S. and that trade between the two countries will be expanded. Germany, according to reports, is about to lower its growth forecasts to +0.5% from +1.0%. Eurozone February Industrial Production decreased 0.2% m/m (expected -0.5%; last 1.9%) and was down 0.3% yr/yr (expected -1.0%; last -0.7%).
All of what is outlined above are key news reports today. The only thing we are looking at are Q1 earnings that will continue to escalate for the next month. Earnings are always significant, but with the stock market pushing record highs against what is widely believed to be a slowing in the economy, the results of Q1 earnings will either make or break overall outlooks. So far this week is about bank earnings. Those that have reported have beaten Street estimates.
At 8:30 am ET March import prices, expected +0.4% increased 0.6%; yr/yr imports expected -0.6% were unchanged (0.0%). When excluding food and also fuels where prices rose a sharp 6.4% in the month, the reading falls into the negative column at minus 0.2%. And prices of imported finished goods -- whether capital goods or consumer goods or vehicles -- remain flat to slightly negative for both the monthly and yearly comparisons. Export prices were thought to be +0.3% increased 0.7%, yr/yr +0.6%. This data, along with yesterday's similar results for producer prices, offset to Wednesday's moderation for the core rate in the consumer price report. (March PPI +0.6%, yr/yr +2.2%; excluding food and energy +0.3%. yr/yr +2.4% with forecasts of +2.5%. Excluding food, energy and trade services yr/yr +2.0% down from 2.3% in Feb). Nothing to worry over about on inflation concerns. Still holding about 2.0%.
Yesterday St. Louis Fed President James Bullard said policy normalization ended at the March FOMC meeting and that the inflation target is likely to be missed once again this year (lower than the Fed’s 2.0% target). Fed Vice Chair Richard Clarida said that even though the U.S. economy is slowing, he is almost certain the current expansion will become the longest on record.
Also yesterday Federal Reserve Bank of New York leader John Williams said he is fine with where central bank monetary policy stands. His comments also indicated the economy was probably not as weak at the start of the year as many had expected. “I don’t have any worries on financial stability right now and worries about inflation pressures getting red hot, so we do have this space to be both patient about our policy stance and...to adjust it if needed.”
At 9:30 amthe DJIA opened up +215, the NASDAQ added +37, and the S&P increased by +15. The 10-yr stood at 2.54% +5 bp.
At 10:00 the University of Michigan consumer sentiment index was expected at 98.0 from 98.4 in March. As reported the index declined to 96.9.
Technically the 10-yr and the rest of the curve is at critical levels with the 10 at 2.55% this morning. The recent increase in interest rates is all about the increasing value of stocks, both here and China; no inflation but money moving away from sovereign debt (treasuries) and pushing MBS prices down (higher rates).
10 yr. note: -16/32 (50 bp) 2.55% +5 bp
5 yr. note: -10/32 (31 bp) 2.38% +7 bp
2 Yr. note: -3/32 (9 bp) 2.40% +4 bp
30 yr. bond: -24/32 (75 bp) 2.96% +4 bp
Libor Rates: 1 mo. 2.472%; 3 mo. 2.596%; 6 mo. 2.631%; 1 yr. 2.734% (4/11/19)
30 yr. FNMA 4.0: @9:30 102.52 -12 bp (-12 bp from 9:30 yesterday)
15 yr. FNMA 3.5: @9:30 102.12 -13 bp (--10 bp from 9:30 yesterday)
30 yr. GNMA 4.0: @9:30 103.09 -8 bp (- 8 bp from 9:30 yesterday)
Dollar/Yuan: $6.7054 -$0.0140
Dollar/Yen: 111.95 +0.30 yen
Dollar/Euro: $1.1314 +$0.0060
Dollar Index: 96.82 -0.34
Gold: $1294.70 +$1.40
Crude Oil: $64.20 +$0.62
DJIA: 26,405.16 +262.11
NASDAQ: 7983.52 +36.16
S&P 500: 2908.40 +20.08