After a heavy selling bout yesterday that drove the bellwether 10-yr note to 3.0%, +6 bps on the day, and MBS prices -18 bps, this morning in early activity both MBSs and treasuries traded unchanged with pre-opening trade in stock index futures markets also generally unchanged. By 10:00 am EST; however, MBS prices began declining.
Weekly MBA mortgage applications increased 1.6% the week of Sept 14th; purchases increase 0.3%, refinances +4.0%. Purchases yr/yr still up 4.0% from last year. Mortgage rates increased to their highest level since April 2011 according to MBA data. The share of refinances at 39.0% up 1.2% from last week. Purchase applications have come back into positive year-on-year territory in recent weeks, a positive sign for a housing market that has been mostly disappointingly soft in the summer months, with buyers frustrated by low supplies and falling affordability.
At 8:30 am August housing starts and permits were reported; starts expected at 1240K were up 5.0%, and starts reported at 1282K showed an increase of 8.5% from July’s revision (from 1168K to 1174K). Building permits went the other direction, with 1229K against forecasts of 1315K and a downward revision in July from 1311K to 1303K; down 5.6% in August from July’s revision. You may hear starts increased 9.2%, but that increase does not include a higher revision for July. U.S. housing starts data can be volatile and subject to large revisions. Most of the gains in starts were multi-family; single-family homebuilding, which accounts for the largest share of the housing market, rose a more modest 1.9% to a rate of 876,000 units in August.
Q2’s current account balance, the sum of all flows of money and services in and out of the US, was expected at -$104B. As released, the balance was better at -$101.5B. Q1 revised from -$124.1B to -$121.7B.
US/China trade remains fluid; Chinese officials are trying to put lipstick on a pig by commenting that the trade issue is manageable and the government is not concerned about the tariffs as its economy is doing well —as in well with its GDP falling from 15% to 6%. Meanwhile, President Trump still comments that he's very willing to increase tariffs to a total of $467B if there is no progress, which is all of the annual exports from China to the US. On the more encouraging side, the increased tariffs Trump put into effect on Sept 24th was reduced from his 25% threat to 10%. Meanwhile, on trade, US and Canada will resume talks later today. The president has warned he would impose tariffs on Canada in the event of no deal being reached, while Congress remains unwilling to approve a Mexico-only pact.
Bankrate.com reporting this morning that as many as 24 million homeowners are leveraging the equity in their homes to pay bills. Cash-strapped millennials, low earners and the less educated were most likely to think home equity offers an appropriate solution to ordinary bills. Most of the borrowing on equity is at the lower end of the income scale as wages have not increased while regular bills are going up. Homeowners who earn less than $30,000 per year said it’s OK to tap into home equity to cover their everyday bills, more than triple those who make $75,000 or more. Twenty-one percent of those with no more than a high school diploma agreed, nearly doubling those who have a college degree. And 22 percent of millennials also felt home equity was an appropriate resource for paying bills, compared with only 12 percent of older Americans. Almost 1 in 4 Americans have no savings for emergencies, living paycheck to paycheck according to a June Bankrate.com study. About 3 in 4 homeowners said home improvements or repairs are an appropriate reason to borrow from home equity. Other reasons included debt consolidation and education expenses, the study found. According to a Federal Reserve Bank of New York report released in August, the total household debt rose 3.5% from a year earlier in the April-to-June period, to a record $13.3 trillion, while mortgage debt also rose 3.5%, to a whopping $9 trillion.
No bounce on the 10 yr as we are looking for, with rate still edging higher. There are many now looking for the 10 to test 3.13%, the high on May 17th. It very likely will, but before that, we hold there will be some consolidation. We are not always correct, however, and our take is based on the very overbought momentum oscillators presently; in the very short term view, we do not want to put our money where our thoughts are. Markets are bearish in the more macro look.
PRICES @ 10:00 AM
10 yr. note: -3/32 (9 bp) 3.07% +1 bp
5 yr. note: -1/32 (3 bp 2.95% +1 bp
2 Yr. note: unch 2.80% unch
30 yr. bond: -10/32 (31 bp) 3.22% +3 bp
Libor Rates: 1 mo. 2.165%; 3 mo. 2.337%; 6 mo. 2.567%; 1 yr. 2.879%
30 yr. FNMA 4.0 Oct: @9:30 101.81 -2 bp (-22 bp from 9:30 yesterday)
15 yr. FNMA 4.0: @9:30 101.93 unch (-9 bp from 9:30 yesterday)
30 yr. GNMA 4.0: @9:30 101.50 -5 bp (-32 bp from 9:30 yesterday)
Dollar/Yuan: $6.8530 -$0.0085
Dollar/Yen: 112.26 -0.10 yen
Dollar/Euro: $1.1663 -$0.0007
Dollar Index: 94.61 unch
Gold: $1208.30 +$5.40
Crude Oil: $70.23 +$0.38
DJIA: 26,375.81 +128.85
NASDAQ: 7943.65 -12.45
S&P 500: 2909.04 +4.73
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.
Interest rates across the curve yesterday ended unchanged as did MBS prices. Mid-day there were some minor improvements when the 10-yr fell back under 3.00% to 2.99%; the note dropped to 2.98% briefly after starting at 3.01%. Overall no change. This morning there is some pressure; the 10-yr back to 3.01% at 9:00 am EST, MBS prices are down 8 bps from yesterday’s close.
Overnight President Trump went ahead and announced the $200B of additional tariffs on China’s US imports, 10%, not the 25% he was talking a few weeks ago. There were some market concerns that if he did go ahead, it would have an adverse reaction in US equity markets, but at 10% markets are taking it better than expected with pre-opening trade in US indexes this morning pointing to a stronger open at 9:30 am EST. The new tariffs are to begin on September 24th, next Monday. The added tariffs are across a wide range of goods and if it stands for any length of time consumer prices are going to increase. China, of course, is going to retaliate with its own tariffs; China’s Commerce Ministry said it “has no choice but to undertake synchronous retaliation” to defend its interests and the global free-trade order. The U.S. tariff plan has created “new uncertainty” for negotiations. Trump also said if China retaliates against our farmers or other industries he is prepared to add the next step; $267B more, basically putting tariffs on everything China exports to the US.
Recall we wrote about the ballooning of the US debt last week that is expected to hit about $900B this year when fiscal 2018 ends? Larry Kudlow is out today saying it isn’t the tax cuts; it’s increased government spending that is taking the total debt to $23 trillion (better understood at $23,000B). Does it matter? Politically it does. When the debt finally gets full attention, Kudlow doesn’t want it to be on Trump’s plate. It won’t, it is a bi-partisan issue. It is unusual for government deficits to rise at a time when the economy is growing so strongly, which raises concerns about the state of borrowing when the next economic downturn arrives. Kudlow also said the US is still ready to negotiate with China over trade.
The Senate Judiciary Committee will hold a hearing next Monday hearing from Judge Kavanaugh and his accuser Christine Blasey Ford.
Bank of America/Merrill Lynch released its September survey of investors’ sentiment. Investors’ outlook on economic growth has worsened significantly, driving them to increase cash holdings. 24% of those surveyed expected global growth to slow in the next year, up from 7% in August. This was the worst such outlook since December 2001.
At 10:00 am the Sept NAHB housing market index was expected at 67 unchanged from August; as released
Still thinking the 10 yr. note will consolidate at these levels after the recent sharp increase in rates that began three weeks ago pushing the 10 up 18 bps in rate. Maybe there will be a little more increase, but then some consolidation and retraction. Any improvements, however, are not likely to be significant in the broader picture that rates will continue to increase. Besides the trade issues and the Fed poised to raise rates again next week and potentially in December, there is an increasing awareness of the US debt that will cause rates to move higher. The US debt as noted is exploding in a strong growth economy, debts of other sovereign nations some even worse than the US when compared to a percentage of GDP. Global debt is not likely to be denied this time around.
10 yr. note: -7/32 (22 bp) 3.016% +2.6 bp
5 yr. note: -3/32 (9 bp) 2.91% +2 bp
2 Yr. note: -1/32 (3 bp) 2.79% +1 bp
30 yr. bond: -21/32 (65 bp) 3.17% +4 bp
Libor Rates: 1 mo. 2.168%; 3 mo. 2.338%; 6 mo. 2.570% 1 yr. 2.879% (9/17/18)
30 yr. FNMA 4.0 Oct: @9:30 101.03 -8 bp (-8 bp from 9:30 yesterday)
15 yr. FNMA 4.0: @9:30 102.02 -3 bp (-10 bp from 9:30 yesterday)
30 yr. GNMA 4.0: @9:30 101.84 -11 bp (-2 bp from 9:30 yesterday)
Dollar/Yuan: $6.8619 +$0.0047
Dollar/Yen: 112.23 +0.39 yen
Dollar/Euro: $1.1707 +$0.0023
Dollar Index: 94.39 -0.12
Gold: $1206.70 +$0.90
Crude Oil: $70.34 +$1.43
DJIA: 26,105.12 +43.00
NASDAQ: 7945.62 +49.83
S&P 500: 2897.08 +8.28
New homes under $300K increasingly disappearing
“Even as interest rates rise, and affordability conditions tighten, a lack of for-sale, single-family inventory remains the defining characteristic of most of the nation’s housing markets.” says Robert Dietz, Ph.D., chief economist and senior vice president for Economics and Housing Policy for National Association of Homebuilders (NAHB) in an article in Builderonline.com, website for BUILDER Magazine. “It is this lack of inventory that continues to cause home prices to rise faster than income growth,” he says. “The solution, from both market and policy perspectives, is to add additional housing supply via new-home construction. That is easier said than done given rising costs and pressures to acquire and develop land, purchase building materials, contract with workers and subcontractors, and comply with government regulatory requirements.”
He goes on to say that none of this is surprising, noting that over the past two decades there has been a dramatic shift in sales for both the total count and market share of newly built single-family homes at lower price tiers. 2002 was a year that somewhat established baseline conditions in a relatively normal market, when there were 782,000 new homes sold priced at $300,000 or lower. “This is a striking total given NAHB’s 2018 forecast for total single-family starts (at all price points) is just over 900,000,” says Dietz. “For the past four quarters (ending with the first quarter of 2018), there were only 268,000 single--family homes sold at a price equal to or less than $300,000.”
Even the market share itself has declined. “At the start of 2002, 81% of new-home sales were priced in the below-$300,000 range. Compare that percentage to recent data. For the start of 2018, this market share was just 43%,” says Dietz.
The nation’s homebuilders are finding it increasingly challenging to provide entry-level price homes, making it a significant obstacle for prospective home buyers. “While in recent decades it has not been the case that new construction was a major source of first-time buyer inventory, the shift away from starter homes will nonetheless limit the ability of today’s renters to become homeowners,” he says.
Dietz cites rising costs exacerbated by deliberate and inefficient policy choices as having increased the cost of land development and home building, with the natural consequence being fewer entry-level homes built. “Communities that can break this cycle by enabling higher density, single-family development will in turn offer affordable housing conditions for younger workers, thus fostering long-term economic growth. This is the reason why on-the-ground advocacy by the industry through local and state home builder associations is key to future growth.”
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 -37bps. This was enough to move rates higher last week. There was moderate rate volatility last week.
This Week's Rate Forecast: Neutral
Three Things: Tariffs/Trade war is the only thing that has the ability to move rates. We do have one Central Bank meeting (Bank of Japan), but the markets are not expecting anything out of them. The housing data, while important won't play a role in rates.
Trade Wars: After discussions, this weekend with Chinese trade representatives didn't produce any notable results, President Trump has said he'll move forward with an announcement (perhaps as soon as Monday) with $200B in newly enforced tariffs. Please note that these tariffs have been "dangled" out there for the past three weeks and this is not a surprise. And actually, the final version of these tariffs are supposed to be a lower rate than were originally proposed.
Housing Data: While these reports do not impact mortgage rates, they will give us a good "report card" on how the housing market is doing. This week, we get the NAHB Index, Building Permits and Housing Starts and the most important housing report...Existing Home Sales on Thursday.
This Week's Potential Volatility: Average
While there isn't any planned economic data due for release that has the ability to move rates, we still could see some movement. China has vowed to retaliate if the US imposes more tariffs. As noted above, if that happens, we could see some shifts in rates and an increase in 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.
Treasuries opened soft this morning with the 10 yr at 3.01% +2 bps and MBS prices down 8 bps from Friday’s close.
The only data point today, and it isn’t a first tier one; Sept NY Empire State manufacturing index expected at 23 dropped to 19 from 25.6 in August. This week has housing as its main event, other than that not much data.
Trump is expected to officially announce 10% tariffs on $200B of Chinese imports, maybe today. Meanwhile Chinese trade officials are coming to meet with US counterparts later this week; meanwhile, Chinese officials may refuse to meet with Treasury Secretary Steven Mnuchin to restart trade talks with Beijing. Chinese officials have signaled they’ll refuse to meet with Mnuchin if this next round of tariffs is imposed. The 10% tariffs are substantially less than the 25% that Trump originally had implied; a carrot? American business leaders are very much opposed to the tariffs, worrying over increased consumer prices if the tariff battle isn’t mitigated. Trump standing firm; saying tariffs have bolstered the U.S. bargaining position, while cost increases to consumers have been negligible and warned of more levies. Since July has already slapped 25% tariffs on $50B of Chinese goods.
China’s Shanghai Composite Index closing at the lowest level since 2014, dropping 1.1%. The benchmark index is heading for a fourth quarter of losses, its longest string of declines since 2008. China’s currency has fallen almost 7% since the end of March. A global game of Chicken; will China come to the table to negotiate or will Trump continue to squeeze harder?
At 9:30 the DJIA opened -12, NASDAQ -15, S&P -1. 10 yr 3.01% +2 bps. Fannie 4.0 30 yr coupon -8 bps from Friday’s close and -12 bps from 9:30 Friday.
Trade concerns are driving stocks and interest rates this morning but not much movements. The 10 yr at 3.01%, Friday we noted that the 10 could move a little over 3.00% before we expect some pullback and consolidation. There won’t be anything significant, however; the 10 will move into overbought near-term conditions that in turn will momentarily stop the recent drive higher. The 10 yr, since the end of August, has climbed from 2.82% +19 bps in two weeks. Next Tuesday the Fed will increase the Federal Funds rate, it is baked into the market, the next debate, will the Fed signal another increase in Dec with the policy statement and Powell’s press conference. Other than housing, nothing significant on consumer spending; last week the U. of Michigan consumer sentiment index jumped to 100.8 the best showing since March this year and after that the strongest since 2004. Still, no increase in overall inflation although forecasts haven’t changed in markets that wages will increase and inflation will begin to boil.
This Week’s Calendar:
8:30 am Sept NY Empire State manufacturing index (expected at 23.0 from 25.6 in August; as reported 19.0
10:00 am Sept NAHB housing market index (67, unch from Aug)
7:00 am weekly MBA mortgage applications
8:30 am August housing starts and permits (starts 1240K +5.1%; permits 1320K +0.7%)
8:30 am weekly claims (210K +6K)
10:00 am Aug existing home sales (5.36 mil +0.4%)
10 yr. note: -2/32 (6 bp) 3.00% +1 bp
5 yr. note: -1/32 (3 bp) 2.91% +1 bp
2 Yr. note: unch 2.79% unch
30 yr. bond: -7/32 (22 bp) 3.14% +2 bp
Libor Rates: 1 mo. 2.164%; 3 mo. 2.337%; 6 mo. 2.568%; 1 yr. 2.880% (9/14/18)
30 yr. FNMA 4.0 Oct: @9:30 101.03 -8 bp (-12 bp from 9:30 Friday)
15 yr. FNMA 4.0: @9:30 101.97 -15 bp (-15 bp from 9:30 Friday)
30 yr. GNMA 4.0: @9:30 101.86 -4 bp (-17 bp from 9:30 Friday)
Dollar/Yuan: $6.8597 -0.0108
Dollar/Yen: 111.93 -0.12 yen
Dollar/Euro: $1.1689 +$0.0068
Dollar Index: 94.49 -0.47
Gold: $1205.80 +$4.70
Crude Oil: $69.44 +$0.45
DJIA: 26,130.83 -23.84
NASDAQ: 7945.71 -64.33
S&P 500: 2898.66 -6.32
At 9:00 am EST the 10 yr at 3.00%; MBS prices dropped -9 bps from yesterday.
8:30 data; August retail sales, expected +0.4%, as released +0.1%; excluding auto sales, expected +0.5%, as released +0.3%. August was soft and confirmed other releases that consumers pulled back. Not quite as bad though; July sales originally reported +0.5% revised to +0.7%; excluding autos originally reported +0.6% revised to +0.9%. The August control group expected +0.4% but increased just 0.1%. Weakness in August is tied to motor vehicles where sales fell 0.8% following 0.1% declines in the prior two months in what is a very poor run for the auto industry. Non-store retailers are up 0.7% as e-commerce continues to muscle out gains. Yr/yr total retail sales rose 6.6% in August, little changed from July's 6.7%. And leading the sector are non-store retailers at 10.4%. Overall retail still doing well when viewed from a wider perspective.
More at 8:30 am; August import prices were expected to have declined 0.1%, as released import prices dropped 0.6% (July revised from 0.0% to -0.1%). Yr/yr import prices dropped to +3.7% in August from +4.8% in July. Export prices were forecast +0.2%, as released -0.1%. Yr/yr exports +3.6% but down from July’s 4.3%.
At 9:15 am August industrial production, expected +0.4%, reported +0.4%; July revised to +0.4% from +0.1% originally reported. Manufacturing, expected +0.3%, was +0.2%. Capacity utilization, thought to be at 78.3%, at 78.1%, and July revised from +78.1 to 77.9%.
At 10:00 am the mid-month University of Michigan consumer sentiment index was expected at 97 from July final 96.2. The index jumped to 100.8, the best since March and the second strongest read this year.
Also at 10:00 am July business inventories were estimated +0.5%; as released +0.6%.
Hurricane Florence at 9:00 am is slowly moving southwestward just off the coast of southeastern North Carolina, near the border with South Carolina. Top sustained winds have dropped to 85 mph. More than 415,000 homes and businesses were without power, mostly in North Carolina, according to poweroutage.us, which tracks the nation's electrical grid.
Here we are at 3.00%. As we expected, once 2.90% fell we would see 3.00% quickly. One week ago the 10-yr did move up. It took five sessions to get here. It should hold at 3.00% today and is unlikely to break above it. It’s Friday, and the sudden increase may be due for a pause; the 9-day RSI has increased to a level that will likely keep the rate from increasing in the immediate outlook, but the best we might expect is some consolidation, letting markets digest the recent spike in the 10-yr and mortgage rates. Since August 22nd the 10-year yield has increased from 2.82%, up 18 bps. And MBS rates are up about 15 bps. This week has been marked with remembrances of 2008 collapse, with most still holding a bullish outlook for the economy and equity markets. Robert Shiller commented this morning that he sees another two years of economic strength. Inflation is seen to be increasing, although so far not much, but interest rates will increase; the Fed is increasing the Federal Funds rate at the end of this month, and there is also an increasing belief that another 0.25% increase will take place at the December FOMC meeting.
10 yr. note: -7/32 (22 bp) 3.00% +2 bp
5 yr. note: -4/32 (12 bp) 2.90% +3 bp
2 Yr. note: -1/32 (3 bp) 2.78% +1 bp
30 yr. bond: -18/32 (56 bp) 3.14% +3 bp
Libor Rates: 1 mo 2.158%; 3 mo 2.334%; 6 mo 2.567%; 1 yr. 2.873%
30 yr. FNMA 4.0 Oct: @9:30 101.16 -14 bp (-18 bp from 9:30 yesterday)
15 yr. FNMA 4.0: @9:30 102.12 -8 b (-18 bp from 9:30 yesterday)
30 yr. GNMA 4.0: @9:30 102.03 -5 bp (-9 bp from 9:30 yesterday)
Dollar/Yuan: $6.8558 +$0.0114
Dollar/Yen: 112.03 +0.12 yen
Dollar/Euro: $1.16567 -$0.0023
Dollar Index: 94.71 +0.17
Gold: $1208.10 -$0.10
Crude Oil: $68.55 +$0.06
DJIA: 26,153.57 +7.58
NASDAQ: 8018.67 +4.96
S&P 500: 2903.15 -1.03
The 10-yr hit 2.98% yesterday and MBS prices were off -22 bps from Monday. This morning some improvement is driven by a surprising decline in the August PPI data. The 10-yr at 2.96% dropped -2 bps and MBS prices added +6 bps by 9:00 am EST.
August PPI, expected to be up +0.2% m/m, declined 0.1%m/m; yr/yr +2.8% down from 3.3% in July. The core (excluding food and energy) expected to add +0.2% also declined 0.1%; yr/yr 2.3%, down from 2.7% in July. The first decline in PPI read in 18 months and at least for the moment relaxes the inflation fears. PPI less food, energy, and trade services were up +0.1% from +0.3% in July, but yr/yr 2.9% was up from 2.8% in July. Services obviously increased. Wholesale prices are important, but tomorrow the more critical August CPI will be reported. The dip in PPI isn’t going to change the Fed’s plans to increase the Federal Funds rate later this month nor the increasing idea of another increase in Dec. If CPI is also less than thought, it may stir up the idea of no increase in December.
Weekly MBA mortgage applications declined 1.8%; purchases +1.0%, re-finances -6.0%. The purchase index is 4% above the level a year ago. Refinances are the lowest since December 2000; the percentage of re-fi apps at 37.8% is down 1.8% from last week’s apps. Two years ago refinances accounted for more than 60% of all apps. The week's results include adjustments for the Labor Day holiday.
At 1:00 pm the Treasury will auction $23B of 10-yr notes, re-opening the issue in the August refunding. Yesterday the 3-yr auction was weak on demand.
Hurricane Florence is scheduled to hit the coasts of North and South Carolina Friday. Forecasters are predicting it will slow as it hits land but dump as much as 40 inches of rain this weekend and early next week. Most don’t believe it will have any major long-lasting damage to the economy but as with Harvey last year it is going to distort a lot of economic data over the next two months. Look for weekly jobless claims to increase and declines in retail sales (except Home Depot and Lowes and other home improvement companies). Traders and investors will discount much of the anticipated slowing as temporary. The wider outlook from the storm will likely add to growth as the costs of repairs to infrastructure boost spending. Boeing flew at least eight 787 aircraft out of a South Carolina factory to Seattle yesterday as Hurricane Florence advanced on the region. The operation included two 787-9s destined for Hainan Airlines and a 787-10 for United Continental.
At 2:00 pm the Fed will release its Beige Book which details all of the 12 Fed districts’ It’s usually pretty interesting, with specifics not otherwise revealed in various other monthly national data points.
10 yr. note: +5/32 (15 bp) 2.96% -2 bp
5 yr. note: +2/32 (6 bp) 2.85% -1 bp
2 Yr. note: unch 2.74% unch
30 yr. bond: +11/32 (34 bp) 3.10% -2 bp
Libor Rates: 1 mo. 2.147%; 3 mo. 2.334%; 6 mo. 2.557%; 1 yr. 2.868% (9/11/18)
30 yr. FNMA 4.0 Oct: @9:30 101.27 +8 bp (-3 bp from 9:30 yesterday)
15 yr. FNMA 4.0: @9:30 102.18 +1 bp (+4 bp from 9:30 yesterday)
30 yr. GNMA 4.0: @9:30 102.08 +11 bp (+6 bp from 9:30 yesterday)
Dollar/Yuan: $6.8683 -$0.0042
Dollar/Yen: 111.30 -0.32 yen
Dollar/Euro: $1.1598 -$0.0009
Dollar Index: 95.11 unch
Gold: $1200.70 -$1.50
Crude Oil: $70.23 +$0.98
DJIA: 26,024.25 +53.19
NASDAQ: 7937.56 -34.92
S&P 500: 2888.98 +1.71
September 11th! Early trading had stock indexes weaker and the 10 yr and MBS prices in early activity also under slight pressure. The 10 yr at 8:00 am EST 2.95% +1 bp and MBS prices -8 bps from yesterday’s close.
At 6:00 am the August NFTB small business index was fractionally better than forecasts at 108.8 (108.1 forecast); up from 107.9 in July. A new record in the survey's 45-year history. Leading the index higher beyond not only consensus forecasts but also the range of analysts' expectations was a 6-point gain to a net 10% in plans to increase inventories, a 3-point increase to a net 33% in plans to make capital outlays, and once again, plans to increase employment, which also rose 3 points to a net 26%, a record high. This is yet another data point that shows optimism although it doesn’t get first tier attention.
Last week the talks between the US and Canada ended with no deal, today Canadian Foreign Minister Chrystia Freeland returns to Washington to continue discussions. Meanwhile, Mexico is signaling that if there is no deal with Canada, it would move forward with just the US. Stocks under pressure this morning in pre-open trading on increased concerns that the US and China are not only not making progress but becoming more critical. Trump said yesterday that besides the $200B of tariffs the has threatened he is ready to add another $200B to that; if it comes to pass, then every import from China will be subject to an import tax. China exports just shy of $500B each year.
Back in 2016, a mysterious illness befell US officials in Cuba, no reason that could be attached to it. In June the same thing in China forcing the US to withdraw diplomats. Today evidence from communications intercepts has pointed to Moscow’s involvement during the investigation involving the FBI, CIA and other agencies, NBC reported, citing three unidentified U.S. officials and two other people briefed on the probe. Russia accused of poisoning two in the UK and the UK has indicted two Russians in its investigation. Nothing is proven in Cuba or China, but when you see smoke, there may be fire.
At 10:00 am July JOLTS job openings 6.939 mil on estimates of 6.665 mil. July wholesale inventories +0.6% as expected, sales unchanged.< /p>
At 1:00 pm Treasury will auction $35B of 3s beginning this week’s borrowing, tomorrow $23B of 10 yr notes. The anticipated August treasury budget to be reported Thursday -$164B.
The Hurricane headed for the US. If it ends up as badly as the forecasts, it is going to disrupt markets stocks, bonds, commodities just as it did in Texas.
10 yr. note: -10/32 (31 bp) 2.97% +3 bp
5 yr. note: -6/32 (18 bp) 2.86% +4 bp
2 Yr. note: -2/32 (6 bp) 2.75% +3 bp
30 yr. bond: -24/32 (75 bp) 3.12% +4 bp
Libor Rates: 1 mo. 2.138%; 3 mo. 2.334%; 6 mo. 2.552%; 1 yr. 2.862%
30 yr. FNMA 4.5 Oct: 101.36 -11 bp (-9 bp from 9:30) @10:05 MBS down 17 bps on the day
15 yr. FNMA 4.0 Oct: 102.14 -9 bp (-6 bp from 9:30 yesterday)
30 yr. GNMA 4.5 Oct: 102.02 -8 bp (-2 bp from 9:30 yesterday)
Dollar/Yuan: $6.8765 +$0.0206
Dollar/Yen: 111.47 +0.33 yen
Dollar/Euro: $1.1579 -$0.0015
Dollar Index: 95.32 +0.17
Gold: $1193.20 -$6.60
Crude Oil: $67.68 +$0.14
DJIA: 25,865.09 +8.02
NASDAQ: 7939.58 +15.42
S&P 500: 2877.83 +0.70
Construction jobs are thriving:
According to the National Association of Homebuilders (NAHB), the month of August saw residential building industry jobs increase by 201,000, with unemployment in that arena remaining at 3.9%. Employment in residential construction continued to trend up.
“Over the month of August, total non-farm payroll employment rose by 201,000, after the increase of 147,000 jobs in July, according to the Employment Situation reported by the Bureau of Labor Statistics (BLS),” the report said. “The July increase was revised down from its original estimate of a 170,000 increase. Job gains have averaged 207,000 a month this year, faster than the first eight months’ averages of 189,000 in 2017 and 199,000 in 2016.”
The number of unemployed persons decreased by 46,000 during the month of August. Monthly employment data released by the BLS Establishment Survey indicates that the number of residential construction jobs rose by 12,900 in August, after the 6,800 increase in July, putting smiles on the faces of many a builder/developer.
The report cites, “Residential construction employment now stands at 2.83 million in August, broken down as 802,000 builders and 2 million residential specialty trade contractors. The 6-month moving average of job gains for residential construction is 5,383 a month. Over the last 12 months, home builders and remodelers have added 136,600 jobs on a net basis. Since the low point following the Great Recession, residential construction has gained 851,700 positions.
The unemployment rate for construction workers dropped to 4.0% on a seasonally adjusted basis, from the 4.4% in July, now at its lowest rate since 2001.
Source: NAHB, TBWS
Mortgage rates are trending sideways this morning. Last week the MBS market worsened by -23bps. This was enough to move rates higher for the week. There was a great deal of mortgage rate volatility on Friday.
Three Things: These are the three areas that have the greatest ability to impact mortgage rates this week: 1) Trade Wars, 2) Central Bank and 3) Domestic
1) Trade Wars: Tensions between the U.S. and China increased on Friday when President Trump threatened taxes on practically all Chinese imports, threatening duties on $267 billion of goods over and above planned tariffs on $200 billion of Chinese products and that is on top of the $60B in tariffs already in place. In total, this adds up to slightly more than ALL of the Chinese goods imported into the U.S. in 2017. China has said it will respond "in kind," but they don't import nearly that much from the U.S., so it is unclear what (if any) leverage they have. NAFTA is still in limbo as Canada, and the U.S. are still trying to hammer out terms.
2) Central Bank: The European Central Bank will take center stage, they are expected to hold their interest rate at 0.0%. However, the markets will be focusing on ECB President Mario Draghi's live press conference afterward to see if there's any slant towards the timing of their first rate hike and if their plans to end their QE bond-buying program by the end of this year is still on track. We also will get a rate decision out of the Bank of England. Our own Federal Reserve will release their Beige Book which is compiled to be used in their next Fed meeting.
3) Domestic: We have several key reports this week that have the gravitas to move mortgage rates. On the inflation front, we get both PPI and CPI - the bond market will focus the most on CPI YOY ex-food and energy. Retail Sales on Friday will also get a lot of attention.
Treasury Auctions this Week:
Mortgage rates ticked higher last week on elevated volatility on Friday. Look for rates to move sideways ahead of inflation numbers and retail sales on Friday. Of course, anything new on the trade front could cause volatility.