Stocks are under pressure early this morning, and interest rates a little better. At 8:00 am ET, the 10 yr -3 bps from last Friday to 1.79%.
The financial world and some celebrities gathered in Davos Switzerland this week for the World Economic Forum. The gathering will be closely watched to see how the global elite aims to tackle issues they helped create. President Trump spoke this morning, the same day his trial begins in the US Senate. In his speech, he lauded his economic achievements and said the US is "winning again like never before."
This week, the economic calendar is about as thin as it can get. The one report we'll be paying close attention to is Dec. existing home sales. To fill the void, we have the impeachment trial.
The circus will begin at 1 pm ET. The first day will be spent debating Majority Leader Mitch McConnell's proposed rules for the proceedings, followed by a series of public votes on many expected Democratic amendments. Two calendar days and 24-floor hours each for the Houses and President Trump's defense to make their case, a compressed schedule that accelerates the timetable for a trial.
The International Monetary fund on Monday predicted that US growth would slow to 2% this year and 1.7% next year. To the contrary, Treasury's Mnuchin said that he thought some projections for US economic growth this year were too low as 2019 figures were dragged down by one-off items, including Boeing's grounding of the 737 Max.
At 9:30 am ET the DJIA opened -54, NASDAQ -27, S&P -9. 10 yr 1.80% -2 bp. MBS prices +5 bps from Friday's close and +16 bps from 9:30 Friday.
The remainder of the day will be quiet, not expecting any movement of consequence in the interest rate arena. This week with not much economic data focus, the markets will focus on impeachment. No one is expecting any change in the universal belief that the president will be acquitted, but it will be a show not likely seen again.
PRICES @ 10:00 AM ET
10 yr. note: 1.79% -3 bp
5 yr. note: 1.58% -4 bp
2 Yr. note: 1.52% -4 bp
30 yr. bond: 2.25% -4 bp
Libor Rates: 1 mo. 1.653%; 3 mo. 1.802%; 6 mo. 1.829%; 1 yr. 1.924% (1/20/20)
30 yr. FNMA 3.0: @9:30 102.72 +5 bp (+16 bp from 9:30 Friday)
15 yr. FNMA 3.0: @9:30 102.67 +3 bp (+11 bp from 9:30 Friday)
30 yr. GNMA 3.0: @9:30 102.44 +9 bp (+15 bp from 9:30 Friday)
Dollar/Yuan: $6.9038 +$0.0369
Dollar/Yen: 110.04 -0.14 yen
Dollar/Euro: $1.1106 +$0.0011
Dollar Index: 97.49 -0.11
Gold: $1550.00 -$10.30
Crude Oil: $58.32 -$0.22
DJIA: 29,315.40 -32.70
NASDAQ: 9381.42 -7.52
S&P 500: 3322.60 -7.02
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.
Before 8:30 am ET this morning, the 10 yr. note traded at 1.81% unchanged from yesterday, MBS prices -2 bps. At 8:30 am ET December housing starts and permits changed all of the that; starts expected at 1373K +0.6%; permits expected at 1458K +0.2%. Start at 1698K were up 16%, permits at 1416K –0.4%. The percentage gain was the largest since October 2016. Data for November was revised higher to show starts rising to a pace of 1.375 million units, instead of advancing to a rate of 1.365 million units as previously reported. The initial reaction sent the 10 yr. yield up to 1.84% +3 bps and MBS prices at 8:45 -12 bps from yesterday's close.
We had bullish remarks this morning from David Pepper and Stan Druckenmiller on the outlook for the economy and the equity markets. Two Wall Street billionaires add to the general outlook for the stock market, DJIA futures on the comments traded +76 points. Their comments, however, head caveats using the near term phrase.
Oh no, it's Davos starting today in Switzerland. The big money, economists and central bankers meet each year in the snow to schmooze and chat. There'll be a lot of TV interviews with the likes of Jamie Dimon sitting in heated shelters, commenting on all things good. Generally, no market reactions come out of it.
Dec Industrial production declined 0.3%; capacity utilization at 77.0%; both right on forecasts.
China said its economy grew 6.0%. Many analysts believe it is lower than that as China is infamous, putting out inaccurate data. Its weakest in nearly 30 years in 2019. China's December Retail Sales rose 8.0% yr./yr. (expected 7.8%; last 8.0%), December Industrial Production increased 6.9% yr./yr. (expected 5.9%; last 6.2%), December Fixed Asset Investment grew 5.4% yr./yr. (expected 5.2%; last 5.2%), and December Unemployment Rate ticked up to 5.2% from 5.1%. Q4 GDP increased 1.5% qtr./qtr., as expected (last 1.5%), expanding 6.0% yr./yr., as expected (last 6.0%). 2019 GDP grew 6.1% (prior 6.2%).
To fund the increasing annual budget deficit, expected to exceed $1 trillion, Treasury announced it will begin 20 yr. bonds in the first half of this year. Previously issued 30-year Treasuries with about 20-years left to maturity yield about 2.15%, suggesting the new debt will offer a sizable premium over other comparable notes. Debt growth is a critical issue, but politicians and the markets sweep it under the rug; there will be a day of reckoning but not these days.
At 9:30 am ET the DJIA opened +39, NASDAQ +30, S&P +6; any improvements in the indexes are new all-time highs. The 10 1.84% +3 bps. MBS prices at 9:30 -14 bps from yesterday's close and -17 bps from 9:30 yesterday.
At 10:00 am ET, the U. of Michigan preliminary Jan index expected unchanged from Dec. at 99.3, as released the index was 99.1.
Also, at 10:00 am ET Nov JOLTS job openings were thought to be 7.1 mil down from 7.27 mil in October, as released 6.8 mil. A bit disappointing but not much of a market-mover.
By 10:00 am ET, the stock market was slipping somewhat, and the 10 yr. and MBSs have shown a little improvement. Some volatility today so far in MBS trading.
The rate markets remain in tight ranges, not worsening when stock indexes continue to make new highs and like this morning improving from overnight and early morning.
PRICES @ 10:10 AM ET
10 yr. note: 1.84% +2 bp
5 yr. note: 1.63% unch
2 Yr. note: 1.57% unch
30 yr. bond: 2.30 +4 bp
Libor Rates: 1 mo. 1.657%; 3 mo. 1.826%; 6 mo. 1.848%; 1 yr. 1.930% (1/16/20)
30 yr. FNMA 3.0: @9:30 101.56 -14 bp (-17 bps from 9:30 yesterday)
15 yr. FNMA 3.0: @9:30 102.56 -4 bp (-4 bps from 9:30 yesterday)
30 yr. GNMA 3.0: @9:30 102.28 -16 bp (-28 bps from 9:30 yesterday)
Dollar/Yuan: $6.8594 -$0.0194
Dollar/Yen: 110.14 -0.03 yen
Dollar/Euro: $1.1099 -$0.0037
Dollar Index: 97.53 +0.21
Gold: $1557.40 +$6.90
Crude Oil: $58.66 +$0.14
DJIA: 29,338.41 +40.77
NASDAQ: 9376.11 +18.98
S&P 500: 3324.67 +7.76
8:30 am ET data this morning boosted stocks and put a little pressure on the rate markets. December retail sales better than forecasts, +0.3% overall, but with auto sales extracted +0.7% on estimates of +0.5%, the control group came in as expected +0.4%. November retail sales were revised from +0.2% to +0.3%. Weekly unemployment claims expected at 215K declined to 204K -10K. The January Philadelphia Fed business index was forecast at +3.0, as released +17.0. Dec import prices +0.3% as expected, yr./yr. +0.5% on 0.4% thoughts. Export prices expected +0.3% declined 0.2%, yr./yr. -0.9%. By 9:00 am ET, the 10 yr. note yield 1.80% +1 bp, MBS prices unchanged from yesterday.
At 9:30 am ET the DJIA opened +136, NASDAQ +51, S&P +15, all new highs. The 10 1.80% +1 bps. MBS prices +2 bps from yesterday's close and unchanged from 9:30 yesterday.
The impeachment lowdown: The seven House managers will return at 12 pm ET to read the articles aloud on the Senate floor. John Roberts, the chief justice, will be sworn in at 2 pm ET to preside over the trial. He'll swear in all 100 senators as jurors. Mitch McConnell said President Trump will get a formal summons to send his defense counsel, the first time the White House will participate.
The US/China phase one was signed yesterday, but there are some doubts about China's pledge to buy almost $80B of additional manufactured goods from the United States over the next two years. China would also buy over $50B more in energy supplies and boost purchases of US services by about $35B over the period. In total, China pledged to buy $200 billion more in US goods and services over the next two years. The US suspended tariffs that were to go into effect but kept existing tariffs intact until after the US election. President Trump is indicating the tariffs will remain for ten months until there's evidence that China is living up to its commitments.
Interest rates are moving lower but at a snail's pace. There is something happening there. The economy roaring ahead based on the stock market that historically would put pressure on interest rates. The lack of inflation eases the pressure on rates. But there is demand for treasuries; the Iran threat remains hot but now under the near term radar, the trade deal with China is moving forward; technically stocks remain over-bought but being ignored. Based on history, interest rates should be holding at best, but they've declined since mid-Dec at 1.94% to 1.78% yesterday. It's puzzling to many, why are rates falling? Maybe investors are slowly adding safety to portfolios, or maybe under the surface, the impeachment trial might not be a slam dunk. All that said, the 10 yr. is technically positive, and although questions prevail, it is what it is. Meanwhile, MBS prices (mortgage rates) haven't benefited much. This morning the 10 yr. note is up 2 bps while MBSs are holding steady (should be down 10 to 15 bps).
10 yr. note: 1.80% +1 bp
5 yr. note: 1.62% +2 bp
2 Yr. note: 1.57% +2 bp
30 yr. bond: 2.25% +1 bp
Libor Rates: 1 mo. 1.669%; 3 mo. 1.836%; 6 mo. 1.865%; 1 yr. 1.952% (1/15/20)
30 yr. FNMA 3.0: @9:30 101.75 +3 bp (unch from 9:30 yesterday)
15 yr. FNMA 3.0: @9:30 102.60 -6 bp (-10 bp from 9:03 yesterday)
30 yr. GNMA 3.0: @9:30 102.56 unch (unch from 9:30 yesterday)
Dollar/Yuan: $6.8768 -$0.0140
Dollar/Yen: 110.01 +0.12 yen
Dollar/Euro: $1.1144 -$0.0006
Dollar Index: 97.28 +0.05
Gold: $1553.30 -$0.70
Crude Oil: $58.22 +$0.41
DJIA: 29,195.43 +165.21
NASDAQ: 9335.59 +76.90
S&P 500: 3307.20 +17.91
A big day today, the signing of the US/China phase one deal in Washington. Yesterday it became clear that the US will not remove the existing $320B of tariffs; it surprised the markets that there is nothing in the deal now that would lessen them. The US will, however, not impose the $150B additional tariffs that Pres. Trump had threatened. The agreement had been seen as a significant accomplishment, a bit less so now that details are coming out. It's 86 pages, and in politics, 86 pages is like a memo. The US agreed to halve 15% duties on $120 billion of imports and delay others in return for Chinese promises to make structural reforms and purchase an additional $200 billion in American goods.
The House is sending the impeachment to the Senate, and Mitch McConnell is indicating the trial will begin next week. The unanswered question is who will be called to testify. Likely there will be witnesses, among Republicans there is a desire to allow witnesses but who? On impeachment, McConnell is saying the trial will probably go on past the February 3rd Iowa caucuses.
Dec PPI, another inflation read that was lighter than forecasts, the same we saw yesterday when the CPI was reported. PPI +0.1%, yr./yr. +1.3%; ex-food and energy +0.1%, yr./yr. +1.1%. Recent inflation data is softening and likely getting the attention of the Fed. The concern is that inflation may be declining and could be a harbinger that consumers are beginning to slow down purchases that would lead to a softening economic outlook.
Mortgage applications increased 30.2% from one week earlier, according to data from the Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey for the week ending January 10, 2020. On an unadjusted basis, the Index increased 67% compared with the previous week. The Refinance Index increased 43% from the previous week and was 109% higher than the same week one year ago. The seasonally adjusted Purchase Index increased 16% from one week earlier. The unadjusted Purchase Index increased by 51% compared with the previous week and was 8% higher than the same week one year ago.
At 9:30 am ET the DJIA opened -39, NASDAQ +9, S&P -1. 10 yr. 1.79% -2 bps. MBS prices +2 bps from yesterday's close and +7 bps from 9:30 yesterday.
On a lesser note, the Jan Empire State Manufacturing index increased to 4.8 from 3.5 in Dec and higher than 3.6 forecasts.
At 2:00 pm ET this afternoon, the Fed will release its Beige Book the details from the 12 Fed districts; it usually passes with no market reactions.
The 10 yr. continues to slowly improve while mortgage rates remain essentially unchanged. Our tech models remain bullish for the 10 yr. but recently, in terms of the MBS markets, the bullishness hasn't transferred to mortgage rates.
PRICES @ 10:00 AM
10 yr. note: 1.80% -1 bp (at 6:00 am 1.78%)
5 yr. note: 1.61% -1 bp
2 Yr. note: 1.56% -1 bp
30 yr. bond: 2.26% -1 bp
Libor Rates: 1 mo. 1.669%; 3 mo. 1.842%; 6 mo. 1.864%; 1 yr. 1.963% (1/14/20)
30 yr. FNMA 3.0: @9:30 101.75 +2 bp (+7 bps from 9:30 yesterday)
15 yr. FNMA 3.0: @9:30 102.70 -5 bp (-3 bps from 9:30 yesterday)
Dollar/Yuan: $6.8900 -$0.0112
Dollar/Yen: 109.93 -0.06 yen
Dollar/Euro: $1.1153 +$0.0024
Dollar Index: 97.23 -0.14
Gold: $1552.80 +$8.20
Crude Oil: $58.03 -$0.20
DJIA: 29,056.25 +116.58
NASDAQ: 9290.47 +39.17
S&P 500: 3294.61 +11.46
There's not much movement (again) in the interest rate markets this morning with the 10 yr. note glued in a very narrow range and MBS markets in an even narrower range. CPI is the data today; at 8:30 am ET Dec CPI month-to-month better than estimates, both the overall and the core (ex-food and energy) were lower than thought. Overall CPI expected +0.3% increased 0.2%, the core expected +0.2% increased 0.1%. Both yr./yr. +2.3% as expected. The food index was up 0.2% m/m in December. The energy index was up 1.4% m/m in December. The shelter index rose 0.2% m/m and was a key driver of the modest uptick in core CPI. The key takeaway from the report is that it won't cause any immediate rethink of the Fed's policy position. The CPI data takes a backseat to the PCE price data as the Fed's preferred inflation gauge, and the latest report showed core-PCE inflation up just 1.6% yr./yr.
At 6:00 am ET, the Dec NFIB small business optimism index, not what is considered first-tier data but interesting. The expectations were for the index at 104.4 from 104.7 in Nov, the index dropped to 102.7, quite a decline for this index.
Today begins the Q4 earnings season with banks reporting. JPMorgan Chase & Co. posted the best year for any US bank in history. A rebound in trading, especially in fixed income, the company said profit jumped 21% in the fourth quarter. We will get the other banks through the day. CITI is out and also beat forecasts while Wells missed its estimates. The stock indexes before the open mostly unchanged changed from yesterday.
Tomorrow the US and China are scheduled to sign the Phase One trade deal. The US-China deal will lead to China buying more US products, but not tackle hard issues such as subsidies. President Trump's trade war with Beijing reduced the US's trade deficit with China last year, although Chinese manufacturers still export far more to the US than vice versa. Also, today the US, the European Union, and Japan proposed new global trade rules to curb subsidies they say are distorting the worldwide economy, with China their clear target. Subsidies provided to Chinese firms are a huge sticking point that President Trump could not get any traction with China.
The House will send the impeachment to the Senate on Thursday, according to reports this morning.
This evening Democrats will debate; six contenders with no clear front-runner and three weeks before the Iowa caucuses. The last face-to-face encounter among the candidates before Iowa. Dems will have four debates over the next five weeks.
Britain, France, and Germany took the first step toward reimposing international sanctions on Iran, seeking to pressure Tehran into returning to compliance with the 2015 pact that has limited the country's nuclear activities.
10 yr. note: 1.82% -3 bp
5 yr. note: 1.62% -3 bp
2 Yr. note: 1.57% -2 bp
30 yr. bond: 2.28% -2 bp
Libor Rates: 1 mo. 1.676%; 3 mo. 1.831%; 6 mo. 1.872%; 1 yr. 962% (1/13/20)
30 yr. FNMA 3.0: @9:30 101.67 +2 bp (+3 bp from 9:30 yesterday)
15 yr. FNMA 3.0: @9:30 102.72 +2 bp (+10 bp from 9:30 yesterday)
30 yr. GNMA 3.0: @9:30 102.58 -5 bp (-2 bp from 9:30 yesterday)
Dollar/Yuan: $6.9011 +$0.0074
Dollar/Yen: 109.97 +0.03 yen
Dollar/Euro: $1.1120 -$0.0013
Dollar Index: 97.48 +0.14
Gold: $1545.30 -$5.30
Crude Oil: $58.29 +$0.21
DJIA: 28,894.99 -12.06
NASDAQ: 9229.88 -44.05
S&P 500: 3279.79 -8.34
Home buying heats up as the new decade begins, led by the West
New home sales numbers are coming out as we begin 2020, and they’re encouraging ones. According to Realtor’s Jacob Passy, the index of pending home sales increased 1.2% in November from the previous month, as reported to the National Association of Realtors.
“The index records transactions that have not yet closed but where a contract has been signed,” says Passy. “As a result, the index serves as an indicator for existing-home sales reports in the coming months.” This means as compared to November of 2018 contract signings were up 7.4%.
The wild West is where sales increased substantially, bumping the increase to 5.5%, while contract signings only saw marginal changes in the Northeast (down 0.1%), South (down 0.2%), and Midwest (up 1%). When compared with last year, sales were up in all four regions.
Passy says the inventory of homes for sale will remain a challenge, quoting NAR’s chief economist Lawrence Yun: “Despite the insufficient level of inventory, pending home contracts still increased in November. The favorable conditions are expected throughout 2020 as well, but supply is not yet meeting the healthy demand.”
In the homebuilding arena, most economists expect things to pick up next year, but not enough to fully meet the demand. That means home prices should continue to increase at healthy — if somewhat slower — pace.
“Mortgage rates are anticipated to remain at their current, historically-low levels in 2020, but that may not be enough to make buying a home affordable for would-be buyers struggling to get enough money together to make a purchase,” says Passy.
Source: Realtor, 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 slightly higher so far today. Last week the MBS market improved by +5bps. This caused rates and fees to remain mostly unchanged. We saw moderate rate volatility throughout most of the week.
This Week's Rate Forecast: Neutral
Three Things: These are the three areas that can move rates this week 1)Trade Wars, 2) Geopolitical, and 3)Domestic.
1) Trade Wars: It is expected that the U.S. and China will sign the Phase 1 trade deal on Wednesday. At that point, the markets should have all of the final details of exactly what is in (and what is not in) the trade deal.
2) Geopolitical: Brexit is very much on the bond market's mind as the January 31st deadline is fast approaching. While the Brexit deal has made it out of the lower chamber, Monday kicks off with the House of Lords beginning debates on Brexit Withdrawal Agreement Bill. On the Iranian front, military escalation seems to have abated, but that could turn on a dime, and bonds will continue to be very reactive to any action(s).
3) Domestic Flavor: Retail Sales and CPI will get the most attention. The stronger these reports are, the worse it will be for pricing.
The Fed: Here is the Fed's schedule this week:
This Week's Potential Volatility: Average
We have some domestic economic data this week that can move rates and spike volatility. For rates to move significantly lower, it will take something unforeseen on the geopolitical front, mainly from Iran. Short of something unexpected, look for rates to trial slightly higher on moderate 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.
Domestic trouble in Iran over the weekend when Iran leaders said its government did shoot down the Ukrainian passenger plane killing all aboard, including 13 Iranians. While the number of protesters that have taken to the streets isn't extreme, the protests directed to the Iranian government as people chanted in opposition to Supreme Leader Ayatollah Ali Khamenei, and calls to rid the country of the Islamic Revolutionary Guards Corps. Protesters in the videos said arrests had been made and tear gas fired at crowds. The US is economically squeezing Iran and its economy is close to collapse, the leadership is increasingly under pressure. The admission that the government shot down the passenger plane and the killing of the terrorist general leader of Iran's intelligence and terrorist squad may lead to more unrest.
Nancy Pelosi said she will send the impeachment to the Senate this week, ending a three-week standoff between her and Mitch McConnell over how the Senate will conduct the trial. Pelosi will name the House managers, who'll serve as the prosecutors in the Senate proceedings, and transmit the two articles of impeachment. Pelosi plans to meet with House Democrats tomorrow. Lots of political drama; 10 months before the election and an impeached president on the ballot.
At 9:30 am ET the DJIA opened +59, NASDAQ +35, S&P +8. 10 yr. 1.85% +3 bps. MBS prices -5 Bps from Friday's close and -9 bps from 9:30 Friday morning.
Tensions between the US and Iran are lessening today. The Iranian government under serious resistance from its people calling for the religious Clerics to "get lost."
This week has a lot of events and a substantial economic calendar. Pelosi is sending impeachment to the Senate. Tomorrow another Democratic debate, the last one leading to the Iowa caucus in three weeks. The political drama and geopolitical situation shouldn't be what markets focus on as much as the economic calendar; this week likely more focused on the status of the economy based on the data. The only data today is the Dec Treasury budget expected -$15.0B; the 2020 budget shortfall will exceed $1 trillion.
10 yr. note: 1.85% +3 bp
5 yr. note: 1.65% +2 bp
2 Yr. note: 1.58% unch
30 yr. bond: 2.31% +3 bp
Libor Rates: 1 mo. 1.676%; 3 mo. 1.837%; 6 mo. 1.872%; 1 yr. 1.966% (1/10/20)
30 yr. FNMA 3.0: @9:30 101.64 -5 bp (-9 bp from 9:30 Friday)
15 yr. FNMA 3.0: @9:30 102.62 unch (-5 bp from 9:30 Friday)
30 yr. GNMA 3.0: @9:30 102.59 -9 bp (-11 bp from 9:30 Friday)
Dollar/Yuan: $6.8945 -$0.0250
Dollar/Yen: 109.90 +0.44 yen
Dollar/Euro: $1.1122 unch
Dollar Index: 97.44 +0.08
Gold: $1551.50 -$8.60
Crude Oil: $58.47 -$0.57
DJIA: 28,883.25 +59.48
NASDAQ: 92202.8 +41.42
S&P 500: 3275.50 +10.15
Dec employment data this morning; non-farm jobs +139K (158K expected), private jobs +139K (150K expected). Unemployment rate as expected unchanged at 3.5%. Average hourly earnings +0.1% (expected +0.3%), yr./yr. average earnings +2.9% down from 3.1% in Nov. Manufacturing jobs continue to decline; the estimate was for those jobs to decline 1K as released down 12K. On the knee jerk, the 10 yr. dropped to 1.83% down 2 bps but quickly moved back to unchanged at 1.85%. The employment report isn’t bad or good, just right. MBS prices are generally unchanged on the initial reaction at 8:30 am E.T.
The weaker earnings up just 0.1% may further convince markets (if they actually need it) that there isn’t any worry about inflation. Most Fed officials, including Powell, have mostly made it clear no changes in the rate this year. It is a long year, but today’s employment data goes to that view currently held by financial markets.
Yesterday afternoon MBS prices improved on possible concerns that Iran shot the Ukrainian passenger plane, killing all 176 aboard. Iran said it wanted to download black box recordings itself from the plane that crashed, after Canada, and others said the aircraft was brought down by an Iranian missile, probably by mistake.
The House passed a largely symbolic measure opposing further military force against Iran without congressional authorization, a day after both Washington and Tehran appeared to back away from military conflict. The resolution aims to stop President Trump from using military force against Iran unless it is necessary to defend the U.S. or Congress votes to approve it. The resolution is mostly for show but is another example of the divisiveness that markets would rather not see.
The interest rate markets continue to be confined in narrow ranges, with no trend as the 10 yr. stays between 1.94% and 1.80%.
10 yr. note: 1.84% -2 bp
5 yr. note: 1.64% -1 bp
2 Yr. note: 1.57% -1 bp
30 yr. bond: 2.31% -2 bp
Libor Rates: 1 mo. 1.683%; 3 mo. 1.847%; 6 mo. 1.879%; 1 yr. 1.968% (1/09/20)
30 yr. FNMA 3.0: @9:30 101.73 +5 bp (+35 bp from 9:30 yesterday)
15 yr. FNMA 3.0: @9:30 102.67 +7 bp (+18 bp from 9:30 yesterday)
30 yr. GNMA 3.0: @9:30 102.70 +2 bp (+27 bp from 9:30 yesterday)
Dollar/Yuan: $6.9214 -$0.0312
Dollar/Yen: 109.60 +0.08 yen
Dollar/Euro: $1.1099 -$0.0006
Dollar Index: 97.52 +0.07
Gold: $1554.10 -$0.20
Crude Oil: $58.99 -$0.57
DJIA: 29,002.11 +45.21 (first time over 29K)
NASDAQ: 9231.71 +28.29
S&P 500: 3282.63 +7.93
The equity market improving on a relief rally that there isn't going to be anymore near term concerns with Iran. Iran's missile attack is now understood to be a face-saving action to soothe the resentment in Iran by the loyalists. Adding to the face-saving, the Iranian press has reported that 81 Americans were killed by the attack on US installations in Iraq. Iran will continue to be a focus, but not at the level that existed moments after the US drone attack.
Nancy Pelosi said Congress might vote today on a war powers resolution that will direct President Trump to terminate the use of the US military against Iran unless Congress has declared war or passed an authorization for the use of force against it. The resolution is expected to easily pass the House, but would face a more difficult time in the Senate, which is controlled by the Republicans.
The initial reaction took the 10 yr. note down to 1.71% at 7:30 pm ET Tuesday evening. By yesterday's close, the 10 yr. ended 1.86%. MBS prices crumbled yesterday and early this morning more selling. At 8:30 am ET, MBS prices down 9 bps from yesterday's close.
No economic data today except weekly jobless claims, expected at 219K was better at 214K -9 bps from the prior week. Pre-open stock indexes better this morning, while stocks rose across Europe and Asia, extending a relief rally on bets America and Iran, have stepped back from a deeper military conflict.
With the Iran situation at relative calm now, traders will focus more on tomorrow's Dec employment data. On the trade front, China announced its vice premier will travel to Washington to sign the first phase of the trade deal with the US next week.
What does the Fed think now? We have four Fed officials out today; Richard Clarida, John Williams, James Bullard, and Charles Evans. We are not looking for any of them to comment directly on Iran other than to agree that stepping back is welcome and necessary.
At 1:00 pm, ET Treasury will auction $16B of 30s. Yesterday's 10 yr. auction didn't bid well.
Now that the Iran issue has cooled, markets turning back to fundamentals that the US economic growth will continue to improve. The stock market doesn't appear to have an end to the positive bias, and that view is increasing in the interest rate sector. That said, interest rates are generally confined in a narrow range with not much movement.
10 yr. note: 1.89% +2 bp
5 yr. note: 1.69% +2 bp
2 Yr. note: 1.61% +2 bp
30 yr. bond: 2.37% +1 bp
Libor Rates: 1 mo. 1.677%; 3 mo. 1.834%; 6 mo. 1.874%; 1 yr. 1.951% (1/08/20)
30 yr. FNMA 3.0: @9:30 101.39 -11 bp (-32 bp from 9:30 yesterday)
15 yr. FNMA 3.0: @9:30 102.49 -10 bp (-24 bp from 9:30 yesterday)
30 yr. GNMA 3.0: @9:30 102.44 -11 bp (-37 bp from 9:30 yesterday)
Dollar/Yuan: $6.9525 +$0.0062
Dollar/Yen: 109.47 +0.34 yen
Dollar/Euro: $1.1110 +$0.0003
Dollar Index: 97.43 +0.13
Gold: $1550.70 -$9.50
Crude Oil: $59.26 -$0.35
DJIA: 28,876.03 +130.94
NASDAQ: 9196.79 +67.64
S&P 500: 3268.27 +15.22
At 7:30 pm EST yesterday, Iran launched ballistic missiles into Iraqi military bases that housed US troops. The initial response in the markets sent the 10 yr. US Treasury note down 10 bps to 1.71%. Once it was determined no US soldiers or Americans were killed or wounded, the whipsaw drove the 10 yr. back to 1.80%. Stock futures lost ground (-400 points), and oil prices spiked. Thankfully it all happened at a time when markets were quiet. President Trump declared "so far so good" in an early assessment of damages, while the US said there were no casualties. President Trump is expected to make a statement later today (11:00 am EST ). The administration is also scheduled to brief Congress about the killing of Soleimani. The wide swings mark the latest bout of volatility sparked by US-Iran tensions, as investors try to assess whether the situation will escalate.
The missile attack was preplanned. Iran gave notice of the strikes, Iraqi Prime Minister Adel Abdul Mahdi's office said in a statement. It appears the attack wasn't meant to kill, but to placate Iranian citizens' outrage. Using ballistic missiles and not hitting the intended target likely shows Iran didn't intend to further the potential of war with the US. "Its response has to be dramatic enough to save face, but limited enough so as to avoid triggering an escalation cycle that could lead to overwhelming US military action. This is spectacular enough to ''count'' but does not force the US to escalate in return," said a deputy director at the Center for Global Policy in Washington.
US equity markets couldn't find their legs this morning when ADP reported Dec private jobs that were much stronger than expectations. ADP was thought to report private jobs increased 157K. As released, Dec jobs increased 202K, and equally important, Nov jobs originally reported at +67K was revised to +124K. The DJIA futures after the release -50 from yesterday.
Looking for yield, investors are looking more towards MBSs. A few months ago, when the spread between mortgage bonds and the 10 yr. note widened to 1.09%, now the spread is back down to 0.81%. One of the drawbacks of investing in mortgage securities is the possibility of early pay-offs with refinancing, but that has changed somewhat with interest rates now at very low levels that lessen the refinancing risk.
Earlier this morning, MBA released weekly mortgage applications. Applications declined 1.5% overall, purchase apps were up 5.0%, while refinance apps were down 8.0%.
At 9:30 am ET, the DJIA opened -15, NASDAQ +4, S&P +3. 10 yr. at 9:30 am ET 1.82% unchanged from yesterday. MBS prices -6 bps from yesterday's close and +1 bp from 9:30 am ET yesterday.
10 yr. note: 1.82% unch
5 yr. note: 1.61% unch
2 Yr. note: 1.54% unch
30 yr. bond: 2.30% unch
Libor Rates: 1 mo. 1.699%; 3 mo. 1.878%; 6 mo. 1.880%; 1 yr. 1.954% (1/07/20)
30 yr. FNMA 3.0: @9:30 101.70 -6 bp (+1 bp from 9:30 yesterday)
15 yr. FNMA 3.0: @9:30 102.73 +5 bp (+9 bp from 9:30 yesterday)
30 yr. GNMA 3.0: @9:30 102.81 -5 bp (-4 bp from 9:30 yesterday)
Dollar/Yuan: $6.9451 unch
Dollar/Yen: 108.71 +0.25 yen
Dollar/Euro: $1.1120 -$0.0032
Dollar Index: 97.12 +0.12
Gold: $1577.20 +$2.90
Crude Oil: $62.34 -$0.36
DJIA: 28,613.39 +29.71
NASDAQ: 9102.78 +34.20
S&P 500: 3247.64 +10.46