A better start this morning after selling yesterday pushed the 10 yr. to 1.77% +4 bps this morning down 3 bps. MBS prices yesterday fell 14 bps, this morning in early trade +11 bps. It didn’t last though; by 10:00 am, ET the 10 yr. unchanged from yesterday and MBS prices +3 bps.
Weekly MBA mortgage applications last week increased 0.5% overall, but purchase apps declined 4.0% while refinance apps increased by 4.0%. Yr./yr. apps +0.2% to 12.0% which is good.
Sept retail sales at 8:30 am ET were expected +0.3% but declined 0.3%. August sales revised better, from +0.4% to +0.6%. Sales less auto sales expected +0.2% declined 0.1%, less autos and gas expected +0.3% was unchanged. The control group, which excludes food services, car dealers, building-materials stores, and gasoline stations also unchanged in Sept with forecasts of +0.3%. Sept retail sales was a huge miss and pushed stock indexes down after trading higher in the futures markets prior to the report. The weakness does add a little thrust to the interest rate markets. The decline is the first in the last seven months. It is just one month, but it does momentarily cause pause; consumers, as you know, account for 70% of the GDP growth.
Brexit is coming rapidly, Oct 31st, and there is still no agreement. So far, there hasn’t been much movement in markets that can be attached to the Brexit issues. The key question is putting a customs border in the Irish sea and diluting the Northern Ireland Assembly’s veto over the arrangements, and that isn’t going down well in the British Parliament. Boris Johnson, British prime minister, needs a deal approved this Saturday, or he will be told to seek an extension; that will likely prompt a legal battle with the risk of a no-deal exit.
At 9:30 am ET the DJIA opened -40, NASDAQ -28, S&P -6. 10 yr. at 9:30 1.76% -1 bp. MBS prices +5 bps from yesterday’s close and -15 bps from 9:30 yesterday.
At 10:00 am ET August business inventories and October NAHB housing market index. Business inventories weaker than thought 0.0% on forecasts of +0.3% and July revised to +0.3% from +0.4%. The NAHB housing market index was good news; the index was expected unchanged at 68, it increased to 71.
At 2:00 pm ET the Fed’s Beige Book, a compilation from the 12 Fed districts on the economies in those regions.
The Democrats debated last night; it went about as expected. Biden and Warren were the focus, and all of the candidates were supportive of the impeachment plan.
The Atlanta Fed GDPNow will be updated later today; the last update was GDP in Q3 at 1.7% on Oct 9th, down from 1.8% on Oct 4th. Today’s retail sales will push the outlook even lower.
All of our technical work continues to be bearish for the near term outlook for interest rates. The weak retail sales this morning didn’t budge the rate markets. In fact, the 10 yr. yield was at 1.72% before retail data and currently 1.77% unchanged from yesterday’s increase of 4 bps.
PRICES @ 10:00 AM
10 yr. note: 1.76% -1 bp
5 yr. note: 1.58% -2 bp
2 Yr. note: 1.60% -2 bp
30 yr. bond: 2.24% unch
Libor Rates: 1 mo. 1.889%; 3 mo. 2.002%; 6 mo. 1.977%; 1 yr. 1.974% (10/15/19)
30 yr. FNMA 3.0: @9:30 101.13 +5 bp (-15 bp from 9:30 yesterday)
15 yr. FNMA 3.0: @9:30 102.15 +5 bp (-7 bp from 9:30 yesterday)
30 yr. GNMA 3.0: @9:30 102.56 +5 bp (-14 bp from 9:30 yesterday)
Dollar/Yuan: $7.0974 +$0.0156
Dollar/Yen: 108.69 -0.17 yen
Dollar/Euro: $1.1046 +$0.0015
Dollar Index: 98.19 -0.10
Gold: $1489.20 +$5.70
Crude Oil: $53.03 +$0.22
DJIA: 26,9481.18 -76.82
NASDAQ: 8104.56 -44.15
S&P 500: 2985.60 -10.08
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.
The bond market was closed yesterday, stocks traded; the indexes basically unchanged. The DJIA -29, NASDAQ -8, S&P -4.
This morning the interest rate markets opened better after a major increase in rates last week; The 10 yr. note yield increased 23 bps, MBS prices -84 bps. At 9:00 am ET this morning, the 10 yr. 1.70% -4 bps and MBS prices +11 bps from Friday.
Last week the trade talks continued; on Friday, there was optimism that a big step was taken, and after a few days of thoughts, markets are not as enthused as the initial reaction. In fact, the news of progress was filtering out about 15 minutes before the stock market close; the last fifteen minutes, the DJIA fell 200 points from its 500+ high to close +319. China is pushing for cutting tariffs before it will buy ag products. China says it won’t buy $50B as was reported unless the tariffs are reduced, meanwhile Pres. Trump said it was a good phase one. Officials to work in the coming weeks to get the first stage ready for both sides to sign. If that doesn’t happen, new US import levies on Chinese products will be imposed starting Dec. 15. Interest rates were thumped on the more optimistic news, safety into treasuries was unwound.
This morning the IMF out with another weaker revision to its periodic forecasts. The U.S.-China trade war will cut 2019 global growth to its slowest pace since the 2008-2009 financial crisis, the International Monetary Fund warned on Tuesday, adding that the outlook could darken considerably if trade tensions remain unresolved. Projections show 2019 GDP growth at 3.0%, down from 3.2% in a July forecast at 3.3%. For 2020, the Fund said global growth was set to pick up to 3.4% due to expectations of better performances in Brazil, Mexico, Russia, Saudi Arabia, and Turkey, but is a lower outlook than in July’s forecast. The IMF and World Bank scheduled to meet this week in Washington. The IMF pointed to difficulties caused by the U.S.-China tariffs, including direct costs, market turmoil, reduced investment, and lower productivity due to supply chain disruptions. “The weakness in growth is driven by a sharp deterioration in manufacturing activity and global trade, with higher tariffs and prolonged trade policy uncertainty damaging investment and demand for capital goods,” IMF Chief Economist Gita Gopinath said in a statement.
At 9:30 am ET the DJIA opened +143, NASDAQ +28, S&P +11. 10 yr. note 1.72% after trading at 1.70% early today, at 1.72% -2 bps from Friday. MBS prices at 9:30 +6 bp from Friday’s close and +11 bps from 9:30 Friday.
At 8:30 am ET the only data today; the October NY Empire State manufacturing index increased to 4.0 from +2.0 in Sept. It isn’t a first-tier data point and doesn’t garner much attention.
This week starts the Q3 earnings season with banks reporting. Goldman Sachs Group’s third-quarter profit fell 26% from a year ago, hit by a slowdown in deal-making and losses on the bank’s stakes in companies. JPMorgan Chase reported higher revenue and profit in the third quarter.
Interest rates increased last week; we start the week with a lot of caution; all of our technical work is now negative. We still hold rates that will work lower but may need to increase more as trade issues still are unsettled. Inflation isn’t a drag on rates, and the US and global economic outlooks are soft. The FOMC meets on the 29th with a nervous outlook for another rate cut that a week ago was about a 70% chance according to trading in the Federal Funds futures markets.
10 yr. note: 1.71% -2 bp
5 yr. note: 1.53% -3 bp
2 Yr. note: 1.57% -2 bp
30 yr. bond: 2.20% unch
Libor Rates: 1 mo. 1.890%; 3 mo. 2.00%; 6 mo. 1.978%; 1 yr. 1.973% (10/14/19)
30 yr. FNMA 3.0: @9:30 101.27 +6 bp (+11 bp from 9:30 Friday)
15 yr. FNMA 3.0: @9:30 102.22 +2 bp (-1 bp from 9:30 Friday)
30 yr. GNMA 3.0: @9:30 102.66 +5 bp (+10 bp from 9:30 Friday)
Dollar/Yuan: $7.0819 +$0.0143
Dollar/Yen: 108.45 +0.04 yen
Dollar/Euro: $1.0994 -$0.0031
Dollar Index: 98.61 +0.15
Gold: $1491.40 -$6.60
Crude Oil: $53.13 -$0.46
DJIA: 26,286.65 +141.29
NASDAQ: 8089.86 +41.21
S&P 500: 2981.57 +15.22
More selling in the treasury market driving MBS prices lower again today. We expected rates would edge higher recently but surprised today that the 10 yr. has increased to 1.71%. Trade continues to be the motivator these days; talks are proceeding today. The President is commenting that the talks are going “really well.” He is scheduled to meet with Vice Premier Liu He at 2:45 pm ET this afternoon. A lot of optimism that a small step will be announced when they get together. A mini agreement might be the beginning of continuing talks, at least that is what US financial markets are thinking now. Both the US and China are driving down global growth, both know it, but neither are willing to make the necessary big steps. The two sides might be able to ease a 15-month trade war and delay a US tariff hike scheduled for next week.
Someone lobbed missiles into an Iran oil tanker, but it wasn’t from Saudi Arabia as was originally said. Yet another incident in an ever-widening concern; crude oil spiked, but there isn’t much concern in the markets.
At 9:30 am ET, the DJIA opened strong on tremendous optimism on the trade issues, +295, NASDAQ +101, S&P +32. 10 yr. note yield 1.71% +4 bps. MBS prices -22 bp from yesterday’s close and -52 bps from 9:30 yesterday.
At 10:00 am ET the U. of Michigan mid-month consumer sentiment index was expected at 92.0 from 93.2 in September. The index increased to 96.0, adding to the equity market rally and pushed to 10 yr. yield up 2 more bps to 1.73% that know has given back all of the rate declines since the 1st of October.
It isn’t news that the recent decline in interest rates was mostly driven by US/China trade fears and weakening economic outlooks that would force another rate cut by the Fed at the end of this month. Now it appears there is some breakthrough between the two countries. We are somewhat surprised by the magnitude of the increases in rates. Markets appear to be believing that whatever deal is announced is the beginning of the end of the 15-month battle. Technically all of our models and other key indicators have been blown out today with the 10 yr. breaking above its 40-day average. That hasn’t’ happened the last month.
Two weeks ago, interest rates began falling rapidly, now just as rapidly, they have almost come back to the levels on Sept 27th. As you know, we have been keeping flat for the last week even with positive technicals, didn’t like the smell of the speed; now the same thing in reverse. Given hindsight, the decline appears to have been excessive, and the last week’s increase just as excessive. That said, we will respect the movements and live with it.
10 yr. note: 1.75% +8 bp
5 yr. note: 1.55% +6 bp
2 Yr. note: 1.61% +6 bp
30 yr. bond: 2.22% +5 bp
Libor Rates: 1 mo. 1.921%; 3 mo. 1.986%; 6 mo. 1.935%; 1 yr. 1.896% (10/10/19)
30 yr. FNMA 3.0: @9:30 101.16 -22 bp (- 52 bp from 9:30 yesterday)
15 yr. FNMA 3.0: @9:30 102.23 -9 bp (-23 bp from 9:30 yesterday)
30 yr. GNMA 3.0: @9:30 102.55 -19 bp (-45 bp from 9:30 yesterday)
Dollar/Yuan: $7.0965 -$0.0200
Dollar/Yen: 108.47 +0.51 yen
Dollar/Euro: $1.1056 +$0.0051
Dollar Index: 98.20 -0.50
Gold: $1486.20 -$14.70
Crude Oil: $54.19 -$0.62
DJIA: 26,873.96 +377.29
NASDAQ: 8080.93 +130.19
S&P 500: 2980.62 +42.49
Interest rates have been volatile since last night; the 10 yr at 8:30 am ET last night down to 1.53% (5 bps lower than at 5:00 pm yesterday), at 9:00 am ET 1.61% +3 bps frm 5:00 pm yesterday. Volatility about the trade talks that are scheduled to begin today. The yuan reversed a decline on news that the White House was considering a currency pact with Beijing. The currency accord, which the U.S. said had been agreed to earlier this year before trade talks broke down, would be part of what the White House considers to be a first-phase agreement with Beijing. It would be followed by more negotiations on core issues like intellectual property and forced technology transfers, the people said. President Trump last week approved licenses for some American companies to sell non-sensitive goods to Huawei Technologies Co., the New York Times reported.The news is unfolding rapidly over the last 24 hours; the present sentiment in the bond markets is that some kind of minor deal will happen and will lead to continued negotiations later. Tariffs are scheduled to increase next Tuesday and then again in December.
Sept CPI, like the PPI earlier this week, was weaker than forecasts. CPI expected +0.1% was unchanged (0.0%), yr/yr CPI +1.7% with estimates at 1.8%. Core CPI +0.1% on expectations of 0.2%, yr/yr +2.4% as expected. Weekly jobless claims fell to 210K -10K on the week.
At 9:30 am ET, the DJIA opened -30 but quickly bounced back to +4; NASDAQ and S&P opened unchanged. The 10 yr note 1.61% +3 bps. MBS prices -8 bps from yesterday’s close and -12 bps from 9:30 yesterday.
At 2:00 pm ET Treasury will report the Sept budget, expected +$106B. Sept ends the fiscal year; so far, the annual deficit through August is -$1.067 trillion.
Trade and any news on impeachment are dominant today; trade talks the more significant for markets. Hope always springs eternal as the saying goes; interest rates holding and increasing somewhat with traders awaiting details. Progress in trade talks will slow the fear factor that drives rates lower these days. Impeachment hasn’t had any noticeable direct impact on markets so far. However, today with the President announcing his willingness to cooperate if Pelosi agrees to a vote by the full House otherwise he has said the White House will not cooperate. He wants the same process that when followed when Clinton and Nixon were impeached.
The WSJ reporting this morning that the gap between Treasury yields and mortgage rates is higher than it has been in years as borrowers’ appetite outpaces availability and as investors demand higher returns on mortgage-backed securities. We have noted the difference a few times recently. Treasury yields are falling faster than mortgage rates; not unusual, but the spread recently has widened more than usual. Since the end of June, the Treasury yield has fallen about 40 bps, but the average mortgage rate has dropped less than a tenth of a percentage point. The gap between the two rates is near its highest in more than seven years. You could argue it many ways, but the bottom line is treasuries are where the money goes when uncertainty prevails and not into MBSs.
10 yr. note: 1.63% +5 bp
5 yr. note: 1.45% +5 bp
2 Yr. note: 1.49% +3 bp
30 yr. bond: 2.13% +5 bp
Libor Rates: 1 mo. 1.927%; 3 mo. 1.984%; 6 mo. 1.942%; 1 yr. 1.881% (10/9/19)
30 yr. FNMA 3.0: @9:30 101.67 -8 bp (-12 b p from 9:30 yesterday)
15 yr. FNMA 3.0: @9:30 102.45 -3 p (-2 bp from 9:30 yesterday)
30 yr. GNMA 3.0: @9:30 103.02 -2 bp (-11 bp from 9:30 yesterday)
Dollar/Yuan: $7.1198 -$0.0126
Dollar/Yen: 107.83 +0.35 yen
Dollar/Euro: $1.1018 +$0.0048
Dollar Index: 98.83 -0.29
Gold: $1500.00 -$12.80
Crude Oil: $59.00 +$0.68
DJIA: 26,496.75 +150.74
NASDAQ: 7948.11 +44.37
S&P 500: 2935.50 +16.10
Generally, quiet this morning, but interest rates edged a little higher in early trade; 10 yr at 8:00 am ET 1.55% +2 bp, stock indexes better, MBS prices down 3 bps from yesterday's close. At 7:00 am ET the 10 yr was trading at 1.57%.
The only economic release today, weekly MBA mortgage applications. Last week's apps were up 5.2%; it was all refinances that increased 10.0% while purchase apps -1.0%. Lower rates continue to motivate refinancing opportunities as they should.
Trade talks begin tomorrow; China is saying it's open to a trade deal as long as no more tariffs are imposed. Not the kind of wide trade deal President Trump is aiming for, so the nice comments from China are with little significance. Nevertheless, the stock market is improving as Quixote optimism continues. Trump has more tariffs scheduled one this month and another round in Dec. Beijing would offer non-core concessions like purchases of agricultural products but will not concede the major issues that have hampered ay deals so far. President Trump isn't likely to buy into a minor deal, according to comments from the White House. Trump doesn't have the mojo he has had in the past talks; impeachment and a slowing economic outlook, will he acquiesce? Not likely in our view. The Trump administration just blacklisted Chinese companies for humanitarian reasons and refusing visas for people involved with human rights issues over their alleged role in oppression in the far west region of Xinjiang, as well as visa bans on officials linked to the mass detention of Muslims.
At 9:30 am ET the DJIA opened +158, NASDAQ +68 S&P +21. 10 yr 1.55% +2 bps. MBS prices at 9:30 -6 bps from yesterday's close and -19 bps from 9:30 yesterday.
At 11:00 am ET Jerome Powell will co-host a roundtable session with Kansas City Fed President Esther George discussing labor market conditions, local banking, and other topics with a group of local businesses and community leaders in Kansas City, Missouri. The event will be live-streamed. Yesterday Powell said the Fed will begin adding to its balance sheet after stopping purchases a year ago. Media immediately called it a quantitative easing, but in the standard definition, it isn't. The expansion of the balance sheet will be in the bill market (under 1 yr) to offset the recent issues in the overnight repo markets.
At 1:00 pm ET, Treasury will auction $24B of 10 yr notes re-opening the issue from August. The demand is important for mortgage markets.
At 2:00 pm ET the minutes frm the FOMC meeting tree weeks ago; interesting as always but Jerome Powell has been on the rubber chicken circuit this week and last so the minutes will unlikely provide any significant difference than what he has been saying.
The Brexit deal is coming close, Oct 31st. Still, no agreements and likely won't occur unless both sides can agree on Ireland's position on the breakup. Prime Minister Boris Johnson said that he was still cautiously optimistic about a Brexit deal. "We've also been negotiating with our friends and partners in the EU about Brexit, and you know I'm still cautiously, cautiously optimistic.
10 yr note: 1.56% +3 bp
5 yr note: 1.36% +1 bp
2 Yr note: 1.42% unch
30 yr bond: 2.07% +3 bp
Libor Rates: 1 mo 1.938%; 3 mo 2.009%; 6 mo 1.963%; 1 yr 1.888% (10/8/19)
30 yr FNMA 3.0: @9:30 102.78 -6 b (-19 bps frm 9:30 yesterday)
15 yr FNMA 3.0: @9:30 102.47 -1 bp (-1 bps frm 9:30 yesterday)
30 yr GNMA 3.0: @9:30 103.13 -3 bp (-5 bps frm 9:30 yesterday)
Dollar/Yuan: $7.1313 -$0.0131
Dollar/Yen: 107.39 +0.31 yen
Dollar/Euro: $1.0980 +$0.0023
Dollar Index: 99.06 -0.08
Gold: $1512.40 +$8.50
Crude Oil: $53.50 +$0.87
DJIA: 26,309.85 +141.85
NASDAQ: 7882.91 +59.14
S&P 500: 2911.22 +18.16
Interest rates lower this morning; overnight though the 10 yr yield did increase from yesterday's US close. At 2:00 am ET this morning, the 10 yr increased to 1.59% +3 bps from yesterday's close. Then the US decided to blacklist some Chinese firms; eight Chinese technology giants on a US blacklist on Monday, accusing them of being implicated in human rights violations against Muslim minorities in the country's far-western region of Xinjiang. The blacklist includes some of China's top artificial intelligence startups. The stock market selling in pre-open trading in the futures on the news. The focus is on limiting exposure to Chinese stocks in government pension funds. China saying, stay tuned for retaliation; human rights issues now in the mix in the trade talks. At 9:00 am ET, the DJIA -180.
At 8:30 am ET Sept PPI is adding more support to the interest rate sector. PPI data a real surprise as it declined and declined quite a lot. PPI expected +0.1%: as released -0.3%, yr/yr expected +1.8% up 1.4%. The core PPI expected +0.2% declined 0.3% and yr/yr thought to be +2.3% was 2.0%. Less food, energy and trade services expectations were +0.2%, as reported 0.0% and yr/yr +1.7% from +1.9% in August. The data was not only a surprise, but normally the forecasts and estimates compared to reality don't deviate as much as what the report showed today.
At 9:30 am ET, the DJIA opened -235, NASDAQ -62, S&P -23. 10 yr note 1.51% -5 bps. MBS prices +13 bps from yesterday's close and +8 bp from 9:30 yesterday.
At 1:00 pm ET this afternoon Treasury will auction $38B of 3 yr notes beginning three days of borrowing. Tomorrow $24B of 10 yr notes will be auctioned, the term 9 yrs and 10 months re-opening the issue from August.
At 2:00 pm ET this afternoon, Jerome Powell speaking at the 61st National Association of Business Economics Annual Meeting in luncheon remarks entitled "A View from the Federal Reserve Board of Governors" in Denver, Colorado.
President Trump is pulling the US out of Syria, letting the Kurds alone to defend against ISIS; it is news, and some are quite disturbed, but markets are not being directly affected. The new blacklists on China's tech companies is an increase in the US attempts to keep China's tech industries from growing. The trade discussions that are set to begin again on Thursday are not going to progress as might had been expected two days ago. Yesterday, Larry Kudlow pledged that there would be no connection between President Donald Trump's request that China investigate the Bidens and the renewed trade deal talks between the two global superpowers. "The president's view is there is no linkage between that and the trade talks," Kudlow told reporters on the White House driveway. "I guarantee there will be no linkage..."
Impeachment testimony continues in closed doors; still, mostly a news story that hasn't involved reactions within markets.
Interest rates continue to decline this morning pushed lower by the issues with China, and the belief the trade talks that begin on Thursday will not move the ball forward. Also, the weak PPI data this morning that, at least momentarily, will encourage the Fed to cut the Federal Funds rate at the FOMC meeting on Oct 29th and 30th. All of our technical analysis is bullish now. Next week the IMF will issue its forecast, and it will be weaker than the last forecast.
10 yr. note: 1.51% -5 bp
5 yr. note: 1.34% -4 bp
2 Yr. note: 1.42% -4 bp
30 yr. bond: 2.01% -4 bp
Libor Rates: 1 mo. 1.940%; 3 mo. 2.012%; 6 mo. 1.960%; 1 yr. 1.867% (10/7/19)
30 yr. FNMA 3.0: @9:30 101.97 +13 bp (+8 bp from 9:30 yesterday)
15 yr. FNMA 3.0: @9:30 102.46 -1 bp (+8 bp from 9:30 yesterday)
30 yr. GNMA 3.0: @9:30 103.19 +6 bp (+10 bp from 9:30 yesterday)
Dollar/Yuan: $7.1443 -$0.0042
Dollar/Yen: 106.92 -0.33 yen
Dollar/Euro: $1.0972 unch
Dollar Index: 98.99 unch
Gold: $1512.00 +$7.90
Crude Oil: $52.09 -$0.69
DJIA: 26,175.48 -302.54
NASDAQ: 7838.57 -117.52
S&P 500: 2900.17 -38.62
Borrowers jump on board the refinance bandwagon as rates drop
When mortgage rates plummet to historically low levels, you have to expect a reaction from the borrowing public. And, as usual, they did not disappoint. Borrowers got themselves to their loan reps and began taking advantage of the market. According to the Mortgage Bankers Association (MBA), the volume of mortgage applications rebounded sharply last week as homeowners rushed to refinance.
Mortgage News Daily says, "The Refinance Index increased 14 percent from the previous week and was 133 percent higher than the same week one year ago. The refinance share of mortgage activity increased to 58.0 percent of total applications from 54.9 percent the previous week."
The article reports that although refinance activity slowed in September compared to August, the months together were the strongest since October 2016, and this is expected to continue. MBA' Joel Kan said, "Purchase applications also increased and remained more than 9 percent higher than a year ago. Low rates and healthy housing market fundamentals continue to support solid levels of purchase activity."
The FHA share of total applications decreased a percent, to 10.4 percent from 11.4 percent the week the previous week and VA loans followed, dropping to 12.4 percent from 13.1 percent. The average contract interest rate for 30-year fixed-rate mortgages (FRM) with origination balances at or below the conforming limit of $484,350 decreased as well, while the contract interest rate for jumbo 30-year FRM, loans with balances greater than the conforming limit, dipped 2 basis points. The article reports that both the contract and the effective rate for 5/1 adjustable rate mortgages (ARMs) moved higher.
MBA's Weekly Mortgage Applications Survey has been around since 1990 and covers over 75 percent of all US retail residential applications. Its respondents include mortgage bankers, commercial banks and thrifts.
Source: MorgageNewsDaily, TBWS
How Rates Move:
Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I’m among few mortgage professionals who have access to live trading screens during market hours.
Rates Currently Trending: Neutral
Mortgage rates are trending sideways so far today. Last week the MBS market improved by +40 bps on moderate to high volatility. This was enough to improve mortgage rates or fees.
This Week's Rate Forecast: Neutral
Three Things: These are the three areas that have the greatest ability to impact mortgage rates pricing this week. 1) The Fed, 2) Trade War and 3)Geopolitical
1) The Fed: We will hear from Fed Chair Powell no less than three times this week. We will also get the release of the Minutes from the last FOMC meeting and a barrage of talking feds all week.
2) Trade War: Chinese Vice Premier Liu He is due to visit Washington for talks with meetings expected to take place on Thursday and Friday. According to news reports, the Chinese are "increasingly reluctant to agree to a broad trade deal" and that the "range of topics they're willing to discuss has narrowed considerably." The same reports claim that Vice Premier Liu He is likely to bring an offer that won't include commitments on reforming Chinese industrial policy or government subsidies that have been the target of longstanding US complaints. Direct reports from the White House and Chinese delegation could have a huge impact on market sentiment later this week.
3) Geopolitical: The three-ring circus of the impeachment "inquiry" will get a lot of attention as well as the drama from across the pond with Brexit negotiations. Both have seen massive media coverage amid new developments; both will feature heavily this week.
Treasury Auctions this Week:
This Week's Potential Volatility: High
We shouldn't see too much rate volatility today, but this week could be a different story. Rate markets will be focusing on a few things; the trade war, Brexit, Fed Chair Pawell's speeches, and potentially impeachment news. If anything happens outside market expectations, which is entirely possible, rates are likely to experience increased 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.
Early this morning, the interest rate markets were up slightly, the 10 yr. 1.54% +1 bp, MBS prices at 8:30 am ET -3 bps. Stock indexes weaker but not much (DJIA -50 at 8:30).
Trade talks re-start this week, markets skittish about what may occur, as usual when the two countries get together anxiety increases within markets. This week as Chinese Vice Premier Liu He and his entourage of officials head to Washington to resume talks with their US counterparts. There is a concern that China will stick to its hardline now as President Trump is under political attack. China thinks a weak president may increase the opportunity for a better deal; it is a gamble. If President Trump is reelected without a trade deal with China, China has to expect a much more difficult outlook. Chinese officials are signaling they're increasingly reluctant to agree to a broad trade deal pursued by President Trump. Liu He told visiting dignitaries he would bring an offer to Washington that won't include commitments on reforming Chinese industrial policy or the government subsidies that have been the target of longstanding US complaints.
Impeachment update: closed-door testimonies from US diplomats, among those due to testify: Gordon Sondland, the US ambassador to the European Union who was involved in efforts to get Ukraine to open the investigations, and Masha Yovanovitch, who was abruptly recalled from her post as US ambassador to Ukraine in May after Trump supporters questioned her loyalty to the president. The White House may formally tell Nancy Pelosi as early as today that it will ignore lawmakers' demands for documents until the Democratic-controlled House of Representatives holds a vote to formally approve the impeachment inquiry. Congress returns to Washington on Oct 15th after a two-week recess. Yesterday lawyers said a second whistleblower had come forward to substantiate an August complaint from an unnamed US government official, which touched off the investigation. Markets still are not reacting but are on edge; the prime focus for markets now is the slowing of US growth and weakening GDP outlooks.
Last Friday, the Atlanta Fed GDPNow outlook was updated; it was unchanged from Oct 1st at 1.8%. We were surprised given the ISM decline last Monday and what we think was a soft employment report last Friday. "Following data releases by the US Bureau of Economic Analysis, the US Bureau of Labor Statistics, the US Census Bureau, and the Institute for Supply Management, increases in the nowcasts of real personal consumption expenditures growth and real government spending growth were offset by decreases in the nowcasts of real gross private domestic investment growth and real net exports" The next revision will be on Wednesday this week.
Will the Fed cut the Federal Funds rate again at the October FOMC meeting (10/29 and 30)? Interest rate markets increasingly believe the potential has increased after the weakening of the manufacturing sector, and the global economic outlook continues to soften. China's September FX Reserves decreased to $3.092 trillion from $3.107 trillion. Japan's August Leading Index decreased to 91.7 from 93.7, while Coincident Indicator decreased 0.4% m/m (last 0.2%). September FX Reserves dipped to $1.32 trillion from $1.33 trillion. Eurozone's October Sentix Investor Confidence decreased to -16.8 (expected -13.0) from -11.1, hitting its lowest level in more than six years. Germany's August Factory Orders decreased 0.6% m/m (expected -0.3%; last -2.1%).
At 9:30 am ET the DJIA opened -80, NASDAQ -22, S&P -8. 10 yr. note 1.54% -1 bp. MBS prices at 9:30 -3 bps from Friday's close and +5 bps from 9:30 Friday.
At 3:00 pm ET August consumer credit; all our focus is on the revolving credit component measuring consumer use of credit cards.
Presently, there is a likelihood rates will increase. We still expect the 10 yr. note will test the recent US low at 1.44%, all of our technical indicators are now positive. The recent rapid fall in rates has to be digested, like eating a huge tomahawk rib-eye steak.
This Week's Calendar:
3:00 pm August consumer credit (+$18.2B from $23.3B n July)
8:30 am Sept PPI (+0.1%, yr./yr. +1.8%; core PPI +0.2%, yr./yr. +2.3%)
1:00 PM $38B 3 yr. note auction
7:00 am weekly MBA mortgage applications
10:00 am August wholesale inventories (+0.4%)
1:00 pm $24B 10 yr. note auction
2:00 pm FOMC minutes from Swept meeting
8:30 am weekly jobless claims (216K -3K)
1:00 PM $16B 30 yr. bond auction
2:00 pm Sept budget statement
8:30 am Sept import and export prices (imports -0.1%, exports 0.0%; yr./yr. imports -1.8%, yr./yr. exports -1.2%)
10:00 am U. of Michigan consumer sentiment index (92.0 from 93.2 in Sept.
10 yr. note: 1.54% +1 bp
5 yr. note: 1.36% +1 bp
2 Yr. note: 1.43% +1 bp
30 yr. bond: 2.03% +2 bp
Libor Rates: 1 mo. 1.978%; 3 mo. 2.027%; 6 mo. 1.950%; 1 yr. 1.853% (10/4/19)
30 yr. FNMA 3.0: @9:30 101.89 -3 bp (+5 bp from 9:30 Friday)
15 yr. FNMA 3.0: @9:30 102.42 -11 bp (-3 bp from 9:30 Friday)
30 yr. GNMA 3.0: @9:30 103.08 -3 bp (+2 bp from 9:30 Friday)
Dollar/Yuan: $7.1484 unch (China still on holiday until tomorrow)
Dollar/Yen: 106.92 unch
Dollar/Euro: $1.0995 +$0.0015
Dollar Index: 98.80 -0.01
Gold: $1505.00 -$7.90
Crude Oil: $53.28 +$0.87
DJIA: 26,4461.09 -112.13
NASDAQ: 7949.41 -33.06
S&P 500: 2938.70 -13.31
Before 8:30 am ET, when the Sept employment report was released, stock indexes were a little weaker, and the bond market was unchanged from yesterday. By 9:00 am, the 10 yr note rate remained unchanged, and the stock indexes were slightly better; MBS prices were unchanged.
The Sept unemployment rate expected unchanged at 3.7% declined to 3.5%, non-farm jobs thought to be +145K were +136K, but August NFPs were revised to 168K from 130K. Private jobs though were less than thought at 114K on forecasts of 135K, although August private jobs were revised from 96K to 122k. Average hourly earnings were 0.0% on estimates of +0.3%, yr/yr expected +3.2%, as released +2.9%. Manufacturing jobs declined 2K, not a surprise given the weakness in the manufacturing sector reported on Monday. This evening's news will make a deal out of the fact that the unemployment rate is a 50 yr low. It will play well politically in the present for the current administration. Another key takeaway, though, is that the average hourly earnings growth (actually, there was none) won't play so well economically. The substance of the employment data; job growth OK but is slowing, inflation weakening, GDP growth slowing, and the US economic outlook losing the steam markets were betting on.
No matter how the economic bulls frame the present economy and outlook, it is becoming more difficult as the data is released. Jobs look good so far, but it isn't a stretch to see jobs weakening with not much of a positive outlook in the near term. Today another example adding to many other private companies beginning to cut back. HP is going to cut 9K jobs quickly to change the computer hardware maker with plans to shrink the company's ranks by as much as 16%. Sept manufacturing jobs were down 2K and August manufacturing jobs in contrast to overall jobs data was revised from +3K to +2K.
At 9:30 am ET the DJIA opened +136, NASDAQ +46, S&P +14. 10 yr 1.54% unchanged. MBS prices +5 bps from yesterday's close and +13 bps from 9:30 sm yesterday.
At 2:00 pm ET this afternoon, Jerome Powell will give opening remarks at the "Fed Listens: Perspectives on Maximum Employment and Price Stability" event held by the Federal Reserve Board in Washington, DC.
This week went a long way to convince the Fed to cut the Federal Funds rate again at the end of this month. No inflation, the dollar too strong, and the economic outlook weakening. Markets have already factored a 0.25% Federal Funds cut. Our techs are now in bullish conditions near term, our forecast at the moment is the 10 yr will work down to 1.44%, the first bullish technical test. Fundamentals are also lining up for lower rates ahead. We still haven't noticed any market effects on the impeachment situation. House committees beginning closed-door testimonies and another whistleblower has emerged from the Treasury Dept.
10 yr. note: 1.54% unch
2 Yr. note: 1.41% +3 bp
30 yr. bond: 2.02% -2 bp
Libor Rates: 1 mo. 1.989%; 3 mo. 2.043%; 6 mo. 1.985%; 1 yr. 1.914% (10/3/19)
30 yr. FNMA 3.0: @9:30 101.84 +5 bp (+13 bp from 9:30 yesterday)
15 yr. FNMA 3.0: @9:30 102.45 +1 bp (+8 bp from 9:30 yesterday)
30 yr. GNMA 3.0: @9:30 103.06 +6 bp (+18 bp from 9:30 yesterday)
Dollar/Yuan: $7.1485 unch (China closed this week)
Dollar/Yen: 107.01 +0.11 yen
Dollar/Euro: $1.0964 unch
Dollar Index: 98.96 +0.09
Gold: $1506.80 -$7.00
Crude Oil: $52.94 +$0.049
DJIA: 26,405.93 +204.89
NASDAQ: 7935.23 +62.96
S&P 500: 2933.35 +22.73