Existing home sales rebound in February
Homes with experience are selling better than expected these days. According to the National Association of Realtors (NAR), sales of previously owned homes rose sharply in February, a sign that demand for housing picked up as mortgage rates eased last month.
According to the report there was an 11.8% increase in February from the prior month to a seasonally adjusted annual rate of 5.51 million, according to the report, while economists surveyed by The Wall Street Journal had expected sales to rise only 3.2% to a rate of 5.1 million in February.
The NAR said there were 1.63 million existing homes available for sale at the end of February, up 3.2% from a year earlier and representing a 3.5-month supply at the current sales pace, and its chief economist, Lawrence Yun, said the latest data represent a “powerful recovery” in existing home sales. He credits it to lower interest rates and increased inventory. The strong labor market and wage growth are also contributors.
This represents the strongest percentage increase since December 2015, according to Yun. And this data indicated housing could be poised to recover this spring after starting the first quarter on less than even ground.
The national median sale price for a previously owned home last month was $249,500, up 3.6% from a year earlier. While sales in the Northeast were flat, but in the Midwest they rose by 9.5% in the Midwest. Out West sales rose 16% in February from January. The South saw sales rise by 14.9% from January.
Source: Realtor, TBWS
How Rates Move:
Conventional overnment (FHA and VA) lenders set their rates based on the pricing of Mortgageand G-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I’m among few mortgage professionals who have access to live trading screens during market hours.
Rates Currently Trending: Neutral
Mortgage rates are trending sideways this morning. Last week the MBS market improved by +50bps. This was enough to move rates lower last week. We saw high rate volatility throughout the week.
This Week's Rate Forecast: Neutral
Three Things: These are the three things that have the greatest ability to impact mortgage rates this week. 1) Geopolitical, 2) Trade and 3) Inflation.
1) Geopolitical: Brexit continues to take center stage as Prime Minister Theresa May's cabinet is in full revolt. In a last-ditch effort to get the very unpopular deal pushed through before the deadline, May is offering to resign IF they pass her deal. This deal could be extended to May 22nd or April 12th depending on how some votes go. The markets are also concerned about the military escalation in Israel.
2) Trade: Trade Representative Lighthizer and Treasury Secretary Mnuchin are visiting China this week. With the Mueller investigation over, it's believed that trade talks may take a step forward now that China has confidence in leadership in the U.S.
3) Inflation: We will get the Fed's key inflation measure on Friday with the PCE report. The markets are expecting the Core YOY number to remain below 2.0%.
Treasury Auctions This Week:
The Fed This Week:
This Week's Potential Volatility: Average
After mortgage rates had a great run last week, we're looking for a calmer day today and throughout the week. Rates are at a critical juncture. We'll be paying close attention to whether we can push lower, we move sideways or rates start to drift higher.
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.
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 this morning in early activity were higher. MBS prices, like yesterday, however, saw no major change. In futures trading, before the 9:30 am ET open, the indexes were higher.
At 8:30 am ET we saw February housing starts and permit figures .Starts were expected at 1201K units, down 2.4%; as reported 1162K. January starts were revised higher from 1230K to 1273K, and starts were down 8.7% from the original January data. Revisions, as they often are in housing data, are extreme with January revised sharply lower but December sharply higher, together making for a very welcome net gain of 60,000. Permits expected at 1300K dropped to 1296K, but January revised lower to 1317K from the original 1345K, down 1.6%. Single-family permits were unchanged in February at an 821,000 rate. Other details are less favorable, with single-family starts, a key reading for ongoing residential investment, down 17.0 percent to an 805,000 rate in a reading that could reflect unfavorable weather factors. Multi-family data show a big jump in starts to a 357,000 rate but a sizable dip in permits to 475,000. Year-on-year rates are clear and contraction is a little bit steeper in the latest report, down 9.9% for starts but down a more moderate 2.0% for permits.
At 9:00 Jan Case/Shiller 20 city home price index was expected +0.3%. As reported it added +0.1%; the 20-city yr/yr, expected +4.1%, hit at +3.6%. Home prices in 20 U.S. cities registered their smallest gains since late 2012, decelerating for a 10th month in January as buyers held out for more affordable properties. “It remains to be seen if recent low mortgage rates and smaller price gains can sustain improved home sales,” David Blitzer, chairman of the S&P index committee, said in a statement. Unless you live and work in one of the 20 cities it carries little direct weight but it does give us a general idea of where prices are headed, and that is lower especially in high-end homes. To confuse us more, the Jan FHFA house price index that was expected to increase 0.3% ended up +0.6%.
At 9:30 am the DJIA opened strong, up +216. The NASDAQ added +71, and the S&P improved by +23. The 10-yr was at 2.44%, up +3 bps recovering from yesterday’s decline of 3 bps.
At 10:00 amthe March Conference Board’s consumer confidence index, which was expected at 132.5 from 131.4, declined to 124.1, the lowest since the beginning of the year. Lower, but the index is still it positive levels.
At 1:00 pm the Treasury will sell $40B of 2s beginning three days of borrowing; 5s tomorrow. 7s on Thursday.
Yesterday the bellwether 10-yr note yield fell 3 bps, MBS prices saw no improvement. This morning the 10-yr yield was at 2.44%, and MBS prices did not move at 9:30 am. The entire curve from 2s to 30s are slightly higher, rebounding from yesterday’s lower rates. The momentum oscillators we use to measure very short term momentum in the bond and mortgage markets are at generally at over-bought levels. There may be a momentary consolidation, but there is no technical change in the wider bullish outlook. The technical condition remains positive. To change our models to bearish requires that the 10-yr note rate increase to 2.55%, a sizeable range if it occurs.
PRICES @ 10:10 AM
10 yr. note: -10/32 (31 bp) 2.43% +2 bp
5 yr. note: -5/32 (15 bp) 2.22% +2 bp
2 Yr. note: -2/32 (6 bp) 2.27% +3 bp
30 yr. bond: -11/32 (34 bp) 2.88% +1 bp
Libor Rates: 1 mo. 2.489%; 3 mo. 2.608%; 6 mo. 2.673%; 1 yr. 2.745% (3/25/19)
30 yr. FNMA 4.0: @9:30 102.80 -2 bp (+1 bp from 9:30 yesterday)
15 yr. FNMA 3.5: @9:30 102.26 -2 bp (+2 bp from 9:30 yesterday)
30 yr. GNMA 4.0: @9:30 103.19 -3 bp (-3 bp from 9:30 yesterday)
Dollar/Yuan: $6.7150 +$0.0056
Dollar/Yen: 110.67 +0.70 yen
Dollar/Euro: $1.1284 -$0.0030
Dollar Index: 96.72 +0.08
Gold: $1321.70 -$7.30
Crude Oil: $60.22 +$1.40
DJIA: 25,753.36 +236.53
NASDAQ: 7735.53 +97.99
S&P 500: 2827.00 +28.64
You know the news; the Mueller investigation found no collusion with Russia over the election meddling in the 2016 election. Democrats are moving forward with their own investigation and pushing for the entire report to be released. When the news came out yesterday afternoon, one would expect the bond markets to take a hit and stocks to improve. Not so. Early this morning the 10-yr trading remained unchanged from Friday’s strong improvement in the treasury market (MBS’s Friday were up but compared to the movement in treasuries it wasn’t much), and the key stock indexes also barely changed. The report did not draw a conclusion as to whether examined conduct constituted obstruction of justice. No additional indictments were recommended.
The Mueller investigation, in many people's view was one of the factors helping to push rates lower on worries the outcome would be otherwise than what we heard. The prime reason though for these falling rates is the reality and finally belief the global economies are worsening and that the US won’t be able to avoid the weaknesses.
Trade discussions with China are set to begin again this week. China's First Vice Premier Han Zheng spoke at the China Development Forum, claiming that China will continue cutting import taxes to create a first-rate environment for foreign businesses. China's Finance Minister Liu Kun said that the government will speed up bond sales to boost domestic demand.
At 9:30 am ETthe DJIA opened down -19, the NASDAQ lost -26, and the S&P was down by -4. The 10-yr remained unchanged at 2.44%; MBS prices were also unchanged from Friday’s close and up +1 bp from the same time on Friday.
Recent weakness in data from Europe and China is changing the thinking for the US economy. For months the pundits have been saying the US growth, while slipping this year compared to last year, would be lower but also were ignoring the potential implications for the US as the rest of the world’s economies fall. Last week a lot of key data from Europe and China rattled that idea and traders were quick to increase buying of safe Treasuries. There is some chatter now that central banks may lower rates to combat a potential recession and maybe deflation in prices. Now investors wager that the Federal Reserve will need to cut rates. Trading volumes in Treasury futures were double the norm during Asian trading, while Japan’s 10-year yields fell to the lowest since 2016. The U.S. can at least cut rates and apply monetary tools, while things could be worse for Europe and Japan, where they cannot.
In the never-ending attempt to pre-judge what the Fed may do; after months of belief that the Fed would not increase rates this year, now money markets are pricing around a 90 percent chance that the Federal Reserve will cut rates by 25 basis points by December, followed by another reduction in September 2020. This comes after the central bank projected no hikes this year at its policy meeting last week.
This Week’s Calendar:
8:30 am February housing starts and permits (starts 1201K down 2.4%, permits 1300K -3.4%)
9:00 am January FHFA home price index (+0.4%)
January Cope/Logic home price index (20 city +0.3%)
10:00 am March consumer confidence index (132.5 from 131.4)
1:00 pm $40B 2 yr note auction
7:00 am weekly MBA mortgage applications
8:30 am January US trade deficit (-$57.5B)
Q4 current account balance (-$132.1B)
1:00 pm $41B 5-yr note auction
8:30 am weekly jobless claims (+4K to 225K)
Final Q4 GDP (2.2% down from 2.6% on the preliminary report; price deflator +1.8% unchanged from the preliminary report)
10:00 am February pending home sales (-0.1%)
1:00 pm $32B 7 yr note auction
8:30 am February personal income and spending (income +0.3%, spending +0.3%; PCE 0.0% yr/yr +1.4%; core PCE +0.2% yr/yr +1.9%)
9:45 am March Chicago purchasing mgrs. index (60.3 from 64.7)
10:00 am February new home sales (616K +1.5%)
University of Michigan final March consumer sentiment index unchanged from mid-month at 97.8)
PRICES @ 10:00 AM
10 yr. note: +2/32 (6 bp) 2.43% -0.5 bp
5 yr. note: +3/32 (9 bp) 222% -2 bp
2 Yr. note: +3/32 (9 bp) 2.28% -3 bp
30 yr. bond: -3/32 (9 bp) 2.88% unch
Libor Rates: 1 mo. 2.498%; 3 mo. 2.609%; 6 mo. 2.676%; 1 yr. 2.787% (3/22/19)
30 yr. FNMA 4.0: @9:30 102.81 unch (+1 bp from 9:30 Friday)
15 yr. FNMA 3.5: @9:30 102.24 -4 bp (+5 bp from 9:30 Friday)
30 yr. GNMA 4.0: @9:30 103.22 unch (-1 bp from 9:30 Friday)
Dollar/Yuan: $6.7127 -$0.0054
Dollar/Yen: 110.05 +0.13 yen
Dollar/Euro: $1.1319 +$0.0014
Dollar Index: 96.51 -0.13
Gold: $1318.30 +$6.00
Crude Oil: $58.84 -$0.21
DJIA: 25,388.28 -114.04
NASDAQ: 7588.74 -53.93
S&P 500: 2788.18 -12.53
A great start this morning. The 10-yr was down 7 bps from yesterday at 2.47%, and early prices (8:00 am ET) of MBSs were up +16 bps from yesterday. Thought we would see some consolidation before another leg lower in rates but another round of weak economic data from Europe adds to the belief, as we have been hammering, that the global economic outlook is continuing to decline. On Wednesday the FOMC and Jerome Powell confirmed concerns with the policy statement, the Fed forecasts, and his press conference. The thing is, it appears economies are worse than what was believed, at least presently. The weakness in an already technical bullish environment encouraging more movement to safety in treasuries bringing down rates across the curve.
Germany's Manufacturing PMI (44.7) fell to its lowest level since 2012 in the flash reading for March. Data from France was also weak, as both Manufacturing PMI (49.8) and Services PMI (48.7) fell below 50.0, indicating contraction. The U.S. Dollar Index has built on yesterday's gain, climbing 0.2% to 96.69. Japan's March flash Manufacturing PMI remained at 48.9 (expected 49.2). Australia's March flash Manufacturing PMI fell to 52.0 from 52.9 while flash Services PMI contracted to 49.8 from 51.0. Continued demand for short-term Australian debt pressured Australia's 5-yr yield beneath the country's cash rate, which stands at 1.50%. Eurozone March flash Manufacturing PMI fell to 47.6 (expected 49.5) from 49.3 while flash Services PMI dipped to 52.7 from 52.8. Germany's March flash Manufacturing PMI fell to 44.7 (expected 48.0) from 47.6 while flash Services PMI fell to 54.9 (expected 54.8) from 55.3. France's March flash Manufacturing PMI fell to 49.8 (expected 51.4) from 51.5 while flash Services PMI fell to 48.7 (expected 50.6) from 50.2.
Adding to the new-found additional concerns in markets, Brexit is closing in on an end game and it doesn’t look good. The EU agreed to an extension for the exit that was due next Friday to April 12th. Prime Minister Theresa May has an extra two weeks to get her unpopular deal approved or—more likely—set a new course. After plunging 1.5% during negotiations, the pound rose against the dollar Friday morning. Global investors seem to be taking a more careful look at the situation after a long period of lethargy. This is clear from correlations between sterling and U.K. stocks and spells opportunities.
Investors are hunting for yield, noting the ninth straight week of inflows to investment-grade bond funds, $6.6B this week - while high-yield bond funds drew in $3.2B and $1.2B went into emerging market debt. The market is struggling to digest a rapid about-turn from the U.S. Federal Reserve on interest rates as economic growth disappoints globally and fears of a deflationary environment return. Despite big gains for stocks this year, positioning is decidedly negative with $66.8B outflows from equity funds year-to-date.
At 9:30 am ESTthe DJIA opened down -112 after increasing 217 yesterday…..increasing volatility. The NASDAQ opened down -31, and the S&P dropped -12. The 10-yr stood at 2.47%, down -7 bps from yesterday’s close.
At 10:00 am February existing home sales were expected to have increased from 4.94 mil in Jan to 5.10 mil; as reported sales increased from 11.8% to 5.51 mil; yr/yr, though sales were down -1.8% but up from yr/yr last month at -8.5%.
Although the rate markets are moving our way the last 3 sessions have increased volatility. Expect that to continue. Rates are falling, but maybe too quickly with the huge sea change at the Fed and the wake-up of investors that the economic outlook is worse than those brokerage firms want to admit.
10 yr. note: +25/32 (78 bp) 2.44% -10 bps
5 yr. note: +13/32 (41 bp) 2.26% -8 bps
2 Yr. note: +4/32 (12 bp) 2.35% -6 bps
30 yr. bond: +51/32 (+165 bp) 2.88% -8 bp
Libor Rates: 1 mo. 2.552%; 3 mo. 2.601%; 6 mo. 2.677%; 1 yr. 2.794% (3/21/19)
30 yr. FNMA 4.0: @9:30 102.80 +16 bp (+19 bp from 9:30 yesterday)
15 yr. FNMA 3.5: @9:30 102.20 +12 bp (+11 bp from 9:30 yesterday)
30 yr. GNMA 4.0: @9:30 103.22 +12 bp (+17 bp from 9:30 yesterday)
Dollar/Yuan: $6.7129 +$0.0145
Dollar/Yen: 110.03 -0.78 yen
Dollar/Euro: $1.1312 -$0.0065
Dollar Index: 96.61 +0.26
Gold: $1313.90 +$6.60
Crude Oil: $58.99 -$0.99
DJIA: 25,741.24 -221.27
NASDAQ: 7766.37 -72.59
S&P 500: 2832.02 -22.86
The Fed data yesterday confirmed what most were believing prior to the data flow; that the economy is slowing, that the Fed was done increasing interest rates, and that the Fed stopping the unwinding of its assets (September) is the end of reducing its balance sheet $20B a month. The confirmation from the Fed sent interest rates lower and MBS prices higher (+29 bps yesterday).
Leaving its policy rate unchanged in a range between 2.25% and 2.5%, Chairman Jerome Powell suggested the central bank was likely to leave it there for many months. The 2-yr note yield yesterday at 2.39% is in the middle of the Fed's range and is unique that a 2 yr note yields as much as the Fed rate; the bellwether 10-yr is at 2.52%. "It may be some time before the outlook for jobs and inflation calls clearly for a change in [interest rate] policy," Mr. Powell said at a news conference after the central bank's two-day meeting. The dissecting of the Fed's policy statement, Powell's press conference, and the Fed's quarterly forecasts for inflation, unemployment, and GDP growth will make investors and money managers take some time to think about what it all means for markets..
One thing is clear; the Fed has shown in this data an increasing concern that the US economy isn't as stalwart as investors have been led to believe by brokerage firms and money managers that make money when equity markets increase. The hard flip of sentiment within the Fed from its December meeting to yesterday is testimony the Fed is increasingly concerned about growth in the US. We have noted previously that the US cannot continue to grow at the pace investors presently think as long as the global economies continue to slow. Projections released Wednesday underscored the turnabout. They showed 11 of the 17 Fed officials who play a role in interest-rate policy didn't think the bank would need to raise rates at all this year, up from two in December. The remaining six officials projected between one and two increases would be needed in 2019.
Fed Chairman Jerome Powell said Wednesday he still expects solid growth, he noted recent data such as retail sales, business investment, and job growth have been downbeat. Officials' median projection for growth this year has dropped to 2.1% from 2.5% last September. Core inflation has slipped back below 2%, and inflation expectations have sagged. Mr. Powell said: "Ten years in this expansion and inflation is still not clearly meeting our target." (WSJ).
At 8:30 am ETweekly jobless claims declined 9K to 221K. While expectations were for a 4K decline, we don't make much of it. It isn't news that jobs are plentiful now. The March Philadelphia Fed business turned out index better than forecasts at 13.7 against estimates of 5.5 and a lot better than -4.1 in February. New orders have been very flat for the last two months in this report - at 1.9 in March and minus 2.4 in February.
Nevertheless, unfilled orders have continued to build, at least modestly at 3.1 in March and 6.9 in February. Other readings for March are much stronger including a 20.0 point surge in shipments and a very solid 9.6 level for hiring. The average workweek was also solid at 10.6 with price readings showing steady pressure on input costs and solid traction for selling prices.
At 9:30 am the DJIA opened down -55, the NASDAQ lost -12, and the S&P dropped -3. The 10-yr remained unchanged at 2.51%.
At 10:00 am the February leading economic indicators report was expected to add +0.1%. As reported, it gained +0.2%; January was revised from -0.1 % to unchanged.
Technicals remain bullish; the 10-yr broke its resistance yesterday at 2.55%, and now the rate is the lowest this year. It has been a nice run for a while, and we can't find any strong reasons that rates will turn - not likely given the Fed's almost panic data yesterday. The 10-yr at 2.51% compared to its 20-day average at 2.60% has put the difference between the two as wide as we have seen for more than a year, suggesting the potential for some consolidation for now. Fundamentally, the outlook is good. We worry somewhat about how much lower the 10-yr can fall. Technicals are still bullish, but fundamentals remain somewhat questionable for the time being.
10 yr. note: +2/32 (6 bp) 2.52% unch
5 yr. note: +2/32 (6 bp) 2.32% -1 bp
2 Yr. note: unch 2.40% unch
30 yr. bond: +4/32 (12 bp) 2.97% unch
Libor Rates: 1 mo. 2.490%; 3 mo. 2.607%; 6 mo. 2.697%; 1 yr. 2.813% (3/20/19)
30 yr. FNMA 4.0: @9:30 102.61 unch (+21 bps from 9:30 yesterday)
15 yr. FNMA 3.5: @9:30 102.08 -6 bps (+20 bps from 9:30 yesterday)
30 yr. GNMA 4.0: @9:30 103.06 +2 bp (+16 bps from 9:30 yesterday)
Dollar/Yuan: $6.6919 -$0.0024
Dollar/Yen: 110.61 -0.09 yen
Dollar/Euro: $1.1388 -$0.0026
Dollar Index: 96.19 +0.26
Gold: $1314.70 +$13.00
Crude Oil: $60.15 -$0.08
DJIA: 25,810.51 +64.84
NASDAQ: 7757.77 +28.80
S&P 500: 2830.04 +7.81
Very early this morning (4:30 am ET) the interest rate markets were improving, the 10 yr down to 2.60% -1 bp from yesterday, stock indexes were about unchanged in the futures markets. By 8:30 the 10 yr shifted and was up 2 bps to 2.63% and stock indexes were rallying. The 30-yr yield back above its 50-day moving average (3.037%). Shorter tenors have moved in the same direction, but they have a few more ticks to go before reaching last week's lows. The key 10 yr at 2.63% is testing its 20-day average.
FOMC meeting begins today, the US bond market and MBS market seeing a little back down ahead of tomorrow’s policy statement and the Fed’s 2 yr forecasts on inflation, employment, and GDP growth. As is the usual situation ahead of the FOMC speculation is high with some thinking the Fed’s next move would be a rate cut, others still believing the Fed will increase rates again later this year. Jerome Powell will have his hands full tomorrow at his press conference. All eyes will be on signals from the Federal Reserve this week after the U.S. central bank’s dovish shift in recent months helped reignite a global equity rally on bets policy makers will act to support growth. Volatility has evaporated across assets as a result, but with expectations, the Fed will point to one more rate hike in 2019, it’s possible that markets could be over-pricing a Goldilocks scenario.
Not much in the way of market-driving news this morning; other than tomorrow’s FOMC. The Brexit issue still unresolved but the EU is said to ready to offer Theresa May an extension of the March 29th deadline to try to carve out an acceptable agreement in the UL parliament; not a market mover in any case.
At 9:30 the DJIA opened +109, NASDAQ +40, S&P +12. 10 yr note at 2.63% +2 bps. Fannie 4.0 30 yr coupon -5 bps from yesterday’s close and -4 bps from 9:30 yesterday.
At 10:00 the only data today and not a market mover; Jan factory orders were expected 0.0% from +0.1% in Dec. As reported orders increased 0.1%.
I am a little disappointed this morning that the 10 is backing up, although minor, technically it has to hold at 2.63%, a push higher would set a move higher to 2.66% and bring more concern that the 2.55% level that most traders are expecting (us also). All dependent now on tomorrow’s meeting, the Fed forecasts and Jerome Powell’s press conference. We have been holding rate locks, and it’s been profitable, now more uneasiness with the FOMC, the Fed’s forecasts and Powell’s press conference tomorrow. It is not uncommon that when the data is released volatility may increase. Be careful to keep long positions within your tolerance level.
10 yr. note: -4/32 (12 b) 2.62% +1 bp
5 yr. note: -2/32 (6 bp) 2.43% +2 bp
2 Yr. note: unch 2.45% unch
30 yr. bond: -15/32 (47 bp) 3.04% +3 bp
Libor Rates: 1 mo. 2.487%; 3 mo. 2.632%; 6 mo. 2.670%; 1 yr. 2.817% (3/18/19)
30 yr. FNMA 4.0: @9:30 102.30 -4 bp (-3 bp from 9:30 yesterday)
15 yr. FNMA 3.5: @9:30 101.94 +4 bp (+4 bp from 9:30 yesterday)
30 yr. GNMA 4.0: @9:30 102.83 -6 bp (-3 bp from 9:30 yesterday)
Dollar/Yuan: $6.7117 -$0.0013
Dollar/Yen: 111.41 -0.02 yen
Dollar/Euro: $1.1347 +$0.0007
Dollar Index: 96.38 -0.14
Gold: $1309.50 +$8.00
Crude Oil: $59.55 +$0.17
DJIA: 26,016.12 +102.02
NASDAQ: 7744.29 +29.82
S&P 500: 2842.62 +9.68
Markets are starting a little weaker this morning but not much. At 8:30 am ET the 10-yr was at 2.61%, up +2 bps, and stock indexes were mostly unchanged.
This week’s main event is tomorrow’s FOMC meeting , but it is Wednesday when the FOMC will release its policy statement, its quarterly economic forecasts on inflation and growth. Fed Chair Jerome Powell will do his press conference at 2:30 pm Wednesday. What is on the Fed’s mind? What is the current thinking about continuing to reduce its balance sheet? Is anything new on the inflation and growth outlooks? These are the key questions traders and investors will be looking for. Most likely the Fed will reiterate it is not likely to increase rates given the Fed’s outlook about inflation and economic growth slowing in 2019. Officials are likely preparing to announce Wednesday, at the conclusion of the meeting, when they will stop shrinking their $4 trillion asset portfolio.
Last week Fed Vice Chairman Richard Clarida noted that “the models that we consult are not infallible.” If they predict a surge in inflation, he said, officials would need to weigh the benefit of preemptively raising rates “against the considerable cost of the model being wrong.” Several Fed officials have signaled they expect a few more rate increases will be warranted eventually because rates are still slightly below neutral. “It looks like we’re mildly accommodative still, and that seems like an appropriate stance if you’re worried risks (of an economic slowdown) may be more elevated,” said Boston Fed President Eric Rosengren in an interview last month. So long as inflation remains at or below the Fed’s 2% target, “the case for interest-rate increases is not there,” said San Francisco Fed President Mary Daly in an interview last month.
Besides the FOMC this week, the Bank of England will hold its regular meeting. In the Eurozone, purchasing manager survey numbers on Friday will give an indication of the health of the region’s industrial and service sectors at the end of the first quarter.
At 9:30 the DJIA opened down -29, the NASDAQ increased by +12, and the S&P added +4. The DJIA was weaker mainly on more decline in Boeing’s stock. The 10-yr was at 2.60%, up +1 bp.
At 10:00 am we will see the only data today. The March NAHB housing market index was expected at 63 from 62 in Feb; as reported the index remained unchanged — not any change of substance, but still the index is well down from the 70s level last year.
This week we will see the FOMC and Powell’s press conference along with the Fed’s updated economic outlook for inflation and growth. There isn’t any scheduled data of import until Thursday and Friday. Thursday we will see the March Philly Fed index, and Friday, February existing home sales.
Interest rates are still holding positive technical bias; Friday the 10-yr did close below the 10s major technical resistance at 2.63%, ending the day at 2.59%. This morning there is a little backup, but generally holding well with the FOMC on Wednesday. Not likely to see much improvement in rates until at least Wednesday afternoon and that, of course, depends on what comes out of the meeting. Inflation is still not thought to increase unless there is trend to higher commodity prices; crude is moving higher on concerns of output cuts.
10:00 am March NAHB housing market index (expected at 63 from 62, as reported
10:00 am January factory orders (-1.%)
7:00 am MBA weekly mortgage apps
2:00 pm FOMC policy statement; FOMC forecasts)
2:30 pm Jerome Powell’s press conference
8:30 am weekly jobless claims (225K -4K)
10:00 am February leading economic indicators (+0.1% from -0.1%)Friday,
10:00 am February existing home sales (5.080 mil +2.3%)
2:00 pm February Treasury budget (-$227B)
10 yr. note: -3/32 (9 bp) 2.60% +1 bp
5 yr. note: -2/32 (6 bp) 2.41% +1.5 bp
2 Yr. note: unch 2.44% unch
30 yr. bond: -5/32 (15 bp) 3.02% +0.5 bp
Libor Rates: 1 mo. 2.481%; 3 mo. 2.625%; 6 mo. 2.671%; 1 yr. 2.840% (3/15/19)
30 yr. FNMA 4.0: @9:30 102.33 -3 bp (+2 bp from 9:30 Friday)
15 yr. FNMA 3.5: @9:30 101.90 -4 bp (-2 bp from 9:30 Friday)
30 yr. GNMA 4.0: @9:30 102.86 -5 bp (+2 bp from 9:30 Friday)
Dollar/Yuan: $6.7130 -$0.0005
Dollar/Yen: 111.51 +0.03
Dollar/Euro: $1.1344 +$0.0019
Dollar Index: 96.52 -0.03
Gold: $1304.10 +$1.20
Crude Oil: $58.89 +$0.07
DJIA: 25,862.53 +13.66
NASDAQ: 7725.07 +36.54
S&P 500: 2833.69 +11.21
A better start today in the bond and MBS markets after a quiet season yesterday; the stock indexes before the 9:30 am ET open are also trading better.
At 8:30 the March NY Fed Empire State manufacturing index was thought to be a read of 10-yr note from 8.8 in February. As reported the index dropped to 3.7; this report is seen as a precursor to the wider Philadelphia Fed business index, but the correlation doesn’t always equate. Diminishing growth is now a common theme among many of the regional manufacturing reports. New orders, at only 3.0, are is the worst since May 2017. Unfilled orders are likewise flat at 2.2 with inventories dead flat at zero. Markets usually note the report but don’t react much to it.
At 9:15 am we saw numbers for Feb industrial production and factory use Production was estimated +0.4% from a -0.6% to -0.4 in January; the index was soft at +0.1%, in line with the Empire State earlier today. Manufacturing declined 0.4% after dropping 0.5% in January. Manufacturing, a key data point, was thought to be +0.4%. Factory use was also a little disappointing at 78.2% on expectations of 78.5%. Usually, this report is filed mentally but doesn’t move markets much.
At 9:30 am the DJIA opened up +45, the NASDAQ added +27, and the S&P increased by +4. The 10 yr stood at 2.60%, down -3 bp from yesterday.
At 10:00 am came the most interesting report today. The mid-month University of Michigan consumer sentiment index, expected at 95.2 from the final in Feb 93.8; the index jumped to 97.8, showing out-sized sentiment and the inflation component at 2.4% is down from 2.6% in the last report.
Jan JOLTS job openings were guessed at 7.200 mil from 7.335 mil; openings as reported were 7.581 mil.
We remain positive on the outlook for the bond market. This morning MBS prices are increasing with the 10 yr at 10:00 am at 2.58%, down -5 bps. Going to 2.55% is almost a certainty now. Traders and investors say once the 10 yr gets there we will be faced with the next move for rates. As you will recall, the 10 yr hit 2.55% on the 2nd day of trading this year then pushed to 2.80% before the recent rally.
10 yr note: +12/32 (37 bp) 2.589% -3.5 bp
5 yr note: +6/32 (18 bp) 2.39% -4 bp
2 Yr note: +2/32 (6 bp) 2.43% -2 bp
30 yr bond: +23/32 (72 bp) 3.01% -4 bp
Libor Rates: 1 mo 2.481%; 3 mo 2.614%; 6 mo 2.679%; 1 yr 2.845% (3.14.19)
30 yr FNMA 4.0: @9:30 102.32 +10 bps (+2 bps frm 9:30 yesterday)
15 yr FNMA 3.5: @9:30 101.92 +5 bp (-4 bp frm 9:30 yesterday)
30 yr GNMA 4.0: @9:30 102.84 +5 bp (-1 bp frm 9:30 yesterday)
Dollar/Yuan: $6.7135 -$0.0094
Dollar/Yen: 111.50 -0.21 yen
Dollar/Euro: $1.1327 +$0.0021
Dollar Index: 96.58 -0.14
Gold: $1303.80 +$8.70
Crude Oil: $58.39 -$0.52
DJIA: 25,708.12 -1.62
NASDAQ: 7675.23 +44.32
S&P 500: 2815.86 +7.38
Both stock indexes and the interest rate markets started quietly this morning. After the 10-yr note closed below 2.63% on Tuesday there has been no movement of consequence since. No follow-through, but also no push back.
At 8:30 am ET weekly jobless claims were +6K to 229K. February import and export prices increased more than expected; imports and exports both increased by 0.6% against +0.4% and +0.2% respectively. January import prices originally reported down -0.5% was revised to up +0.1%. There was no reaction to the higher prices.
Maybe slight support for the rate markets this morning; overnight it was announced that the summit with China’s Xi and President Trump that was scheduled later this month at Trump’s resort in Florida has been delayed at least until the end of April. China is pressing for a formal state visit rather than a lower-key appearance to sign a trade deal. “Major issues” remain unresolved in the talks, with few signs of a breakthrough on the most difficult subjects including treatment of intellectual property. Chinese officials are also concerned over the appearance of the deal being one-sided, and are wary of the risk of President Trump walking away even if Xi were to travel to the U.S. Trade is one key to pushing rates down. Any roiling adds to investor concerns and does add support to the view of safety. US stock indexes were a little jittery in early trade this morning.
More negative global economic news: China's February Industrial Production increased 5.3% year-over-year (expected 5.5%; last 5.7%), which was the slowest growth rate since 2002. February Retail Sales increased 8.2% year-over-year (expected 8.1%; last 8.2%) while February Fixed Asset Investment grew 6.1% year-over-year, as expected (last 5.9%). The February Unemployment Rate increased to 5.3% from 4.9%, marking a two-year high. Germany's IFO Institute lowered its 2019 GDP growth forecast to 0.6% from 1.1%, but expects a rebound to 1.8% in 2020.
At 9:30 amthe DJIA opened up +7, the NASDAQ added +5, and the S&P remained unchanged. The 10 yr stood at 2.61%, unchanged from yesterday.
At 10:00 am January new home sales were expected at 612K units; as released, the number was 607K; December was revised to 652K from 621K; a 6-month supply.
Stock investors were encouraged with the recent rebound on the key indexes. It’s likely a short-lived improvement, but that is a minority view; most of the analysts that appear on CNBC remain solidly bullish. We find it difficult to agree, the global economic outlook continues to deteriorate but is pushed away on the idea that the US can grow even with the world slowing. Possibly investors, money managers and Wall Street, in general, see sun after the clouds that are circulating, willing to ignore the actual data.
Our tech models remain positive although, as has been the case for the last two months, momentum in either direction for rates remains close to neutral. The 9-day RSI is positive now but doesn’t demonstrate increased momentum in either direction. That said, we will hang in there; it’s a day-to-day decision whether to add more to the long position we hold now. As I have noted, and as you know, at these low levels it becomes tedious. One support we consider is the comparison of US interest rates to very low global rates of major economies.
10 yr. note: +2/32 (6 bp) 2.61% unch
5 yr. note: +2/32 (6 bp) 2.42% -1 bp
2 Yr. note: unch 2.46% unch
30 yr. bond: -1/32 (3bp) (3.02% unch)
Libor Rates: 1 mo. 2.483%; 3 mo. 2.610%; 6 mo. 2.676%; 1 yr. 2.859% (3/13/19)
30 yr. FNMA 4.0: @9:30 102.30 +4 bp (-1 bp from 9:30 yesterday)
15 yr. FNMA 3.5: @9:30 101.96 +9 bp (+7 bp from 9:30 yesterday)
30 yr. GNMA 4.0: @9:30 102.86 +3 bp (-4 bp from 9:30 yesterday)
Dollar/Yuan: $6.7274 +$0.0204
Dollar/Yen: 111.59 +0.43 yen
Dollar/Euro: $1.1300 -$0.0026
Dollar Index: 96.75 +0.28
Gold: $1293.80 -$15.90 (strong dollar)
Crude Oil: $58.91 +$0.32
DJIA: 25,635.11 -67.78
NASDAQ: 7628.86 -14.54
S&P 500: 2804.01 -6.91
Overnight the 10 yr note yield increased to 2.65%, and at 8:30 am ET it was back to 2.64% after the release of February CPI data. The consumer price index rose +0.2% as expected, yr/yr +1.5% as expected. The core was up +0.1% against forecasts of +0.2%, yr/yr it gained +2.1%, down from 2.2% in January — another report confirming no inflation pressures. Declining prices for autos and drugs were a factor. The slight declines from what was expected hit the dollar with the knee-jerk reaction that inflation not only won’t increase but is declining. That idea while not worth much is one report and doesn’t imply any trend to disinflation, but we will take it for MBS markets and mortgage rates. Shelter costs, which account for about a third of CPI and mainly include housing expenses, continued to hold up, with the fourth straight monthly increase of 0.3%. Owners-equivalent rent, one of the categories designed to track rental prices, rose 0.3%, as did rent of primary residence.
Also adding a little to the rate markets, at 6:00 am the NFIB (National Federation of Independent Businesses) reported its index for February at 101.7, weaker than 102.5 estimates but still fractionally better than 101.2 in Jan; the index in Jan dropped 3.2 points. Employment plans lost ground for a second straight month with a turn lower for earnings trends the biggest negative in the month. One plus is that the outlook for the economy, after dropping sharply in January, did turn positive in the month.
At 1:00 pm this afternoon the Treasury will sell $24B of 10-yr notes re-opening the issue from February. Yesterday the 3-yr didn’t meet good demand but the 10 carries more significance for mortgages.
Auto sales (SUVs) have been running very hot but may be slowing in the outlook. Moody’s lowered its 2019 growth forecast for worldwide light vehicle sales by more than half, saying they won’t totally recover from a slowdown in the latter part of 2018, cutting its rating from stable to negative. Not a good thing, and adds more concern the US economy will not meet the growth goals that have been forecast. Although the 2019 outlook had already been lowered, if auto sales fail the growth outlooks from 2 to 3%, GDP growth this year may be too optimistic and adds to the belief that interest rates are going to continue to move lower.
At 9:30 the DJIA opened down -27, the NASDAQ was up +15, and the S&P added +6. The 10-yr note yield was at its key level, 2.63%.
The Boeing 737 Max 8 crash has all but stopped it from flying, and it’s looking more like the US is the only country that hasn’t grounded them. No black box info yet but no country wants to take a chance. Two crashes in five months looks questionable.
We remain bullish for the outlook on rates; once 2.63% is decisively broken the 10-yr will likely move to the next technical level, the low yield in the last two years at 2.55%. When it did drop to that level at the beginning of the year it very quickly reversed and climbed back to 2.80% in two weeks.
10 yr. note: +3/32 (9 bp) 2.63% -1 bp
5 yr. note: +2/32 (6 bp) 2.43% -1 bp
2 Yr. note: +1/32 (3 bp) 2.46% -1 bp
30 yr. bond: +2/32 (6 bp) 3.03% unch
Libor Rates: 1 mo. 2.498%; 3 mo. 2.608%; 6 mo. 2.679%; 1 yr. 2.869% (3/11/19)
30 yr. FNMA 4.0: @9:30 102.23 +6 bp (unch from 9:30 yesterday)
15 yr. FNMA 3.5: @9:30 101.81 +4 bp (unch from 9:30 yesterday)
30 yr. GNMA 4.0: @9:30 102.86 +5 bp (+4 bp from 9:30 yesterday)
Dollar/Yuan: $6.7080 -$0.0184
Dollar/Yen: 111.16 -0.6 yen
Dollar/Euro: $1.1282 +$0.0038
Dollar Index: 97.06 -0.30
Gold: $1296.80 +$5.70
Crude Oil: $47.19 +$0.40
DJIA: 25,591.61 -59.27
NASDAQ: 7572.11 +14.05
S&P 500: 2789.81 +6.51