JOBS! We have jobs; June job NFP jobs were expected at 3 mil, jobs increased 4.8 mil. Private jobs were thought to be +2.66 mil; they increased by 4.76 mil. The unemployment rate at 11.1% better than 12.4% forecasts. The BLS said it largely fixed a problem from recent months when many respondents had been misclassified as employed when they should have been labeled as unemployed. Adjusted for the errors, the June unemployment rate would have been about 1 percentage point higher -- or 12.3%, compared with 16.4% in May. Manufacturing jobs doubled expectations of 180K to 356K. Average hourly earnings slipped more than thought to -1.3% on estimates of -0.8%; yr./yr. earnings +5.0%. On revisions, May jobs were revised from 2.5 mil to 2.7 mil, private jobs in may were revised from 3.09 mil to 3.32 mil. In June, employment in leisure and hospitality increased by 2.1 million, accounting for about two-fifths of the gain in total nonfarm employment. Over the month, employment in food services and drinking places rose by 1.5 million, following a gain of the same magnitude in May. Despite these gains, employment in food, on net, is 1.3 million lower than in February. Services and drinking places are down by 3.1 million since February. Employment also rose in June in amusements, gambling, and recreation (+353,000) and in the accommodation industry (+239,000). Employment in retail trade rose by 740,000.
Although unemployment fell in May and June, the jobless rate and the number of unemployed are up by 7.6 percentage points and 12.0 million, respectively, since February. The number of persons who usually work full time increased by 2.4 million to 118.9 million, and the number who usually work part-time also rose by 2.4 million to 23.2 million. The number of persons employed part-time for economic reasons declined by 1.6 million to 9.1 million in June but is still more than double its February level. These individuals, who would have preferred full-time employment, were working part-time because their hours had been reduced or they were unable to find full-time jobs. This group includes persons who usually work full time and persons who usually work part-time.
Weekly jobless claims at 1.427 mil were generally in line with estimates and -55K from the prior week.
On the 8:30 am ET reports, the 10 yr. rate increased 3 bps to 0.71%.
At 9:30 am ET, the DJIA opened +368, NASDAQ +115, S&P +37. The 10 yr. note at 9:30 am 0,70% +2 bps. FNMA 2.5 30 yr. coupon at 9:30 am unchanged from yesterday’s close, but 9 bps from 9:30 am yesterday.
At 9:30 am ET, President Trump held a news conference and started by touting the June employment data. Not much else, just the better employment data echoed.
This afternoon the bond and mortgage markets will close at 2:00 pm ET. Stocks will trade all day. Today’s afternoon report will be the usual time, after 4:00 pm. All markets will be closed tomorrow.
PRICES @ 10:00 AM ET
10 yr. note: 0.70% +2 bp
5 yr. note: 0.31% unch
2 Yr. note: 0.15% -2 bp
30 yr. bond: 1.46% +4 bp
Libor Rates: 1 mo. 0.166%; 3mo 0.298%; 6 mo. 0.384%; 1 yr. 0.533% (7/1/20)
30 yr. FNMA 2.5: @9:30 104.13 unch (-9 bp from 9:30 yesterday)
30 yr. GNMA 2.5: @9:30 104.83 +5 bp (-25 bp from 9:30 yesterday)
Dollar/Yuan: $7.065 -$0.0017
Dollar/Yen: 107.58 +0.12 yen
Dollar/Euro: $1.1268 +$0.0016
Dollar Index: 97.06 -0.13
Gold: $1778.90 -$1.00
Crude Oil: $40.45 +$0.63
DJIA: 26,169 +434
NASDAQ: 10,308 +153
S&P 500: 3163 +48
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.
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ADP reported its private jobs data this morning. It was expected that jobs would increase 3.75 mil, jobs were less at 2.37 mil, but also as expected ADP revised May jobs from -2.76 mil to +3.07 mil. The initial reactions; the 10 yr. note increased to 0.69% +3 bps from yesterday, and the DJIA index before the 8:15 am ET report was down 200 points then turned up and at 9:00 am +73 points in the futures markets. Fiscal and monetary stimulus helps the economy regain its footing. A gradual improvement in demand amid a pickup in coronavirus cases indicates the job market will take time to recover, but those looking for employment to crawl back the pre-corona virus will be greatly disappointed. There are permanent losses of jobs that won't come back, at least over the next two + years. 3% unemployment that we had can't be expected to return with businesses intent on cost-cutting in every aspect of their businesses; thousands of restaurants won't re-open in the new economy.
Service-provider employment climbed 1.91 million, while payrolls at goods producers increased 457,000 in June. The leisure and hospitality industry took on 961,000 workers, while construction firms added 394,000. In health care, employment rose by 246,000. Three industries -- mining, information, and management -- registered declines in payrolls. Payrolls at small businesses increased 937,000, and large businesses added 873,000 jobs. Medium-size businesses boosted payrolls by 559,000. 70% of the jobs added in June were in the leisure and hospitality, trade, and construction industries. The unemployment rate is expected to continue to fall from its April peak, but the size of that decline may be limited by Labor Department efforts to resolve a misclassification issue that has caused the rate to understate the true degree of joblessness.
Tomorrow's official BLS employment report will be difficult to navigate; the misclassification of out-of-work Americans as employed, as with the ADP data, makes a true picture somewhat cloudy. That said, any data that is better than forecasts will support the out-sized bullishness currently in all markets. Economists in May predicted 7.5 mil job losses, but according to BLS, it increased by 2.5 mil. Job growth (or losses) are not to be taken literally now.
At 9:30 am ET, DJIA opened +175, NASDAQ +46, S&P +17. 10 yr. 0.69% +4 bps. FNMA 21.5 30 yr. coupon at 9:30 am unchanged from yesterday and -1 bp from 9:30 am yesterday.
Weekly MBA mortgage apps last week: the composite -1.8%, purchase apps -1.0%, and refinances -2.0%.
June PMI manufacturing index at 49.8 was in line with estimates, up from 39.8 in May (almost back to expansion at 50+). Eurozone's June Manufacturing PMI rose to 47.4 from 39.4 (expected 46.9). UK's June Manufacturing PMI rose to 50.1 from 40.7, as expected. June Nationwide HPI fell 1.4% m/m (expected -0.7%; last -1.7%), decreasing 0.1% yr./yr. (expected 1.0%; last 1.8%). France's June Manufacturing PMI rose to 52.3 from 40.6 (expected 52.1). Italy's June Manufacturing PMI rose to 47.5 from 45.4 (expected 47.7). Spain's June Manufacturing PMI rose to 49.0 from 38.3 (expected 45.1). Swiss June procure.ch PMI fell to 41.9 from 42.1 (expected 48.3). Germany's June Manufacturing PMI rose to 45.2 from 36.6 (expected 44.6). India's June Nikkei Markit Manufacturing PMI rose to 47.2 from 30.8 (expected 37.5). South Korea's June Nikkei Manufacturing PMI rose to 43.4 from 41.3.
At 10:00 am ET, the June IMS manufacturing index expected at 49.0, hit at 52.9 back in expansion mode above 50.
Gold futures eased after reaching the highest in more than eight years, with a focus on the central bank release and warnings about the coronavirus pandemic.
PRICES @ 10:10 AM ET
10 yr. note: 0.69% +4 bp
5 yr. note: 0.31% +2 bp
2 Yr. note: 0.15% unch
30 yr. bond: 1.45% +4 bp
Libor Rates: 1 mo. 0.162%; 3 mo. 0.302%; 6 mo. 369%; 1 yr. 0.545% (6/30/20)
30 yr. FNMA 2.5: @9:30 104.22 unch (-1 bp from 9:30 yesterday)
30 yr. GNMA 2.5: @9:30 105.08 unch (+12 bp from 9:30 yesterday)
Dollar/Yuan: $7.0676 +$0.0021
Dollar/Yen: 107.55 -0.38 yen
Dollar/Euro: $1.1235 unch
Dollar Index: 97.33 -0.06
Gold: $1782.40 -$18.10
Crude Oil: $39.58 +$0.58
DJIA: 256,940 +128
NASDAQ: 10,098 +39
S&P 500: 3117 +17
The last day of the month and the quarter; in early trade this morning, the stock indexes a little weaker. 10 yr at 8:30 am ET 0.62% -1 bp.
There is a lot happening today; at 12:30 pm ET, Jerome Powell, and Steve Mnuchin are scheduled to go the House Financial Services Committee. In testimony prepared for delivery to the committee, Powell stressed the importance of containing the contagion as the economy recovers from its deepest contraction in decades. "While this bounce-back in economic activity is welcome, it also presents new challenges -- notably, the need to keep the virus in check," he said. Powell has said that policymakers assumed there wouldn't be a "substantial second wave" of infections when they penciled in their forecasts for the economy at their last meeting on June 9-10. But he and other officials have made clear they're primed to do more if a widespread outbreak threatens the economy.
The Fed added more support today, announcing the next corporate bond-buying, buying bonds from large companies like Apple, Verizon, AT&T, Toyota, and Volkswagen. $500B of bonds to be bought. More help from the Fed as the worries continue about the future. Companies going for the bond sales must show enough operating income, and the majority of its workforce is in the US. The Fed announced there are 794 companies that the Fed has bought their bonds. Goes to what the Fed has been saying for weeks; it will do what it has to do to keep the financial markets functioning, although the companies mentioned don't need that much help. In launching the Main Street and corporate lending facilities this month and starting to buy corporate bonds, the central bank has laid the groundwork for stepped-up support for the economy and financial markets, should fresh outbreaks of the virus undermine them. Looking for other ways to assess the new virus infections, JP Morgan looked at Chase credit card purchases from restaurants and bars three weeks ago as a measurement of the increased spread of the virus using it as a predictor of increased infections. In explaining why the central bank started buying corporate bonds this month even though the market for such debt has improved substantially, Powell said the Fed wanted to follow through on its commitment to do so.
After months of staying quiet, Joe Biden is scheduled to speak in Wilmington, Delaware, outlining what he will call a failed presidential response that has exacerbated a crisis other countries have managed to control. He will charge that the president called for slowing down testing for the virus because increased cases would hurt his political prospects, according to a preview of the Biden campaign's speech. Biden said he would get rid of many of Trump's tax cuts.
At 9:00 am ET, April Core/Logic home price index based on 20 cities, up 0.3% on forecasts of 0.5%; yr/yr +4.0% as expected.
At 9:30 am ET, the DJIA opened -75, NASDAQ -7, S&P -3. 10 yr at 9:30 am 0.63% unchanged. FNMA 2.5 30 yr coupon at 9:30 +5 bps from yesterday's close and +8 bps from 9:30 am yesterday.
At 9:45 am ET, the June Chicago purchasing mgrs. index, expected at 44.5 from 32.3, as released, a weak number, 36.6. Tomorrow June national ISM manufacturing index, a better read than a regional report. There was no market reaction to the soft report.
At 10:00 am ET, June Conference Board consumer confidence index expected at 90 from 86.6 in May; the index better than thought at 98.1, the best level since the pandemic began. Stock indexes moved up a little, no reaction in the rate markets.
Return of the lockdown. Arizona closed bars, gyms, movie theaters, and water parks. It targets reopening in 30 days. LA County had its highest daily totals of new cases and hospitalizations. Hot spot states are seeing lines for testing fill football stadiums. Contact tracing apps aren't delivering, and global systems are collapsing due to low uptake, missed deadlines, too many variables, and fake news.
Looking ahead to tomorrow, June ADP private jobs; estimates are for private jobs +3.75 mil after declining 2.76 mil in May. Thursday, June BLS employment data, and the FOMC minutes. At 2:00 pm ET Thursday, the bond and mortgage markets will close, and Friday all markets will be closed. By noon on Thursday, everyone will be headed to the doors.
10 yr note: 0.63% unch
5 yr note: 0.27% unch
2 Yr note: 0.15% -1 bp
30 yr bond: 1.38% unch
Libor Rates: 1 mo 0.171%; 3 mo 0.296%; 6 mo 0.366%; 1 yr 0.555% (6/29/20)
30 yr FNMA 2.5: @9:30 104.23 +5 bp (+8 bp frm 9:30 yesterday)
30 yr GNMA 2.5: @9:30 104.95 +2 bp (unch frm 9:30 yesterday
Dollar/Yuan: $7.0728 -$0.0083
Dollar/Yen: 107.64 +0.07 yen
Dollar/Euro: $1.1224 -$0.0019
Dollar Index: 97.66 +0.12
Gold: $1728.60 +$1.40
Crude Oil: $39.24 -$0.46
DJIA: 25,558 -38
NASDAQ: 9944 +70
S&P 500: 3062 +10
Pending homes sales jump a record 44.3%
According to the National Association of Realtors, Homebuyers are increasingly emerging from their hiding places to buy houses, which reports pending home sales spiked a stunning 44.3% in May compared with April.
This constitutes the largest one-month jump in the history of the nearly 20-year-old survey and beats expectations of a 15% gain. While it still represents a lower number than a year ago, pending sales measures signed contracts on existing homes, demonstrating how buyers were shopping through May. “Sales had fallen 22% for the month in April, as the economy shut down to slow the spread of the coronavirus,” says CNBC’s Donna Olick.
Historically speaking, home sales have been an indicator of what’s ahead, where the economy is concerned, as it reflects buyers’ sentiments about the future. NAR chief economist Lawrence Yun adds, “This has been a spectacular recovery for contract signings, and goes to show the resiliency of American consumers and their evergreen desire for homeownership. This bounce-back also speaks to how the housing sector could lead the way for a broader economic recovery.”
The biggest issue is supply, according to Yun, who says homebuilders are key to solving the acute and persistent underproduction of homes over the past decade. “The supply of existing homes for sale at the end of May was nearly 19% lower annually, according to the NAR,” says Olick. “Single-family housing starts in May were not as strong as expected, although building permits, a measure of future construction, did gain some steam.”
What is most surprising is that buyers came back to the market despite restrictions on open houses in many states. “Real estate agents are offering virtual tours as well as individual tours of empty homes, where buyers can open a lockbox and tour the homes themselves,” says Olick. “Some buyers are signing contracts on homes they’ve never even entered physically.” Historically low mortgage rates are a huge part of the revival, helping buyers in a market that remains pricey due to high demand.
According to the U.S. Census, New home sales (measured by signed contracts) also jumped nearly 17% in May, compared with April, and were 13% higher than May 2019.
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 this morning. Last week the MBS market improved by +34bps. This may've been enough to move rates or fees lower last week. We saw low rate volatility through the week.
This Week's Rate Forecast: Neutral
Three Things: These are the three areas that have the greatest ability to impact rates this week. 1) VWUL, 2) Jobs and 3) The Fed
1) VWUL: What does that stand for? Those are the various recovery line chart patterns that closely resemble a letter in our alphabet. A "V" recovery is a very sharp rebound while a "U" recovery has a sharp rebound but only after a long period of recession. The number of Covid-19 cases, infection rates, and hospitalization rates is an important factor in projections for the recovery's letter shape. Today's headlines are not pointing towards a "V":
2) Jobs: We get a huge dose of jobs and wage data this week, much of it on Thursday as the bond market is closed on Friday. Some of the key readings are the Unemployment Rate, Average Hourly Wages, Non-Farm Payrolls, Initial Weekly Jobless Claims, ADP Private Payrolls, and some internal employment readings in ISM manufacturing.
3) The Fed: We will hear from Fed Chair Powell and Treasury Secretary Mnuchin on Tuesday as they testify before Congress on the status/implementation of the CAREs Act and other emergency measures.
This Week's Potential Volatility: Low
The trading markets are closing early on Thursday and are closed Friday in observance of Independence Day. We're likely to see rates move sideways on low volatility all week. The only thing that can spike rates higher is unexpectedly good economic news.
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.
Overnight the stock indexes were doing a little better, but by 9:00 am ET reversed and were trading lower. Equity markets continue to swallow any negative outlooks, whether it be the virus damage or the business outlook. 40% of all public companies have announced they won't issue guidance through the end of the year; if businesses don't have a solid handle on the outlooks, why do investors believe equity markets are a buy? It's the Fed printing money, buying corporate bonds, treasuries, and MBSs, Powell's continuing reminders that the Fed will print all of the money needed, and no other places to go for any kind of a return. Interest rates and inflation fears are no longer a concern; the Fed has missed its 2.00% target now for 10 yrs. Possibly, in the absence of alternatives, you can't miss with stocks. That is a bet at the present levels that are becoming highly risky.
Consumer lending by banks is declining. Banks can't tell anymore who may be creditworthy. Credit scores are becoming difficult to assess because of the coronavirus lending program; the law says lenders that allow borrowers to defer their debt payments can't report these payments as late to credit-reporting companies. According to credit-reporting firm TransUnion, from March 1 through the end of May, Americans deferred debt payments on more than 100 million accounts, a sign of widespread financial distress. "Without accurate information, their only option is to pull back on credit," said Michael Abbott, head of banking for North America at consulting firm Accenture PLC. "Banks don't know who is going to pay and who isn't. It's like flying blind into a credit storm."
At 9:30 am ET, the DJIA opened +191, NASDAQ -11, S&P +7. 10 yr. at 9:30 am, 0.65% unchanged from Friday. FNMA 2.5 30 yr. coupon at 9:30 am unchanged from Friday's close and +10 bps from 9:30 am Friday.
At 10:00 am ET, May pending home sales expected +11%, as reported sales increased 44.3%, the largest one month increase since the data has been collected. Yr./yr. -5.1%.
This week in the bond market, we have a three and a half-day week; the stock market trades through Thursday; all markets closed Friday. Virus cases are continuing to increase.
10 yr. note: 0.65% unch
5 yr. note: 0.29% -1 bp
2 Yr. note: 0.16% -1 bp
30 yr. bond: 1.37% unch
Libor Rates: 1 mo. 0.178%; 3 mo. 0.307%; 6 mo. 0.361% 1 yr. 0.566$ (6/26/20)
30 yr. FNMA 2.5: @9:30 104.14 unch (+10 bp from 9:30 Friday)
30 yr. GNMA 2.5: @9:30 104.91 -5 bp (+7 bp from 9:30 Friday)
Dollar/Yuan: $7.0803 +$0.0019
Dollar/Yen: 107.75 +0.53 yen
Dollar/Euro: $1.1257 +$0.0036
Dollar Index: 97.35 -0.08
Gold: $1782.50 +$2.20
Crude Oil: $38.74 +$0.25
DJIA: 25,283 +268
NASDAQ: 9732 -25
S&P 500: 3018 +9 bp
Before 8:30 am ET, the stock indexes were lower, the 10 yr. note and MBS prices unchanged from yesterday.
At 8:30 am ET, May personal income and spending along with May PCE (the Fed's inflation measurement) expected down 6.4%, spending +8.6%, PCE 0.0% for the month. Income as released -4.2% (wages and salaries increased 2.7% after declining by 7.6% in April). Spending +8.2%. PCE +0.1%, yr./yr. +0.5%, PCE core +0.1%, yr./yr. +1.0%. The key takeaway from the report is that the personal savings rate, as a percentage of disposable income, remains exceptionally high at 23.2%. Granted that's down from 32.2% in April, but a high savings rate means less spending activity, which means less economic growth. The drop in income was predominately the result of government social benefits coming in at a lower level than April. However, an increase in unemployment insurance benefits helped offset some of the decreases. The initial reaction in the interest markets, the 10 yr. note dropped from unchanged at 0.68% to 0.66%; MBS price increased by 2 bps. The trading in stock index futures pushed indexes lower than before the report.
The explosion in new cases of the virus has rattled markets. The country registered the biggest-ever jump in coronavirus cases, in a growing recognition that the contagion is increasingly dictating events in much of the country. Texas stopped re-openings, Houston running out of beds in hospitals, and delaying some surgeries. North Carolina also paused plans to loosen restrictions this week, along with Louisiana and Kansas. America recorded more than 39,000 new Covid-19 cases, surpassing the previous daily peak on April 24. More than 2.4 million cases have been confirmed in the U.S., but the Centers for Disease Control and Prevention estimates infections may have been 10 times higher, with many not showing symptoms, the agency's director said on a call yesterday. Florida, California, Arizona, and Texas account for almost half of all new cases. According to the University of Washington's Institute for Health Metrics and Evaluation, deaths in the U.S., currently at 124,000, could rise by more than 45% to 180,000. European Central Bank President Christine Lagarde warned that a recovery from the pandemic will be restrained and permanently change parts of the economy. U.K. Chancellor of the Exchequer Rishi Sunak vowed to protect jobs even though the "bar is exceptionally high" for company bailouts.
Late yesterday the Fed issued its bank stress test. The Fed told banks to stop stock buy-backs and not increase dividends at least through the third quarter. The industry performed well in annual stress tests, according to a statement from the central bank, but a separate review of the effects of the coronavirus on the economy and financial system uncovered potential risks that left the fate of their dividends in question. The Fed "is taking action to assess banks' conditions more intensively and require the largest banks to adopt prudent measures to preserve capital in the coming months," Fed Vice Chairman for Supervision Randal Quarles said. "The banking system remains well-capitalized under even the harshest of these downside scenarios." The central bank is also requiring banks to resubmit capital plans later in the year, a move unprecedented in the past decade of Fed testing. Quarles said the board "will use this information to make a further assessment of the banks' financial conditions and risks." Under the new rule, a bank's dividend can't exceed average quarterly earnings for the previous four quarters. Goldman Sachs Group Inc. and Morgan Stanley fared the worst among U.S.-based banks in the regular portion of the stress tests, with their capital levels declining 6.4 and 5.5 percentage points, respectively, under a hypothetical economic crisis devised by the Fed. Fed Governor Lael Brainard said, "Despite the substantial likelihood that banks will need larger capital buffers to absorb losses under plausible scenarios, the authorization permits distributions that will deplete capital buffers."
At 9:30 am ET, the DJIA opened -185, NASDAQ -22, S&P -13. 10 yr. 0.66% -2 bps. FNMA 2.5 30 yr. coupon at 9:30 +2 bps from yesterday's close and +14 bps from 9:30 yesterday.
At 10:00 am ET, the June U. of Michigan consumer sentiment index was expected to be at 78.9 unchanged from the mid-month index; as released, the index slipped a little to 78.1; there was no noticeable reaction to it either stock indexes, treasuries or MBS prices.
10 yr. note: 0.66% -2 bps
5 yr. note: 0.32% -2 bps
2 Yr. note: 0.18% -1 bp
30 yr. bond: 1.40% -4 bps
Libor Rates: 1 mo. 0.183%; 3 mo. 0.306%; 6 mo. 0.364%; 1 yr. 0.570% (6/25/20)
30 yr. FNMA 2.5: @9:30 104.03 +2 bp (+14 bp from 9:30 yesterday)
30 yr. GNMA 2.5: @9:30 104.86 +2 bp (+13 bp from 9:30 yesterday)
Dollar/Yuan: $7.0784 unch
Dollar/Yen: 107.16 -0.03 yen
Dollar Index: 97.48 +0.05
Gold: $1757.80 -$12.80
Crude Oil: $38.27 -$0.45
DJIA: 25,396 -350
NASDAQ: 9911 -105
S&P 500: 3055-29
Stock indexes were ripped yesterday. In early pre-open trading this morning (8:00 am ET), the indexes were trading lower. The 10 yr. note dropped 4 bps yesterday to 0.68%, this morning at 9:00 am, it's down another 2 bps to 0.66%.
8:30 am ET data: May durable goods orders were expected to be +10.0%, new orders were up 15.8%, excluding the volatile transportation orders (aircraft) orders were up 4.0% with forecasts of 1.9%. Core capital goods orders +2.3% on 0.6% estimates.
Weekly jobless claims were higher than forecasts at 1.480 mil with estimates at 1.380 mil, and the prior week revised from 1.508 mil to 1.540 mil. Claims down 60K last week and -26K the week before. Benefits were higher than forecast for a second straight week, adding to signs that the recovery is cooling amid a pickup in coronavirus cases. Continuing claims, a better measurement, declined by 19.5 mil to 1.680 mil from 1.782 mil the previous week. The early estimates for the June jobs that will be reported next Friday is an increase of 3 million new jobs.
The country recorded more than 34,500 new infections for a second day, numbers neared the peak of 36,188 set April 24. Florida and Texas each hit records for cases yesterday, with health officials in Houston saying their infrastructure was "overwhelmed." Meanwhile, Arizona peaked in hospitalizations, and California saw an all-time high for new infections. New York, New Jersey, and Connecticut set quarantines for incoming travelers from the hot zones, and North Carolina put its reopening on ice for three weeks.
Yesterday, the IMF lowered its outlook for growth. The lender now expects global gross domestic product to shrink 4.9% this year, more than the 3% predicted in April. For 2021, the fund sees a growth of 5.4%, down from 5.8%. This morning the final Q1 GDP data, GDP growth in Q1 -5.0%, real consumer spending -6.8%, and the GDP price index +1.4%. The final data was unchanged from the preliminary report a month ago.
The DJIA now negative for June. There are still three more days though, and given the current volatility, it could easily move back to a positive. We have noted numerous times that investors have over-reached buying stocks based on the indexes; now, the virus re-energized, and the outlook for that V-shaped recovery is being questioned. Interest rates are still in their tight ranges that have kept rates in check either way since the beginning of March.
10 yr. note: 0.67% -2 bp
5 yr. note: 0.32% -1 bp
30 yr. bond: 1.41% -2 bp
Libor Rates: 1 mo. 0.179%; 3 mo. 0.283%; 6 mo. 0.379%; 1 yr. 0.563% (6/24/20)
30 yr. FNMA 2.5: @9:30 103.88 +2 bp (+5 bp from 9:30 yesterday)
30 yr. GNMA 2.5: @9:30 104.22 unch (+6 bp from 9:30 yesterday)
Dollar/Yuan: $7.0782 unch
Dollar/Yen: 107.18 +0.14 yen
Dollar/Euro: $1.1221 -$0.0030
Dollar Index: 97.46 +0.32
Gold: $1771.00 -$4.10
Crude Oil: $37.84 -$0.17
DJIA: 25,397 -48
NASDAQ: 9869 -40
S&P 500: 3044 -7
Increasing virus cases are pushing stock indexes lower this morning. The EU is thinking about keeping Americans out of the region. The EU in Brussels is scheduled to discuss the criteria for lifting a curb on non-essential travel to the bloc as of July 1. One of the criteria up for discussion is “reciprocity,” which would mean US citizens wouldn’t be allowed into the bloc starting next month because Europeans are still barred for health reasons from traveling to their country. Yesterday Fauci told Congress he saw a “disturbing surge” in new cases. California, Texas, and Arizona reported their biggest daily jumps, and Florida’s infection rate climbed above 10%. Virus cases in the US increased by 35,695 from the same time Monday to 2.33 million, according to data collected by Johns Hopkins University and Bloomberg News. The 1.6% gain was higher than the average daily increase of 1.3% in the past seven days.
These days, any movement in equity markets appears to be driven by virus concerns, although the stock market is very overbought from a technical perspective. Small investors pushing large investors into the markets as stock prices that were not considered by professionals as a buy are increasing and pulling them back. The NASDAQ is the flower child, making new all-time highs daily recently. The new concern that the big increases will force states and cities to reverse the openings that began two weeks ago. As for a national shutdown that we lived with since March, it isn’t going to happen; the economy won’t survive with another major lock-up, no matter new cases.
The World Bank’s chief economist, Carmen Reinhart, a very highly respected economist that markets take seriously, at the Bloomberg Invest Global virtual conference yesterday said: “If the advanced economies are seeing problems, it actually pales in comparison to some of the problems and challenges that the developing countries and emerging markets are seeing because they don’t have safety nets,” …. “Countries are torn between diverting resources to debt servicing versus using the resources to support social safety, both the medical front and support for lost income. There’s that enormous tension.” She emphasized the importance of China’s participation in the Group of 20’s debt suspension for developing countries, saying that relief would be “infinitely smaller” if the world’s second-largest economy wasn’t taking part.
The IMF just released its revised forecast from its April outlook. It, as expected, downgraded its forecast from its April assessment. It now expects global gross domestic product to shrink 4.9% this year, more than the 3% predicted in April. For 2021, the fund forecast growth of 5.4%, down from 5.8%. IMF said its increased pessimism reflected scarring from a larger-than-anticipated supply shock during the earlier lockdown and the continued hit to demand from social distancing and other safety measures. For nations struggling to control the virus spread, a longer lockdown will take a toll on growth. “With the relentless spread of the pandemic, prospects of long-lasting negative consequences for livelihoods, job security, and inequality have grown more daunting.” In the US, GDP is expected to contract 8% in 2020, compared with the previous 5.9% projection. The world’s largest economy may grow 4.5% next year. The euro area will probably shrink 10.2% in 2020 and expand 6% in 2021.
Earlier this morning, the MBA weekly mortgage applications were softer than expected; the composite apps -8.7%, purchase apps -3.0%, and refinance apps dropped 12.0% last week. (The week before; the composite +8.0%, purchase apps +4.0% and refinance apps +10.0%). April FHFA house price index +0.2%, the consensus was +0.4%; yr/yr +5.5% from 5.9% in March.
At 9:30 am ET, the DJIA opened -252, NASDAQ -28, S&P -21. 10 yr at 9:30 am unchanged at 0.72% FNMA 2.5 30 yr coupon at 9:30 am +2 bps from yesterday’s close and +5 bps from 9:30 yesterday.
At 1:00 pm ET, today treasury will auction $47B of 5 yr notes; yesterday’s 2 yr auction was soft with less demand than its average.
10 yr. note: 0.71% -1 bp
5 yr. note: 0.33% unch
2 Yr. note: 0.19% unch
30 yr. bond: 1.46% -3 bp
Libor Rates: 1 mo. 0.184%; 3 mo. 0.296%; 6 mo. 0.382%; 1 yr. 0.565% (6/23/20)
30 yr. FNMA 2.5: @9:30 103.84 +2 bp (+5 bp from 9:30 yesterday)
30 yr. GNMA 2.5: @9:30 104.67 -11 bp (unch from 9:30 yesterday)
Dollar/Yuan: $7.0773 +$0.0188
Dollar/Yen: 106.88 -0.36 yen
Dollar/Euro: $1.1267 -$0.0041
Dollar Index: 96.94 +0.30
Gold: $1783.40 +$1.40
Crude Oil: $39.74 -$0.63
DJIA: 25,737 -421
NASDAQ: 10,004 -127
S&P 500: 3084 -49
Want a touchy market? The stock market at these levels fits the description. Yesterday Peter Navarro, the US trade rep, in an interview with Fox News, answered a lengthy question about the US/China trade deal saying that January's U.S.-China trade agreement was over. The comment came about 8:30 am ET, sending the indexes down quickly. The comment was quickly clarified after Navarro said the remark was taken "wildly" out of context, and President Donald Trump later said the deal is "fully intact." Navarro answered a long question on Fox News about whether aspects of the deal were "over." Navarro said: "It's over. Yes." Trump responded to the contrary that the pact was still in place, stocks reversed, and by the end of the session, the NASDAQ made another new all-time high. The currency markets, and the grain markets all reacted with large swings. By the end of the session, the dust-up was in the rearview mirror, but it demonstrated how skittish markets are, except the interest rate markets that hardly reacted.
More virus cases being reported and more talk of a second wave may be beginning. Markets are not showing any major concern because the increases are primarily due to increased testing. Regardless of the increases, there will not be another shutdown of the economy. The World Health Organization said cases around the globe reached a record, pointing out the surge in Latin America. Florida's new infections rose to another high. Texas Governor Greg Abbott said the contagion is accelerating at "an unacceptable rate," while the state's hospitalizations rose the most in two and a half weeks.
This morning in pre-open trading, the DJIA +350 points, NASDAQ +70 at 8:30 am ET. Yesterday the NASDAQ made another new high, looks like another new high by the end of the day. Investors are betting that trillions of dollars in stimulus by central banks and governments around the globe will shield economies from a resurgence in virus breakouts. PMIs for June, due later this morning, may show business activity in the world's largest economy, continuing a rebound that started in May.
At 9:30 am ET, the DJIA opened +218, NASDAQ +62, S&P +23. 10 yr. at 9:30 am 0.72% +2 bps FNMA 2.5 30 yr. coupon +3 bps from yesterday's close and -4 bps from 9:30 am yesterday. Treasuries and mortgage rates are still with little change.
At 9:45 am ET, the June PMI flash index was expected at 45.0 from 36.4 in May, as released the index improved to 46.8. A measure of new orders received by factories increased to a reading of 49.5 in June from 34.6 in May. The June PMI reads are better than forecasts. Japan's June flash Manufacturing PMI decreased to 37.8 from 38.4, and June flash Services PMI rose to 42.3 from 26.5. Eurozone's June flash Manufacturing PMI rose to 46.9 from 39.4 (expected 44.5), and flash Services PMI rose to 47.3 from 30.5 (expected 41.0). UK's June flash Manufacturing PMI rose to 50.1 from 40.7 (expected 45.0), and flash Services PMI rose to 47.0 from 29.0 (expected 40.0). Germany's June flash Manufacturing PMI rose to 44.6 from 36.6 (expected 41.5), and flash Services PMI rose to 45.8 from 32.6 (expected 42.0). France's June flash Manufacturing PMI rose to 52.1 from 40.6 (expected 46.0), and flash Services PMI rose to 50.3 from 31.1 (expected 44.2).
At 10:00 am ET, May new home sales, expected at 630K from 623K in April; sales increased to 676K while April sales were revised lower, from 623K to 580K. The increase +16.6% from the April revision. The median sales price $317,900; based on the sales, there is a 5.6 month supply. New home sales are contracts signed but not yet closed. No reaction to the report, April revision offsets the better May number.
At 1:00 pm ET, Treasury will auction $46B of 2s, not an issue for the long end of the curve but still interesting.
10 yr. note: 0.72% +2 bp
5 yr. note: 0.33% unch
2 Yr. note: 0.19% unch
30 yr. bond: 1.49% +2 bp
Libor Rates: 1 mo. 0.184%; 3 mo. 0.296%; 6 mo. 0.394%; 1 yr. 0.573% (6/22/20)
30 yr. FNMA 2.5: @9:30 103.81 +3 bp (-4 bp from 9:30 yesterday)
30 yr. GNMA 2.5: @9:30 104.67 +5 bp (-6 bp from 9:30 yesterday)
Dollar/Yuan: $7.0607 -$0.0077
Dollar/Yen: 106.21 -0.69 yen
Dollar/Euro: $1.1339 +$0.0076
Dollar Index: 96.54 -0.50
Gold: $1782.60 +$16.10
Crude Oil: $40.74 unch
DJIA: 26,226 +201
NASDAQ: 10,153 +97
S&P 500: 3144 +26
As the economy slowly rebounds, real estate numbers begin improving
Even though we are in the third week of June, statisticians are just coming out with a snapshot of the real estate market for May. According to Redfin’s Tim Ellis, the housing market showed some early signs of recovery in May due to the addition of homes for sale and contracts to buy homes, both increasing dramatically from April levels. But the market remains overall very competitive thanks to a continuing shortage of homes for sale.
Home prices in the U.S. only saw a 0.5% year over year in May to a median of $299,400 across the 217 metros areas, according to Ellis. “This was the smallest annual increase since home prices bottomed out in February 2012. However, the fact that this increase was so much smaller than the 4.7% gain in April was largely due to fewer homes being sold in the most expensive metro areas.”
Of course, it isn’t easy to compare these figures to a year ago, when the economy was not shut down, and people were not sheltering in place. And the priciest areas (with median prices above $450k) took the biggest hits, seven of the top twelve in California, seeing declines of between 38% and 58% from a year earlier.
Redfin’s lead economist, Taylor Marr, explains, “Although the housing market was still mostly stalled in May, it’s worth noting that homes under contract to be sold jumped 33% between April and May after two consecutive months of decline. This is a key leading indicator for home sales in June and July. New listings of homes for sale have also likely passed their bottom, but are still about 20% below February’s level, so there’s still a ways to go before the housing market has recouped the lost activity of the past few months during the shutdowns.”
Ellis reports that an even more encouraging sign is the bounce back in the number of newly-constructed homes that were listed for sale in May. Other measures of competition in the market such as days on market and the share of homes sold above list price have remained relatively steady throughout the shutdowns and stay-at-home orders across the nation.
Now that regional economies are beginning to recover, people are out in droves looking at homes, finally set free while donning face masks and carrying bottles of hand sanitizer. All the market needs now is more inventory.
Source: Redfin | TBWS
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.
Mortgage rates are trending sideways this morning. Last week the MBS market lost -9bps. This caused rates to mostly move sideways for the week. We saw increased rate volatility at the end of the week.
This Week's Rate Forecast: Neutral
Three Things: These are the three areas that have the greatest ability to impact rates this week: 1) Coronavirus 2) Central Banks, and 3) Domestic.
1) Coronavirus: The non-stop media coverage and positing of the "second wave" of Covid-19 is the primary focus of bond traders as more restrictions are eased (NYC moves to Phase 2 of reopenings today). With very real and staggering data out of FL, CA, TX, AZ, and others showing major increases in both the number of new cases and hospitalization rates, the possibility of states freezing, or even reversing some openings is of paramount interest among economists and long bond traders.
2) Central Banks: We get key interest rate decisions out of China and New Zealand and Non-Monetary meeting at the ECB. We'll also hear from the IMF and get their updated forecasts. From our own Fed, we will hear from Charles Evans and James Bullard, but the focus this week is on the Bank Stress Tests results of the major financial institutions and the rollout of the Main Street Lending Program.
3) Domestic: We get some big-name economic releases such as revised GDP and Durable Goods, but the main focus will be on Initial Weekly Jobless Claims on Thursday, and Friday, we get the Fed's key measure of inflation - Core PCE YOY.
This Week's Potential Volatility: Average
Markets are quickly shifting their focus back to the coronavirus as states reopen and cases spike. Rate volatility has been minimal for weeks now, and we expect that trend to remain this week. However, anything unexpected on the domestic economic data front and coronavirus cases could spike rate volatility.