The 10 yr at 7:00 am ET was at 2.74%, up +2 bp; stock indexes were generally unchanged.
Also at 7:00 am, weekly MBA mortgage applications increased once again, the second weekly increase. The composite +13.5%, purchase apps +9.0%, re-finance apps +19%. The prior week the composite increased 23.5%. Apps are the highest level since April 2010 and applications for refinancing has increased by 19% to the highest volume since March of last year. Unadjusted purchase applications are now 11% higher than in the same week a year ago. The refinancing share of mortgage applications increased 1 percentage point to 46.8%, the highest level in a year. If rates remain at these levels, the outlook for mortgage applications looks promising into the spring.
Redfin is reporting weak December home sales; prices edged up a little in December, marking the smallest annual increase since the end of the last housing crash in 2012. The median home price rose to $289,800 in December, a gain of 1.2%, the slowest monthly pace since March 2012. Sales dropped by almost 11%, the biggest decline for any month since 2016, Redfin said. Previously hot metropolitan areas are cooling fast. “It was like hitting the brakes when you’re going over the speed limit,” Redfin Chief Economist Daryl Fairweather said of the slowdown. “You can’t have prices growing faster than wages year after year.”
At 8:30 am December import prices were expected to be -1.2%. As reported, they dropped -1.0%; export prices were thought to be -0.3%, as reported -0.6%. Yr/yr imports lost -0.6%, down from 0.5% in November; yr/yr export prices added +1.1%, down from +1.9% in November.
Retail sales for December figures were scheduled this morning but were delayed. The same with Nov business inventories. Retail sales are one of the major indicators each month, leaving investors to interpret various private reports about sales. Most of the private looks were strong although not as strong as were expected at the beginning of the holiday shopping season.
British lawmakers defeated Prime Minister Theresa May's Brexit divorce deal by a crushing margin, triggering political upheaval that could lead to a disorderly exit from the EU. A no-confidence vote is set for today; a vote of no confidence sets up the possibility that May and her party would face another general election. The Brexit situation is in turmoil, not because the vote went against Theresa May, but because of the huge margin of defeat (432 to 202). So far we haven’t seen any significant market reactions. The bottom line is whether the Parliament still is willing to exit the EU. While the exit is still set for March 29th, the EU is saying there will be no option to renegotiate the agreement.
At 9:30 am the DJIA opened up +84, the NASDAQ added +15, and S&P was up +5. The 10-yr stood at 2.73%, +1 bp.
At 10:00 am the January NAHB housing market index, expected at 57 from 56 in December increased to 58; the index has dropped significantly since Oct, from 71 to 58 now.
At 2:00 pm we will have the Fed Beige Book report.
The government shutdown is getting more serious each day; the new additional concern is air traffic controllers. TSA is cutting back, increasing travelers frustrations. This shutdown has to end soon. Democrats see this as the first and most important issue that has to be won to cement their leadership in the House. There is no debate about the increasing animosity between Speaker Nancy Pelosi and President Trump. In the meantime, increasingly more people are being affected. This morning the Speaker is asking the White House to delay the State of the Union address until the government re-opens since the Secret Service is being affected by the closure. There has never been a State of the Union address given when the government was closed.
PRICES @ 10:00 AM
10 yr. note: -7/32 (22 bp) 2.74% +2 bp
5 yr. note: -4/32 (12 bp) 2.56% +3 bp
2 Yr. note: -2/32 (6 bp) 2.55% +2 bp
30 yr. bond: -13/32 (41 bp) 3.10% -2 bp
Libor Rates: 1 mo. 2.507%; 3 mo. 2.773%; 6 mo. 2.845%; 1 yr. 3.008% (1/15/19)
30 yr. FNMA 4.0: @9:30 101.88 -3 bp (-14 bp from 9:30 yesterday)
15 yr. FNMA 3.5: @9:30 101.37 -9 bp (-23 bp from 9:30 yesterday)
30 yr. GNMA 4.0: @9:30 102.42 -8 bp (-19 bp from 9:30 yesterday)
Dollar/Yuan: $6.7601 -$0.0009
Dollar/Yen: 108.85 +0.16 yen
Dollar/Euro: $1.1402 -$0.0012
Dollar Index: 96.04 +0.08
Gold: $1291.80 +$3.40
Crude Oil: $52.26 -$0.13
DJIA: 24,220.32 +154.73
NASDAQ: 7074.24 +50.40
S&P 500: 2622.82 +12.52
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.
Prior to 8:30 am ET the rate markets were flat. There were no changes from yesterday; stock indexes before 8:30 am generally remained unchanged as well. At 8:30 December PPI was reported with less inflation than expected. Overall PPI dropped -0.2% on forecasts of 0.0%, excluding food and energy and -0.1% on estimates of +0.2%, excluding food and energy. Trade services were expected to be up +0.2% but as reported were 0.0%. The lack of inflation on wholesale goods bodes well for the future CPI data. December CPI was released last Friday, -0.1%, core +0.2%. Usually, markets get PPI before CPI.
Also at 8:30 am the January Empire State manufacturing index was expected at 12.0 from December with 10.9 originally reported; the index as reported was 3.9 and December was revised to 11.5. The lowest rate of growth since May 2017. Any readings over zero indicate monthly growth and at 3.5 new orders are not showing much strength while backlog orders are in contraction at minus 7.6. But shipments continue to move out the door at a strong 17.9 and the report's sample continues to hire with employment at 7.4. Despite the slowing in orders, price pressures persist with input costs at an elevated 35.9 and selling prices steady at 13.1. The nation's manufacturing sector is suddenly having a rough time and the reasons aren't clear. Watch Thursday for the Philly Fed report and the next indication on January's factory conditions. NY isn’t considered a manufacturing juggernaut.
The two 8:30 am releases did improve the rate markets a little. By 9:00 am the 10-yr traded 2.69%, -1 bp, and MBS prices were up 8 bps from yesterday’s close.
Big vote in the UK today on Brexit, and the plan out there will be rejected by Parliament according to every poll and UK experts. Looks like the March 29th deadline is dead. The options are numerous when the vote is finally counted; so far the problems with Brexit haven’t had a deep impact on global markets.
This earnings season is kind of like the opening of duck hunting season. Hunters in their hideouts are waiting for action. Wells Fargo reported weakness in consumer banking driving a miss on forecasts. JP Morgan also reported lower than expected earnings in Q4.
China’s economy continues to contract; yesterday it reported exports declined, portending more weakness in the months ahead. Trade talks are on pause for the moment but last week’s talks were seen as positive steps with talks set to continue.
No progress on the shutdown — not even any barbs flying around. President Trump still refuses to budge, and Democrats won’t budge. It all amounts to about $5.7B, a drop in the bucket on government spending; no one has any other alternative. The Dems want Trump to open the government for a few weeks while they negotiate, but the president knows once the government re-opens it will very difficult to shut down again, and he would lose leverage. President Trump is scheduled to meet lawmakers for lunch at the White House, but we don’t know who will be there. There are no comments from Democratic leaders. The Washington Post reported yesterday that a new bipartisan group of U.S. senators is searching for an agreement. We wish them the best.
At 9:30 am the DJIA opened down -8, the NASDAQ added +27, and the S&P added +3. The 10-yr note stood at 2.69%, losing -1 bp.
Stocks will rule the rate markets again today; the shutdown is beginning to have a direct impact on economic conditions. No key data is being released like tomorrow’s scheduled December retail sales —a very key data point. Investors and traders are having to step lightly with a lot of measurements unavailable.
The 10-yr is at very critical technical level. The decline has momentarily run out of buyers, although sellers are reluctant to push rates up. Still digesting the recent decline in rates; this morning’s PPI is helpful, showing no inflation and not much on the horizon based on wholesale prices. MBS markets following treasuries also in consolidation. From the perspective of a buyer, these rates should be taken advantage of at these levels.
10 yr. note: +1/32 (3 bp) 2.70% unch
5 yr. note: +1/32 (3 bp) 2.52% unch
2 Yr. note: unch 2.54% unch
30 yr. bond: -8/32 (25 bp) 3.07% +2 bp
Libor Rates: 1 mo. 2.510%; 3 mo. 2.778%; 6 mo. 2.853%; 1 yr. 3.010% (1/14/19)
30 yr. FNMA 4.0: @9:30 102.02 +8 bp (+5 bp from 9:30 yesterday)
15 yr. FNMA 3.5: @9:30 101.60 +12 bp (+10 bp from 9:30 yesterday)
30 yr. GNMA 4.0: @9:30 102.61 +8 bp (+8 bp from 9:30 yesterday)
Dollar/Yuan: $6.7577 -$0.0104
Dollar/Yen: 108.50 +0.35 yen
Dollar/Euro: $1.1453 -$0.0019
Dollar Index: 95.74 +0.14
Gold: $1294.40 +$3.10
Crude Oil: $52.08 +$1.28
DJIA: 24,028.10 +118.26
NASDAQ: 7000.12 +94.21
S&P 500: 2604.99 +22.38
Trending more than ever: down payment assistance from Mom and Dad
It’s no longer the exception to the rule. Rising home prices are sending first-time home buyers to their parents for help with down payments, according to Ben Eisen's recent article in Realtor.com.
More than 26% of mortgage borrowers who used Federal Housing Administration-insured loans got assistance from a relative to make the down payment in the 12 months through September. This figure is up from about 22% in 2011.
It comes as no surprise that mom and dad are shelling out cash and helping their adult children achieve the American Dream of homeownership. It has been going on for generations. But according to the 2018 NAR Home Buyer and Seller Generational Trends Report, it’s on the rise. The FHA insures lenders against losses on the riskier loans they make. Borrowers taking out FHA loans are predominantly buying homes for the first time and often have weaker credit profiles that make it more difficult for them to get a conventional loan, so it makes sense these borrowers might need to ask for financial help.
This arrangement can be complex at times, with a need to structure the deal from a financial standpoint. Realtors often get stuck in the crosshairs when it comes to bringing family dynamics into the equation. But this can be avoided by having a solid plan and communicating well.
Business Insider’s Dana Bull, also a Realtor, says the first thing to do is to figure out a financial strategy that makes the most sense. She advises speaking with a lender, a financial adviser, a CPA, and an attorney to hammer out the details so that parents who want to lend a helping hand are not placing their financial situation in jeopardy.
Then comes the communication part. And it’s best to do this before even starting to hunt for a home. Figure out the motivation for the loan or the gift. As a parent, it should be more than about the pride having the wherewithal to do it. As the adult child, would you feel guilty about getting a windfall from your parents and then feeling indebted? These are feeling best fleshed out sooner rather than later.
Then there is involvement. Is it just about the money or do you, as a parent, intend to have a lot of input? Control issues can get in the way of this being a smooth decision. You’ll want to talk it out before sinking time into home shopping. According to Bull, a home inspection is not an appropriate place for a family feud.
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 +7bps. This was not enough to move rates lower last week. We saw moderate rate volatility last week.
This Week's Rate Forecast: Neutral
Three Things: These are the three areas that have the greatest ability to impact mortgage rates this week: 1) Brexit, 2) Govt Shutdown and 3) China
1) Brexit: Tuesday will see an important vote. Experts are speculating that the current plan submitted by PM May will be defeated and may even lead to another "no confidence" vote which could see her out as the Prime Minister. If the current plan is defeated, there may be a "plan b" submitted which contains changes that the EU most likely will not agree to which puts the odds of a "hard" Brexit very high.
2) Government (partial) Shutdown: The first official round of no paychecks just hit with a second round approaching fast. This could mean a reduction in the range of $2B in consumer spending each month that this drags on and will start to weigh on economic growth (there will still be economic growth, but it will be at a reduced level that it would have been).
3) China Trade: After several days of face-to-face negotiations last week which were touted by both sides as positive, the market will be looking for further movement towards an agreement.
This Week's Potential Volatility: High
Rates traded sideways all week last week on moderate volatility. We could see an increase in volatility with the above economic releases and Brexit. The Brexit vote is a wild card in the markets this week. If it completely implodes, we could see rates push slightly lower on inflated 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.
Overnight the 10-yr note yield declined 3 bps to 2.67% and by 9:00 am ET to 2.69%, -1 bp. MBS prices started the session, adding +2 bps from Friday’s close.
There is no data today. This will be the first week when key economic measurements will not be released because of the shutdown. December retail sales, November business inventories, December housing starts and permits; although not reported we have included the estimates in the calendar.
This is the beginning of earnings season. According to the Wall Street Journal this morning the big companies are lowering their earnings. Back in September, it was the belief that Q4 earnings would grow 17%. That has now been jettisoned as more companies are lowering outlooks to the 11% area. US stock indexes are opening weaker this morning. Alongside the weaker US profit picture, China’s exports and imports both fell in December from a year ago as the impact of U.S. tariffs started to kick in and demand weakened. China’s exports dropped 4.4%, contrary to economists’ expectations of a 2.5% growth rate.
US stocks had a strong beginning of the year on belief trade talks with China would lessen, and a trade pact may emerge. Now, at least for the near term focus, comes the likelihood of less-than-expected earnings in the earnings season that gets underway this week. The government shutdown is also beginning to bite both in the US and China. This year the S&P 500 is up 3.6% for the year but still around 11% below its record after a steep selloff in the final months of 2018. Citigroup Inc. said this morning fourth-quarter profit surged from a year ago when it took a large write-down related to changes in the U.S. tax code. Other banks, including JPMorgan Chase, Wells Fargo and Bank of America, are set to report results later this week. For all of the hoopla that the holiday season was strong, the reality is sales were less than what was thought.
The DJIA at 9:30 am opened down -182, the NASDAQ dropped -63, and the S&P lost -21. The 10-yr, after trading at 2.67% earlier today, was at 2.69%, down -1 bp.
Shutdown…breakdown as the song goes. It’s the 24th day and counting. There has been no progress in any negotiations and given the rhetoric from both parties, no end in sight. While President Trump is insistent on the Wall, Democrats are equally insistent that there be no Wall. We wonder if there is any plan(s) other than a Wall that anyone has; Democrats and Republicans.
This Week’s Calendar:
8:30 am December PPI (-0.1%, core +0.2%)
7:00 am weekly MBA mortgage applications
8:30 am December import and export prices (imports -0.9%, exports -0.3%)
8:30 am December retail sales will be delayed due to shutdown (consensus +0.2%, less autos +0.2%)
10:00 am November business inventories will be delayed (consensus +0.3%)puary NAHB housing market index (57 from 56)
2:00 pm Fed Beige Book
8:30 am weekly claims (+5K to 216K)
9:15 am December industrial production and capacity utilization (production +0.3%, cap utilization 78.5% unchanged from November)
10:00 am University of Michigan preliminary Consumer Sentiment Index (97.0 from 98.3 in December)
10 yr. note: +8/32 (25 bp) 2.67% -3 bp
5 yr. note: +3/32 (9 bp) 2.50% -2 bp
2 Yr. note: +2/323 (6 bp) 2.52% -1 bp
30 yr. bond: unch 3.03% unch
Libor Rates: 1 mo. 2.59=08%; 3 mo. 2.787%; 6 mo. 2.864%; 1 yr. 3.018%
30 yr. FNMA 4.0: @9:30 101.97 unch (+1 bp from 9:03 Friday)
15 yr. FNMA 3.5: @9:30 101.50 -2bp (+4 bp from 9:30 Friday)
30 yr. GNMA 4.0: @9:30 102.55 +6 bp (+4 bp from 9:30 Friday)
Dollar/Yuan: $6.7690 +$0.0063
Dollar/Yen: 108.19 -0.35 yen
Dollar/Euro: $1.1466 -$0.0002
Dollar Index: 95.63 -0.05
Gold: $1292.30 +$2.80
Crude Oil: $51.55 -$0.41
DJIA: 23,892.47 -103.48
NASDAQ: 6905.77 -65.71
S&P 500: 2581.50 -14.76
MBS prices yesterday sold down after our 4:00 pm ET prices; at the end of yesterday the Fannie 4.0 30-yr coupon lost 11 bps, 9 bps lower than at 4:00 PM.
This morning MBS prices are improving and the 10-yr note rate is at 2.70%, -3 bp from yesterday. Early trade in stocks, all of the indexes lower (DJIA at 8:30 am EST was down -90).
December CPI was released at 8:30 am and was right in line with estimates. CPI was down -0.1% overall, the core added +0.2%; yr/yr overall added +1.9%, core yr/yr was up +2.2%.
No change in the shutdown. President Trump is standing firm, and Nancy Pelosi is also standing firm; it is a record for the number of days there has been a partial government shutdown. It looks like it will continue for much longer. One of the many problems facing markets is the lack of data. The shutdown is a main news story, but so far there have been no significant damages; the DJIA is up 7.0% since the partial closures. The interest rate markets are experiencing a little support, and rates have inched a little higher recently but are still holding the majority of the decline that began in early November.
Jerome Powell’s commitment to being patient on more rate increases a helping hand for stocks and bonds. This morning’s Dec CPI did not change any perceptions of inflation. It is still very tame and continuing to frustrate economists that hang on the idea that low unemployment always leads to inflation increases. However, CPI core is at +2.2% yr/yr, slightly higher than the 2% the Fed likes…..so far it has been mostly noise. Next Tuesday the December PPI will weigh on the bond market; increasing wholesale prices a leading indicator for CPI in January.
At 2:00 pm the Treasury will report the December budget. The estimates are for a minor deficit in the month of just $12.0B. The November deficit is down -$204.9B and we believe yr/yr budget shortfall will be about $1 trillion pushing the total deficit to $24 trillion ($24,000B).
The 10-yr is holding well. Yesterday at 2.74% the 10-yr found support at its 20-day average and the 9-day RSI also held at the critical 50 level. How equity markets trade is directly impacting the daily changes in the bond and mortgage markets, although rather benign. Our technicals are holding. Even the weakening dollar hasn’t hurt the US bond market as much as might be expected.
10 yr. note: +17/32 (53 bp) 2.69% -5 bp
5 yr. note: +8/32 (25 bp) 2.51% -6 bp
2 Yr. note: +2/32 (6 bp) 2.54% -1 bp
30 yr. bond: +29/32 (91 bp) 3.02% -4 bp
Libor Rates: 1 mo. 2.514%; 3 mo. 2.796%; 6 mo. 2.860%; 1 yr. 3.019% (1/10/19)
30 yr. FNMA 4.0: @9:30 101.95 +16 bp (+2 bp from 9:30 yesterday)
15 yr. FNMA 3.5: @9:30 101.46 +8 bp (+3 bp from 9:03 yesterday)
30 yr. GNMA 4.0: @9:30 102.50 +16 bp (+5 bp from 9:30 yesterday)
Dollar/Yuan: $6.7630 -$0.0255
Dollar/Yen: 108.46 +0.03 yen
Dollar/Euro: $1.1463 -$0.0036
Dollar Index: 95.59 +0.04
Gold: $1288.70 +$1.30
Crude Oil: $52.10 -$0.81
DJIA: 23,857.86 -144.06
NASDAQ: 6953.69 -32.38
S&P 500: 2583.57 -13.07
The bond and mortgage markets had an unusually quiet session yesterday. Stock indexes were also tame with increases in all three indexes. This morning in early trade, the rate markets remained unchanged from yesterday and the DJIA slightly lower. Crude oil price has increased $10.00/barrel since Christmas Eve, +$2.53 yesterday. This morning the price is lower. The dollar has fallen since the first of December. The index was at 96.91 in early November and is now at 95.29 — a little stronger.
Until two weeks ago we were at DefCon 5 in the stock market and DefCon 4 in the bond market. Since the beginning of the year stocks are back to DefCon 2 and bonds at DefCon 3. Strong December employment numbers were revealed last Friday and finally the Fed has come around to adjusting its thinking, making it clear recently that the Bank will relax its mania for continuing increasing rates. Yesterday’s minutes from the FOMC meeting in December turned out to be a different story than what Jerome Powell said after the meeting at his press conference. Turns out there was a lot of discussion within the meeting about backing off the Fed’s rate increases; Powell’s press conference sent the DJIA down 2200 points in six sessions. Since the beginning of the year the DJIA and S&P have increased 9.6% since Christmas eve. It seems the Fed lost its way and may now be forced to get back on the path.
Weekly jobless claims this morning are down 17K to 216K, while 224K was expected. Claims remain historically low and are not a subject markets are currently worried about.
At 9:30 am EST the DJIA o was at 2.71%, down -1 bp.
This afternoon at 1:00 pm the Treasury will complete the $78B of this week’s borrowing with $16B of 30s (29 yrs 10 months). The 10-yr auction yesterday was strong and well-bid even at these present low levels. Foreign buyers were less enthusiastic, likely due to the recent fall in the US dollar and the continuing negative dollar outlook.
Retail giants Macy’s and Kohl’s reported weaker than expected holiday sales taking all big retailers lower this morning. Talk now is many will lower guidance for 2019.
Yesterday the US/China trade talks ended after adding one additional day to the discussions. This morning China’s commerce ministry is saying progress was made on “structural issues” such as forced technology transfers and intellectual property rights in talks this week and more consultations are being arranged. Haven’t heard how the US thought about the talks.
The recent drop in US interest rates is now in a digestive phase and is holding well. Rates have increased over the last week, but the rebound should have been expected given the pace of the decline. The 10-yr is now holding near term support at 2.75% (2.71% this morning); the 9-day RSI momentum oscillator this morning is at critical 50; should hold and improve but if it doesn’t, strong support is at 2.82%. These are primo rates and should be taken advantage of by home buyers.
10 yr note: +5/32 (15 bp) 2.70% -2 bp
5 yr note: +4/32 (12 bp) 2.53% -3 bp
2 Yr note: +2/32 (6 bp) 2.53% -3 bp
30 yr bond: -3/32 (9 bp) 3.01% unch
Libor Rates: 1 mo 2.518%; 3 mo 2.798%; 6 mo 2.869%; 1 yr 3.039% (1/9/19)
30 yr FNMA 4.0: @9:30 101.94 +3 bp (+3 bp frm 9:30 yesterday)
15 yr FNMA 3.5: @9:30 101.43 +1 bp (+8 bp frm 9:30 yesterday)
30 yr GNMA 4.0: @9:30 102.44 +5 bp (+4 bp frm 9:30 yesterday)
Dollar/Yuan: $6.7878 -$0.0302
Dollar/Yen: 107.78 -0.17 yen
Dollar/Euro: $1.1524 -$0.0020
Dollar Index: 95.33 +0.19
Gold: $1292.50 +$0.50
Crude Oil: $51.94 -$0.75
DJIA: 23,758.22 -120.90
NASDAQ: 6894.32 -62.76
S&P 500: 2569.22 -15.74
Stock indexes continue to improve. The 10- yr. note at 7:00 am ET was at 2.74%, +1 bp. MBS prices dropped -8 bps on the first print at 8:30 am.
Weekly MBA mortgage applications last week indicated a nice bounce, the composite apps were up +23.5%, purchase apps increased +17.0%, and re-finance apps were up +35.0%. Purchase applications were back into positive year-on-year territory at 4% above the level in the same week a year ago. The refinance share of mortgage activity rose 3.1 percentage points to 45.8%, the highest level in 11 months. The average interest rate on 30-year fixed-rate fell to its lowest level since April 2018. The recent decline in rates over the two week holiday season drove markets; a shame the decline didn’t occur during normal non-holiday times.
Trade talks with China ended today, one day longer than was planned. China’s foreign minister commented, “I can only say that extending the consultations shows that the two sides were indeed very serious in conducting the consultations.” No statements from either side were released; tomorrow expect both to issue more detailed statements. More than tariffs, the central issue is China’s continued theft of intellectual property. People familiar with the negotiations told Reuters yesterday the two sides were further apart on Chinese structural reforms that the Trump administration is demanding in order to stop alleged theft and forced transfers of U.S. technology, and on how China will be held to its promises. Bottom line; progress was apparently made; tomorrow we may know about any continuing meetings.
Crude oil, on optimistic trade views and Saudi cuts, continues to increase, now about $5.00 higher than at the beginning of the year.
At 9:30 am the DJIA opened up +115, the NASDAQ added +24, and the S&P was up +8. The 10-yr at 2.73% remained unchanged from yesterday.
At 1:00 pm the Treasury will auction $24B of 10s (9-yr 10 months). The demand is import after the recent decline in rates. Yesterday at the short end of the curve (3-yr note) the demand was weak and lower than the average of the last 12 3 yr. auctions.
At 2:00 pm the minutes from the FOMC meeting will be released — always something that fuels discussion. Since the December meeting last week, in a shift in thinking at the Atlanta conference, Jerome Powell implied the Fed would be more focused on the actual economy and less on those models that have kept the Fed thinking more rate increases. Criticism of the Fed has risen recently on increasing rates that most now believe have contributed to the stock market rout in the US.
President Trump’s address to the nation last night about border security and the wall. The consensus is after both sides had their address, nothing has changed, and there's still little hope of a breakthrough in negotiations over the shutdown.
The rate markets are continuing to rebound after the major rapid declines in rates. The 10-yr at 2.73% finds its first support at its 20-day average at 2.77%; the major support is 2.82%. The 10 dropped to 2.55% on the 3rd and is now 18 bps higher. Stock market improvement has lessened the stampede to safe havens; gold also falling after increasing as equity markets fell.
10 yr. note: +1/32 (3 bp) 2.73% unch
5 yr. note: +1/32 (3 bp) 2.57% -0.5 bp
2 Yr. note: unch 2.58% unch
30 yr. bond: -5/32 (15 bp) 3.01% +1 bp
Libor Rates: 1 mo. 2.515%; 3 mo. 2.782%; 6 mo. 2.852%; 1 yr. 3.016%
30 yr. FNMA 4.0: @9:30 101.91 unch (+4 b p from 9:30 yesterday)
15 yr. FNMA 3.5: @9:30 101.34 +5 bp (unch from 9:30 yesterday)
30 yr. GNMA 4.0: @9:30 102.41 unch (-5 bp from 9:30 yesterday)
Dollar/Yuan: $6.8200 -$0.0332
Dollar/Yen: 108.47 -0.27 yen
Dollar/Euro: $1.1520 +$0.0078
Dollar Index: 95.400 -0.51
Gold: $1289.40 +$3.70
Crude Oil: $51.39 +$1.61
DJIA: 23,947.88 +160.43
NASDAQ: 6941.95 +44.95
S&P 500: 2587.79 +13.38
The stock market is continuing to shake off the negative vibes, and the bond and mortgage markets are in corrective consolidation.
US/China trade talks continued for the second day; no details have emerged. The first step they say is the hardest, and the clock is ticking on the 90-day truce Trump announced a few weeks ago. Yesterday Wilbur Ross (commerce Sec) talked optimistically saying that Beijing and Washington could reach a trade deal that “we can live with.” Trade issues are the easiest to work out, but the rub that isn’t likely to be easy is the structural issues (intellectual property rights and market access). Both countries need a deal; China’s economy is slipping, and the US outlook for 2019 isn’t very rosy. At 9:30 am ET the Dow Jones was reporting progress being made in the talks.
The Dec NFIB small business optimism index at 104.4 down from 104.8, still strong. Accounting for most of the modest decrease was a drop of 6 points to a net 16% in expectations that the economy will improve over the next 6 months, a 5-point decrease to a net 24% in the view that now is a good time to expand, and a 4-point decrease to a net 25% in plans to make capital outlays. Diminished optimism was also seen in earnings trends, which fell further into negative territory with a 3-point drop to minus 7%, as well as expectations of higher retail sales, which fell 1 point to a net 23%. Expected credit conditions were also down 1 point to a net minus 6%.
Yesterday the White House announced President Trump would address the nation last night until someone told them the national college football championship was on. The address quickly moved to tonight. The President is expected to make his case to the people about why the southern border should be closed (fenced) and what makes it a national emergency. The address at 9:00 pm est. He has to generate enough support to convince House Democrats to provide $5.1B he is asking for. Democrats are asking for equal air time to respond so far only CNN has agreed. At stake is the government shutdown now in the 18th day.
At 9:30 the DJIA opened up +270, the NASDAQ up +71, and the S&P +26. The 10 yr. stood at 2.71%, up +2 bp.
At 10:00 am Nov JOLTS job openings were at 6.888 mil from 7.131 mil in October.
November US trade deficit delayed due to the shutdown. Yesterday November factory orders and durable goods data were also delayed. Economic data, the food for economists, are being delayed and as long as the shutdown continues more data will be absent. Markets are turning to private sector reports such as ISM yesterday for information. The delays in key gauges of the economy are likely to make already-skittish markets more volatile if it continues much longer.
This afternoon at 1:00 pm Treasury will auction $38B of 3-yr notes; tomorrow $24B of 10s and Thursday $16B of 30s. The auctions this week will carry additional interest in demand with the recent decline in interest rates.
The bond and mortgage markets continue to weaken as we expected. Mortgage market being hammered especially hard as investors rush to lock all of the floated loans that accumulated over the last three weeks.
10 yr. note: -2/32 (6 bp) 2.70% +1 bp
5 yr. note: -3/32 (9 bp) 2.56% +2 bp
2 Yr. note: -2/32 (6 bp) 2.56% +2 bp
30 yr. bond: -1/32 (3 bp) 2.99% unch
Libor Rates: 1 mo. 2.511%; 3 mo. 2.796%; 6 mo. 2.848%; 1 yr. 2.994%
30 yr. FNMA 4.0: @9:30 101.86 -14 bp (-31 bp from 9:30 yesterday)
15 yr. FNMA 3.5: @9:30 101.34 -3 bp (-22 bp from 9:30 yesterday)
30 yr. GNMA 4.0: @9:30 102.44 -16 bp (-16 bp from 9:30 yesterday)
Dollar/Yuan: $6.8535 +$0.0025
Dollar/Yen: 108.88 +0.16 yen
Dollar/Euro: $1.1441 -$0.0035
Dollar Index: 95.97 +0.31
Gold: $1282.10 -$7.80
Crude Oil: $49.43 +$0.96
DJIA: 23,764.00 +232.69
NASDAQ: 6869.84 +46.37
S&P 500: 2567.76 +18.07
Smaller down payments trending in homebuyer purchases nationwide:
For those looking to buy a home in 2019, saving for a down payment is no doubt the hardest part. That, along with finding just the right home at the right price in the right location. The gold standard for down payments has been 20% of the purchase price for decades. According to the 2018 Zillow Group Consumer Housing Trends Report, however, only 43% of buyers nation-wide are putting down 20% or more. Almost one-fourth of buyers (24.2%) put down only 5% or less.
While putting 20% down on a mortgage allows buyers to avoid mortgage insurance as well as keep monthly payments lower, the seven years it usually takes to save it up (for the average priced home) is becoming less attainable for today's home shoppers.
Millennial buyers – the largest group all – are the most likely to use multiple funding sources for their down payment, with 51% saying they used a gift or loan from family or friends for at least a portion of their down payment, accounting for about one-fifth of the down payment on average. They also tap investments and retirement accounts.
70% of buyers nationwide use up savings for at least some portion of their down payment, while 39% say their down payment funds came from a previous home sale, which typically accounted for about 20% of the total down payment.
Zillow analyzed five major metro areas – Atlanta, Chicago, Washington, D.C., Phoenix and San Francisco – for buyers' decisions regarding down payments and found that Atlanta and Phoenix had the smallest share of buyers (around 30%), putting the full 20% down on a home. 44.5% of buyers in Atlanta and 36.9% of buyers in Phoenix are only putting down 5% or less. Meanwhile, buyers in Chicago, San Francisco and Washington, D.C., are at least as likely as the typical national buyer to put down 20% or more.
A surprising fact to come out of this study is that the median mortgage payment in both Phoenix and Atlanta is $1,131 a month, lower than the median mortgage payments in Chicago ($1,336), Washington, D.C. ($1,850), and San Francisco ($2,158)—but buyers in the three metros with higher monthly mortgage payments are more likely to put down 20% or more than those in areas with lower payments.
Source: BUILDER, TBWS
Mortgage rates are trending sideways this morning. Last week the MBS market improved by +23 bps. This was enough to move rates slightly lower last week. We saw high rate volatility throughout the week.
Three Things: These are the three areas that have the greatest ability to impact mortgage rates this week. 1) Trade Wars, 2) The Fed and 3) Geopolitical.
1) Trade Wars: Trade negotiations between U.S. and Chinese officials, which take place today and tomorrow in Beijing in the hope of reaching a deal during a 90-day truce between President Trump and his Xi Jinping. But China is not the only trade story as the U.S. will be meeting with the EU Trade Commissioner on Wed and Japan's Trade Minister this week as well.
2) The Fed: We have a big schedule for talking Feds this week which include the Minutes from the last FOMC Meeting where they "dovishly" increased their Fed Fund rate and we hear from Fed Chair Jerome Powell.
3) Geopolitical: Front and center is Brexit as the UK Parliament resumes debating the Brexit Withdrawal Bill. Of course, our own partial government shutdown and negotiations on that will also be grabbing headlines.
Treasury Auctions this Week:
Mortgage rates continued to push lower last week on a good deal of volatility. This week we could see continued volatility. The direction of rates will depend, in large part, on the outcome of trade talks with China and the speeches from the Fed.
The rate markets took a hit on Friday, this morning a little recovery in early trade. In pre-open trading in the futures markets stock indexes generally unchanged from Friday’s strong improvements.
On trade: this morning on CNBC Wilbur Ross (Sec of Commerce) painted a little better picture on US/China trade discussions. He said he believes some of the issues can be resolved quickly, but the ‘structural’ issues will take longer and be more difficult. He put the onus on China, commenting Beijing would help determine whether trade differences between the world’s two largest economies could be resolved through negotiations. “I think there’s a very good chance that we will get a reasonable settlement that China can live with, that we can live with and that addresses all of the key issues. And to me, those are immediate trade. That’s probably the easiest one to solve.” The US and Chinese trade discussions will begin this week with face-to-face meetings for the first time. China’s economy weakening rapidly.
The ISM non-manufacturing index dropped to 57.6 from 60.7 and estimates of 58.4. New orders added 2 tenths to November's score for 62.7 in December which, next to 63.2 in June last year, is the highest in 8 years. And importantly, orders are getting a boost from foreign demand as new export orders rose 2 points to 59.5. A sharp draw in inventories which for non-manufacturers and in contrast to manufacturers are generally of secondary importance. Employment also slowed, downs 2 points to a still very healthy 56.3 which contrasts, however, with the enormous payroll surge in last week's employment report from the Labor Department.
German industrial orders fell more than expected in November, data showed, adding to a slew of recent indicators showing Germany’s exporters are suffering from the trade dispute between China and the United States. Germany's November Factory Orders -1.0% month-over-month (expected -0.2%; last 0.2%).
The shutdown continues. Regular economic releases will be delayed as a result; initially, Nov factory orders (including updates on durable goods orders) were due to be released today but won’t be. Last week Dec new home sales were not reported. On Jan11th 800K government workers will miss their first paychecks.
Not something we want to talk about, but 2019 housing market is facing some headwinds. Potential homebuyers are increasingly worrying about whether they can afford to invest; affordability is increasingly adding worries for the sector. Mortgage rates have fallen to around their lowest levels in eight months, offering a potential boost to the housing market. “I think there is latent demand on the sidelines given where rates are today,” said Sam Khater, Freddie Mac’s chief economist. “The problem is that volatility is the obstacle.”
At 9:30 the stock indexes opened as quietly as we have experienced in months; DJIA +19, NASDAQ +9, S&P +2. 10 yr. at 9:30 2.64% -2 bps from Friday. Fannie 4.0 30 yr. coupon +11 bps from Friday’s close and +5 bps from 9:30 Friday.
Still expecting the bond and mortgage markets may consolidate at these low levels; since early Nov rates have dropped significantly. Will rates continue to slide; that is where the rate markets are today? The wider look from a tech perspective still holding, the 10 has the potential to increase to 2.70% before we run into technical support. Day to day now, but potential homebuyers should not delay, these are very enticing rates.
10:00 am Dec ISM non-manufacturing index
6:00 am NFIB small business optimism index (104.0 from 104.8)
8:30 am Nov trade balance (-$53.9B)
10:00 am Nov JOLTS job openings
1:00 pm $328B 3 yr. note auction
7:00 am weekly MBA mortgage applications
1:00 pm $24B 10 yr. note auction (9 yr. 10 mo.)
2:00 pm FOMC minutes from Dec 19th meeting
8:30 am weekly jobless claims (222K -9K)
1:00 pm $16B 3 yr. bond auction (29 yr. 10 mo.)
8:30 am Dec CPI (-0.1%, yr./yr. 1.9%; core +0.2%, yr./yr. 2.2%)
2:00 pm Dec Treasury budget balance
10 yr. note: +8/32 (25 bp) 2.64% -2 bp
5 yr. note: +5/32 (15 bp) 2.46% -3 bp
2 Yr. note: +2/32 (6 bp) 2.46% -1 bp
30 yr. bond: +25/32 (78 bp) 2.95% -4 bp
Libor Rates: 1 mo. 2.520%; 3 mo. 2.803%; 6 mo. 2.855%; 1 yr. 2.964%
30 yr. FNMA 4.0: @9:30 102.17 +11 bp (+5 bp from 9:30 Friday)
15 yr. FNMA 3.5: @9:30 101.57 +11 bp (+7 bp from 9:30 Friday)
30 yr. GNMA 4.0: @9:30 102.59 +3 bp (+3 bp from 9:30 Friday)
Dollar/Yuan: $6.8512 -$0.0182
Dollar/Yen: 108.29 -0.23 yen
Dollar/Euro: $1.1467 +$0.0070
Dollar Index: 95.72 -0.32 (breaking 96 adds more technical bearishness)
Gold: $1292.90 +$7.10
Crude Oil: $48.83 +$0.88
DJIA: 23,378.89 -54.27
NASDAQ: 6759.03 +20.17
S&P 500: 2532.40 +0.46