August 12th, 2019 9:01 AM by Richard Sardella MLO.100007700/NMLS 233568
Government interest rates ticking slightly lower this morning; stock indexes overnight under pressure. Protesters in Hong Kong where all flights into and out of the city have been canceled. Hong Kong is boiling. It's important as we have previously noted because it adds more rigidity in China to work toward a trade deal. China has to stand strong for its image that China holds dear. Anti-government protesters peacefully demonstrated at the airport for the fourth day. The protests and riots in Hong Kong that have been going on for a month now is the most serious crisis in decades and presents a serious challenge to Beijing and in turn makes the possibility for a prolonged trade war and global economies more likely to worsen. Reports of Chinese police officers gathering in Shenzhen led to continued concerns that China may crackdown on protests.
Worries are increasing that there will be no trade deal with China anytime in the near future. The trade war is now moving into the currency world. A race to weaken currencies as a counter to the disruption of supply chains are adding increasing concerns in the debt markets that central governments will continue to move toward even lower rates, an attempt to push consumers to spend. It hasn't worked so far, and we see little reason to expect it will. Lending by Chinese financial institutions slumped in July on weakening demand, signaling further economic headwinds from trade tensions with the US and potentially paving the way for more stimulus efforts by Beijing's policymakers. The Federal Reserve will have to decide how it will proceed; given the current rapid drop in US interest rates markets increasing the view of more rate cuts than were expected just a month ago.
Talk this morning in media and markets; is it possible that the US may see negative interest rates? The world is going negative; there is more than $15 trillion in government debt around the world with negative yields. That means, essentially, that savers holding these bonds are paying the government to store their money. If that ever becomes a reality, I hope I am not around to see it. Negative rates in the US would happen in an environment of not just a recession but a depression. All kind of opinions and speculation like what we see today based mostly on fear of the unknown; the unknown ahead is worsening momentarily. We have long mentioned that what we are experiencing now in the US and global markets since 2008 doesn't fit economic models we have relied on for years. The result is money moving into the sovereign debt market; that is fueling the increasing concern that beside the trade war the world may be headed more deeply into a currency war as well.
At 9:30 am AT the DJIA opened -184, NASDAQ -37, S&P -14. 10 yr at 9:30 1.69% -5 bps from Friday. MBS prices at 9:30 +5 bps from Frida's close and -7 bps from 9:30 Friday morning.
This afternoon at 2:00 pm the July Treasury budget is expected at -$87.5B; after this report, there are two more months before the US fiscal year ends; the 2019 deficit is going to approach $1T this year and exceed it in 2020 and 2021.
Most all US economic data this week happens on Thursday. Data is always important, but the events in China and Hong Kong and the anticipation of what may or may not occur with trade, and now currency markets will carry the week.
Mortgage rates are going to decline more although the pace will be much slower than treasuries as has been the case recently. Sovereign debt falling on geopolitical and economic concerns. Refinancing will continue to dominate; about all 30 yr mortgages originated since May and before can refinance and cut payments. We expect rates will continue to decline and cause disruptions in MBS markets.
This Week's Calendar:
2:00 pm July Treasury Budget (-$87.5B)
6:00 am July NFIB small business optimism index (103.0 from 103.3 in June)
8:30 am July CPI (+0.2%, yr/yr 1.7%; core +0.2% yr/yr +21.%)
7:00 am weekly MBA mortgage applications
8:30 am July import and export prices (imports -0.1%, exports -0.1%; yr/yr imports -2.0%, yr/yr exports -1.2%)
8:30 am weekly jobless claims (208K -1K)
9:15 am July industrial production and capacity utilization ( production +0.1%, cap utilization 77.8%)
10:00 am June business inventories (+0.1%)
8:30 am July housing starts and permits (starts 1260K from 1253K +0.6%; permits 1270K from 1220K +4.0%)
10:00 am U. of Michigan consumer sentiment mid-month index (97.5 from 98.4 in July)
PRICES @ 10:00 AM
10 yr. note: 1.68% - 6 bp
5 yr. note: 1.52% -4 bp
2 Yr. note: 1.60% -2 bp
30 yr. bond: 2.19% -6 bp
Libor Rates: 1 mo. 2.194%; 3 mo. 2.175%; 6 mo. 2.052%; 1 yr. 2.1987% (8/9/19)
30 yr. FNMA 3.5: @9:30 102.63 +5 bp (-7 bp from 9:30 Friday)
15 yr. FNMA 3.0: @9:30 102.28 -4 bp (-18 bp from 9:30 Friday)
30 yr. GNMA 3.5: @9:30 103.70 +2 bp (-8 bp from 9:30 Friday)
Dollar/Yuan: $7.0588 -$0.0036
Dollar/Yen: 105.22 -0.45 yen
Dollar/Euro: $1.1218 +$0.0017
Dollar Index: 97.39 -0.10
Gold: $1516.80 +$8.30
Crude Oil: $55.09 +$0.57
DJIA: 26,094.97 -192.47
NASDAQ: 7896.76 -62.78
S&P 500: 2898.25 -20.40
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.