August 13th, 2019 9:28 AM by Richard Sardella MLO.100007700/NMLS 233568
July CPI a little hotter than expected; +0.3% with forecasts of +0.2%; yr/yr +1.8% a bp higher than thought. Core CPI also up 0.3% on _0.2$ estimates; yr/yr +2.2% up 1 bp from expectations. Above the Fed's 2.0% target but it won't change the Fed's decision to lower the Federal Funds rate next month. The core PCE price index rose 1.6% on a year-on-year basis in June and has undershot its target this year. Trade tensions won't lessen, and increased prices are one of the likely outcomes as the US and China are light years away for any meaningful deal. Caught most flat-footed on trade; three months ago most gurus were lining up like lemmings believing a trade pact would be made by now. The list of high-level Wall Street executives were very wrong; now markets have finally seen the light.
Not any better in Hong Kong, another day the airport halted check-ins for remaining departures, local leader Carrie Lam warned that the city risked sliding into an "abyss." Lam defended the police response and warned of long-term consequences to the city from the unrest. The editor-in-chief of China's state-run Global Times said that if the situation in Hong Kong doesn't improve, he thinks China will intervene. The overnight session saw the ninth consecutive weaker yuan fix (7.0326 per dollar) while protests at the Hong Kong airport continued. Singapore reported a qtr/qtr contraction in Q2 GDP, which prompted the government of the trade-dependent city-state to lower its growth forecast for 2019. In Europe, Germany's ZEW Economic Sentiment for August fell to its lowest level since 2011, heightening concerns that Europe's biggest economy is heading for a recession. More evidence that global growth is slowing; likely slowing much quicker than had been expected.
At 9:30 the DJIA opened -25 but immediately turned positive; NASDAQ opened -7 and S&P -4. The soft open lasted all of five minutes before the indexes turned higher after big losses yesterday. The 10 yr at 9:30 am ET unchanged from yesterday and 1.64%. MBS prices unchanged but with stock indexes increasing both the 10 yr and MBS prices quickly changed. At 9:45 am ET the 10 yr at 1.65% +1 bp and MBS prices down 5 bps.
Nothing left on the calendar today. News just being released; the US and Chinese officials are talking by phone. The 10% increase in tariffs announced by Trump that were to be started on Sept first may be delayed on some products until Dec. More talks are scheduled in two weeks. Not sure this is all of the details as it is just coming across. The immediate reaction sent the DJIA +380 points and MBS prices -16 bps from yesterday's close. The first 20 minutes after the 9:30 open has been volatile.
Volatility, as we have said, will continue to be at high levels. China and the US talking again. Interesting how when markets are at extreme conditions as they are presently, when the heat builds on trade concerns someone makes a phone call and leaks it that what was thought 20 minutes prior went into the dump. Hope springs...
PRICES @ 10:10 AM
10 yr. note: 1.68% +4 bp
5 yr. note: 1.56% +7 bp
2 Yr. note: 1.66% +8 bp
30 yr. bond: 2.14% unch
Libor Rates: 1 mo. 2.195%; 3 mo. 2.175%; 6 mo. 2.057%; 1 yr. 1.990% (8/12/19)
30 yr. FNMA 3.5: @ 9:30 102.63 unch (unch from 9:30 yesterday)
15 yr. FNMA 3.0: @9:30 102.28 -5 bp (unch from 9:30 yesterday)
30 yr. GNMA 3.5: @9:30 103.66 -2 bp (-6 bp from 9:30 yesterday)
Dollar/Yuan: $7.0494 -$0.0088
Dollar/Yen: 106.38 +1.08 yen
Dollar/Euro: $1.1190 -$0.0025
Dollar Index: 97.74 +0.36
Gold: $1498.80 -$18.40
Crude Oil: $56.41 +$1.48
S&P 500: +41
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.
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MLO of record MLO.100007700 / NMLS#233568 / CHM NMLS#127716.