December 6th, 2018 10:10 AM by Richard Sardella MLO.100007700/NMLS 233568
Tuesday the DJIA declined 800 points. The NASDAQ lost -283, and this morning in futures trade the DJIA dropped -373, NASDAQ -117. The 10-yr note at 8:30 am ET was down -2 bps to 2.89%. Yesterday China agreed to the 90-day moratorium on additional tariffs and signaled it was willing to begin serious discussions. This morning a possible setback on news that the US asked Canada to arrest Wanzhou Meng, chief financial officer of Huawei Technologies Co. in order to extradite her to the US. Huawei is the world’s largest supplier of telecommunications network equipment and second-biggest maker of smartphones. The US is saying the company is violating sanctions against Iran. Meng is the daughter of the founder of Huawei, a national champion at the forefront of Xi’s efforts for China to be self-sufficient in strategic technologies. It’s not clear yet, but her arrest is seen as a setback for trade discussions.
OPEC members agreed on a cut in output today and we're waiting now for Russia to announce its intentions. Possible output cuts by OPEC and its allies ranged from 0.5-1.5 million bpd, oil traders appear to not be buying any serious cuts. Crude this morning was down $1.74 at 8:00 am.
At 7:30 am Challenger Job cuts of 53,073 were down from 75,644 in October. The average over the last three months is 61,344 in a reading last approached in early 2016. Auto layoffs totaled 14,040 in November with healthcare a distant second at 4,300, followed by retail at 3,769.
At 8:15 am the Nov ADP private jobs were expected +175K, but as reported added +179K.
At 8:30 am weekly jobless claims, expected at 225K, reported in at 23K, down -4K; the 4-week average increased to 228K from 223.75 the prior week. The October US trade deficit, expected to be down -$55.0B, was in line at -$55.5B; the widest deficit in 10 yrs.. Final Q3 productivity and unit labor costs: productivity expected +2.3% and reported at 2.3%, unit labor costs expected 1.1% was +0.9%. The lower labor costs is another way to look at inflation, declining from +1.2% to +0.9%, is helpful.
At 9:30 am the DJIA opened down -450, the NASDAQ lost -134, and S&P dropped -46. The 10-yr 2.87% was down -4 bps from Tuesday. MBS prices added +15 bps from Tuesday’s close and +11 bps from 9:30 Tuesday.
At 10:00 am November the ISM non-manufacturing index was thought to be at 59.0 from 60.3; the index reported at 60.7. October factory orders dropped -2.1%, in line with the -2.0% expected.
The yield curve is continuing to invert; the 2/5 inverted by 1 bps, and the 2/10 is still holding un-inverted, but the spread is narrowing this morning to 13 bps to the 10-yr. Debate continues whether the historical outcome of inversion is a precursor to recession or just technical factors. No matter the debate, US and global interest rates are declining rapidly; over the last few weeks, there has been an escalation in the outlook that the US is headed to a recession in 2019. JP Morgan earlier this week advised its clients that cash is better now than equity markets leading to the strong move lower in rates. Goldman recently essentially advised the same moves and forecasted a recession. The momentum tilting to that view has been escalating at increased speed over the last month. US/China trade, US/EU trade fueling the drive to treasuries and cash.
PRICES @ 10:00 AM
10 yr. note: +18/32 (56 bp) 2.85% -6 bp
5 yr. note: +12/32 (37 bp) 2.70% -9 bp
2 Yr. note: +7/32 (22 bp) 2.71% -9 bp
30 yr. bond: +30/32 (94 bp) 3.12% -5 bp
Libor Rates: 1 mo. 2.383%; 3 mo. 2.765%; 6 mo. 2.891%; 1 yr. 3.125%
30 yr. FNMA 4.5: @9:30 103.13 +15 bp (+11 bp from 9:30 Tuesday) 4.0 coupon 110.11 ( +19 bp from 9:30 Tuesday)
15 yr. FNMA 4.0: @9:30 101.91 unch (-1 bp from 9:30 Tuesday)
30 yr. GNMA 4.5: @9:30 103.36 +7 bp (+12 bp from 9:30 Tuesday)
Dollar/Yuan: $6.8822 +$0.0254
Dollar/Yen: 112.42 -0.77 yen
Dollar/Euro: $1.1392 +$0.0048
Dollar Index: 96.74 -0.26
Gold: $1248.30 +$5.70
Crude Oil: $51.80 -$1.03
DJIA: 24,571.96 -455.11
NASDAQ: 7042.28 -116.14
S&P 500: 2652.36 -47.70
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.