July 11th, 2019 9:07 AM by Richard Sardella MLO.100007700/NMLS 233568
Yesterday Federal Reserve Chair Jerome Powell made it clear that a rate cut would happen at the July meeting later this month. The middle and short end of the curve rallied, but the 10 hardly moved (down 1 bp at 2.06%). MBS prices yesterday increased by 23 bps. One of the factors outlined by Powell was the Fed’s concern that inflation wasn’t increasing and in some areas slipping. The lack of inflation is one element that opens the door for a rate cut. That cut of 0.25% is already discounted in present levels of rates and in the stock market. There were some yesterday thinking Powell’s testimony was so dovish that a 50 bp cut is a possibility, but it’s unlikely
At 8:30 am ET this morning June CPI, one read on inflation, shook the lack of inflation concerns somewhat. CPI was thought to be 0.0%, as released +0.1%; the core CPI (ex-food and energy) thought to be +0.2% increased 0.3%; yr/yr CPI +1.6% as thought, yr/yr core CPI at 2.1% against forecasts of 2.0%. The core CPI +0.3% was the highest since January 2018. Increases in costs for shelter, used vehicles, clothing, and home furnishings and operations were factors. Shelter costs, which make up about a third of total CPI, rose 0.3% on the month, as did owners-equivalent rent, one of the categories that tracks rental prices. Rent of primary residence was up 0.4%. The Fed’s preferred inflation gauge, personal consumption expenditures (PCE) reported earlier this month +1.5%. The knee-jerk reaction sent MBS price down 12 bps and the 10 yr to 2.08% +2 bps from yesterday.
Germany's June CPI increased 0.3% m/m, as expected (last 0.3%), growing 1.6% yr/yr, as expected (last 1.6%). France's June CPI rose 0.3% m/m (expected 0.2%; last 0.2%), growing 1.2% yr/yr, as expected (last 0.9%). China's wholesale vehicle sales fell 9.6% yr/yr in June, representing the 12th consecutive decline.
Also hotter than estimates; weekly jobless claims were down 13K to 209K; estimates were for 220K.
Jerome Powell will be at the Senate Banking Committee this morning to complete his semi-annual required testimony to Congress. Although yesterday he made it clear the FOMC would lower the Federal Funds rate later this month, the Q&A from senators will be a major focus later this morning. Powell did emphasize the Fed’s concerns over the U.S./China trade issues that are leading global economic declines. This morning Bloomberg reported China said trade negotiations with the U.S. will restart while stressing that its core concerns need to be addressed. “The trade teams in the two nations will restart trade negotiations on a basis of equality and mutual respect, following the consensus agreed by their two state leaders in Osaka,” Gao Feng, a spokesman for the Ministry of Commerce, said on Thursday at a press conference. The remarks signal that the lead negotiators from the world’s two biggest economies may soon get back to the negotiating table after talking via phone earlier this week.
At 9:30 am ET the DJIA opened up +88, the NASDAQ added +15, and the S&P increased by +6. The 10-yr stood at 2.08%, adding +2 bps. MBS prices dropped -6 bps form yesterday’s close and remained unchanged from 9:30 yesterday.
At 1:00 pm Treasury will auction $16B of 30s re-opening the May issue.
Technicals we use have weakened recently; the 10-yr has been trapped in a 10 bp range between 2.10% and 2.00% since June 13th. Only twice has it dropped below 2.00%, and each time it didn’t last more than one session. The relative strength index is now neutral and has given up all of its strength since the early part of June.
PRICES @ 10:00 AM
10 yr. note: 2.09% +3 bp
5 yr. note: 1.85% +2 bp
2 Yr. note: 1.84% +1 bp
30 yr. bond: 2.60% +3 bp
Libor Rates: 1 mo. 2.369%; 3 mo. 2.339%; 6 mo. 2.262%; 1 yr. 2.285% (7/10/19)
30 yr. FNMA 3.5: @9:30 102.28 -6 bp (+1 bp from 9:30 yesterday)
15 yr. FNMA 3.0: @9:30 101.90 -6 bp (-2 bp from 9:30 yesterday)
30 yr. GNMA 3.5: @9:30 103.30 -9 bp (+1 bp from 9:30 yesterday)
Dollar/Yuan: $6.8691 -$0.0040
Dollar/Yen: 108.27 -0.19 yen
Dollar/Euro: $1.1257 +$0.0006
Dollar Index: 97.01 -0.10
Gold: $1418.80 +$6.30
Crude Oil: $60.65 +$0.22
DJIA: 26,996.58 +213.09
NASDAQ: 8217.77 +15.23
S&P 500: 3000.26 +7.19
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.