July 13th, 2017 8:56 AM by Richard Sardella MLO.100007700
Yellen boosted the rate and stock markets yesterday, saying she now doesn’t think the Fed will have to increase the Federal Funds rate as much as previously thought in order to get to a neutral bias. This morning she is back, this time at the Senate Banking Committee.
Weekly claims this morning -3K to 247K; the 4-week average at 245.75K from 243.50K. Claims these days don’t get any attention with the unemployment rate at 4.4%.
Also at 8:30 am EDT, June PPI, expected 0.0% was up 0.1%, ex food and energy, expected +0.2 was up 0.1%. Yr./yr. PPI 2.0% down from 2.4% in May. Yr./yr. core PPI 1.9% from 2.1% in May. PPI ex-food, energy and trade services +02% as expected. The report confirms that inflation is weak at best. Yesterday, Yellen commented she didn’t understand why inflation wasn’t moving higher as the Fed and most economists believe. She remarked that the lack of it is “transitory,” whatever that means. Tomorrow June CPI, based on this data, is likely to be weak also; current expectations for CPI (prior to PPI) +0.1% from -0.1% in May; core +0.2% from +0.1% in May.
In early activity this morning, stock indexes in the futures markets were somewhat better, but not much. The 10-yr. note yield +2 bps to 2.34%. MBS prices at 9:00 -6 bps.
At 1:00 pm, Treasury will sell $12B of 30 yr. bonds reopening the May issue. Yesterday’s 10-yr. auction was a little sloppy with the yield at the auction 0.4 bps higher than in WI trading prior to the auction.
U.S. Senate Republican leaders are expected to unveil a new version of their legislation to repeal and replace Obamacare today. Republican leaders (Mitch McConnell) trying to appease 10 Republican Senators that would not vote for the original bill. Regardless of what the vote may be, it isn’t going to go down well with many health care advocates. John Cornyn, the Senate's No. 2 Republican, told Reuters in a Capitol hallway that many senators had come to realize they could talk about healthcare "endlessly" without deciding anything. "That's why it's important that we go ahead and schedule the vote," he said.
Trump in Paris this morning; his son trying to explain away his involvement with a Russian lawyer. No matter whom you support in politics, this is a big deal and will add to Trump’s inability to get much accomplished.
Yesterday’s rally in US financial markets has juiced up global markets. That the Fed will be much slower at increasing rates was a huge sea change from almost all Fed officials’ comments recently, including Janet Yellen. Finally, the Fed has apparently come around to realizing wages may be very slow to increase and inflation can’t get a toehold as consumers resist prices increasing with incomes stalled.
Will the Fed’s new thinking on inflation and wages allow interest rates to decline? Presently I doubt we will see much lower rates. The best I see is that rates won’t increase as much as we thought before Yellen’s remarks yesterday. A nice bounce yesterday, but it didn’t change our slight bearish technical outlook; we need the 10 below 2.28% before our models turn positive.
PRICES @ 10:00 AM
10 yr note: -1/32 (3 bp) 2.24% unch
5 yr note: -1/32 (3 bp) 1.78% +1 bp
2 Yr note: -1/32 (3 bp) 1.29% +1 bp
30 yr bond: -6/32 (18 bp) 2.91% +2 bp
Libor Rates: 1 mo 1.017%; 3 mo 1.286%; 6 mo 1.415%; 1 yr 1.722%
30 yr FNMA 3.0 June: @9:30 102.97 -5 bp (-3 bp from 9:30 Friday)
15 yr FNMA 3.0: @9:30 102.92 -4 bp (-2 bp from 9:30 Friday)
30 yr GNMA 3.5: @9:30 103.98 -5 bp (-4 bp from 9:30 Friday)
Dollar/Yen: 111.21 -0.05 yen
Dollar/Euro: $1.1255 +$0.0049
Dollar Index: 96.92 -0.21
Gold: $1258.50 +$4.90
Crude Oil: $50.64 +$0.31
DJIA: 20,899.79 +94.95
NASDAQ: 6116.00 +32.30
S&P 500: 2391.15 +9.42
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.