July 17th, 2017 10:21 AM by Richard Sardella MLO.100007700
The bond market had a wild ride last Friday; prices jumped, and yields fell on the reaction to a decline in June retail sales (-0.2%) and weaker than expected June CPI (yr./yr. +1.6%). The reaction to the 8:30 am EDT reports sent the 10-yr. note yield down to the very key near term resistance at 2.28% and MBS prices up 38 bps from Thursday’s close. The rally lasted until 11:15 before renewed selling drove the 10-yr. back to 2.32% and MBS prices ended just 5 bps better on the day with most all lenders having to reprice lower from the initial pricing levels.
This morning in early trade had MBS prices +5 bps from Friday’s close and the 10-yr. yield at 2.31% at 9:00 am. At 8:30 the July New York Fed manufacturing index (Empire State) was thought to be at 15 from 19.8 in June, as reported 9.8. The index is charged with a lot of volatility, and we don’t take it too seriously, as NY is not known as a manufacturing juggernaut. New orders are strong at 13.3 but down nearly 5 points from June, while unfilled orders moved back into contraction to minus 4.7. Employment slowed to 3.7 for a 4-point dip while shipments also slowed, but are still very solid at 10.5. Another sign of slowing is a nearly 8-point dip in general expectations to 34.9.
This week is thin on data with the key report on Wednesday, June housing starts, and permits, both expected to show improvement. (See calendar below).
China reported stronger growth than expected, not a direct influence here in the US but from a global perspective, many equity market investors like hedge funds and big money managers take it as continued “evidence” that global growth will continue to push US stock indexes higher. We believe the DJIA has the potential over the next three months to move to 23K area before a massive equity market decline. Presently there are not many that believe our view, but that is one reason we expect it. Volatility is almost non-existent indicating investor complacency; that is always the condition at a topping pattern. The economic growth isn’t going to get much better: housing is still historically soft, Congress and the Administration are on a course of complete gridlock with mid-term elections closing in each day that will continue to feed more inaction. Corporate earnings and forward forecasts are likely to be too optimistic. If you are looking for lower interest rates, look to November. In the meantime, we don’t think rates will decline much now as long as stocks continue to attract investment dollars.
Technically, the bond and mortgage markets failed Friday to break the 10-yr. resistance at 2.28%; still tilting bearish based on our analysis. /p>
This Week’s Calendar:
PRICES @ 10:00 AM
10 yr note: +5/32 (15 bp) 2.31% -1 bp
5 yr note: +2/32 (6 bp) 1.86% unch
2 Yr note: +1/32 (3 bp) 1.35% -1 bp
30 yr bond: +8/32 (25 bp) 2.91% -1 bp
Libor Rates: 1 mo 1.226%; 3 mo 1.303%; 6 mo 1.456%; 1 yr 1.739%
30 yr FNMA 3.5 Aug: @9:30 102.66 +3 bp (-22 bp from 9:30 Friday)
15 yr FNMA 3.0: @9:30 102.62 +5 bp (-15 bp from 9:30 Friday)
30 yr GNMA 3.5: @9:30 103.56 +6 bp (-21 bp from 9:30 Friday)
Dollar/Yen: 112.37 -0.26 yen
Dollar/Euro: $1.1466 -$0.0003
Dollar Index: 95.16 +0.04
Gold: $1234.50 +$7.00
Crude Oil: $46.58 +$0.04
DJIA: 21,635.60 -2.14
NASDAQ: 6312.47 +38.03
S&P 500: 2460.40 +1.13
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.