July 29th, 2020 8:51 AM by Richard Sardella MLO.100007700/NMLS 233568
Yesterday the MBS market was strong, buying ahead of the FOMC meeting today and in terms of prices out-paced the 10 yr. note. This morning both stocks and bonds generally started unchanged ahead of 2:00 pm ET this afternoon when the FOMC policy statement and Jerome Powell’s press conference. MBS prices began the day stronger. (see below for 9:30 levels)
Weekly MBA mortgage applications for the previous week; the composite index -0.8%, purchase apps -2.0% while refinance apps were down 0.4%. On an unadjusted basis, the Index decreased 1 percent compared with the previous week. The Refinance Index was 121 percent higher than the same week one year ago. The unadjusted Purchase Index decreased 1 percent compared with the previous week and was 21 percent higher than the same week one year ago. The refinance share of mortgage activity increased to 65.1 percent of total applications from 64.8 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 3.2 percent of total applications. The FHA share of total applications decreased to 9.6 percent from 10.8 percent the week prior. The VA share of total applications increased to 11.2 percent from 10.8 percent the week prior. The USDA share of total applications remained unchanged from 0.6 percent the week prior.
At 9:30 am ET, the DJIA opened +43, NASDAQ +85, S&P +16. 10 yr. 0.58% unchanged. FNMA 2.5 30 yr. coupon +8 bps from yesterday’s close but +24 bps from 9:30 yesterday.
What will the FOMC have to say this afternoon? The Fed has a dilemma; more stimulus, but what to do? It is unlikely there will any changes coming from the meeting, but the Fed has to admit the economy is losing some of its steam, and the outlook is increasingly looking less optimistic. There is an increase within markets that the Fed may introduce yield curve control. Guidance from the Fed on its outlook and more QEs probably won’t happen in any specific way, but the FOMC will likely stress that everything is on the table. Fed officials such as Governor Lael Brainard have, in recent weeks, highlighted concern that rising Covid-19 infections would yield fresh macroeconomic weakness. High-frequency data such as initial unemployment claims suggest that the recovery pace may be stalling after gaining traction in May and June. On inflation, the Fed wants to see it happen and may consider increasing its 2.0% target to higher levels. Business closures are increasingly becoming permanent rather than temporary. Any changes in policy won’t happen until later this year, according to sources. Not all Fed officials are on the same page, not surprising, as there is a wide debate and varying opinions within the Fed now. In his press conference, expect Powell to try and cheerlead, although recent statistics can’t be talked away that the economic recovery is stalling now.
Expect volatility when the Fed and Powell complete their mission this afternoon; it is the norm immediately after the news hits.
Looking past today, tomorrow we will see the advance report for Q2 GDP, it will be a record-setter in terms of its weakness going back to WW II; consensus estimates are a decline of 35% after Q1’s -5.0%. Markets should look past it, though; it won’t be a shock.
At 10:00 am ET, June pending home sales expected +5.2% after exploding +44.3% in May. Sales increased by 16.6%.
The 10 yr. note is right there this morning, at 0.57%. As we have noted, a close below it will likely send the note down to 0.50% quickly, driven by investors exiting their bullish positions. The 10 yr. note yield has been slowly falling since July 6th.
PRICES @ 10:00 AM ET
10 yr. note: 0.57% -1.5 bp
5 yr. note: 0.26% unch
2 Yr. note: 0.14% unch
30 yr. bond: 1.22% unch
Libor Rates: 1 mo. 0.166; 3 mo. 0.268%; 6 mo. 0-.317%; 1 yr. 0.460% (7/28/20)
30 yr. FNMA 2.5: @9:30 104.88 +8 bp (+24 bp from 9:30 yesterday)
30 yr. GNMA 2.5: @9:30 105.17 +8 bp (+9 bp from 9:30 yesterday)
Dollar/Yuan: $7.0020 +$0.0012
Dollar/Yen: 105.00 -0.09 yen
Dollar/Euro: $1.1761 +$0.0045
Dollar Index: 93.54 -0.15
Gold: $1945.20 +$0.60
Crude Oil: $41.25 +$0.21
DJIA: 26,447 +68
NASDAQ: 10,508 +106
S&P 500: 3239 +21
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.