July 9th, 2019 9:30 AM by Richard Sardella MLO.100007700/NMLS 233568
The equity markets are working lower in early futures market trade; with the DJIA dropping -120. Interest rate markets are slightly weaker with the 10-yr note at 2.06%, up +1 bp. And in very early trade MBS dropped -3 bps from yesterday.
Markets are waiting for Jerome Powell tomorrow when he testifies at the House Financial Services Committee and Thursday at the Senate Banking Committee. Until June employment last Friday, it was generally assumed the Fed would cut its Federal Funds rate by at least 0.25% with growing thoughts of a 0.50 bp cut as economic data has been showing weakness. Now markets are back-peddling somewhat, mostly removing some of the more optimistic trades before the June employment job increases.
Another bright spot? Yesterday May consumer credit data showed consumers loosening up on using debt. Total consumer credit was right on forecasts, +$17.1B; revolving credit (credit cards) consumers continued to run up their credit-card debt at April's accelerated pace following more conservative spending in prior months. Revolving credit, rose $7.2B in May after rising $7.0B previously; the May increase in revolving credit puts the annualized rate for the month at 8.2% (7.9% previously), a fast pace that suggests consumers have become much less conservative than in the first quarter, which is a negative for household wealth but a plus for consumer spending.
This morning the June NFIB small business optimism index missed expectations in June, falling 1.7 points to 103.3 and reflecting broad weakness among components especially earnings, sales expectations, capital investment plans and also employment. The dip in this report is consistent with similar declines in other readings on business sentiment which are being pulled back on concerns over slowing in global trade and slowing in global growth.
Trade update; the US and China trade reps will begin talking once again after terminating talks in early May; this week's chats will be by phone with further discussions likely happening in China later. After the Trump/Xi meeting in Osaka comments out of China were that no trade deal will occur as long as the US continues its tariffs. Trump agreed to delay his threat of $300B more tariffs but isn't likely to lift the present tariffs unless China offers something positive. Still, don't expect a trade deal until the end of this year at the earliest.
At 9:30 am ET the DJIA opened down -120, the NASDAQ dropped -32, and the S&P lost -12. The 10-yr, after trading a little higher at 2.06%, is back to unchanged at 2.05%. MBS prices remained unchanged from yesterday and -11 bps from 9:30 yesterday.
At 10:00 am ET we saw the May JOLTS job openings which were thought to be at 7.40 mil from 7.449 mil. As released, they were at 7.323 mil and April revised lower to 7.372 mil.
Nothing of real importance to talk about until Jerome Powell tomorrow. Powell is likely to keep the 0.25 bp rate cut on the table, even though jobs were better than estimates. He has to think about the economic slowing that is showing up in some data (manufacturing), he has to factor what markets will do if the FOMC cut at the end of this month. President Trump continues to attack the Fed for being too conservative and chiding the Fed for keeping rates too high. It is a double-edged sword; Powell doesn't want to be caving in on the Fed's independence, and he doesn't want to be faced with not supporting the economic outlook. The Fed's monetary policy report released Friday highlighted a significant weakening in global trade growth and manufacturing since 2017. He can't lean on inflation, it isn't happening; and he has to take into account other central banks tilting toward increasing stimulus (ECB). He will probably repeat language from the Federal Open Market Committee's June statement that it will "act as appropriate" to sustain the economic expansion -- reinforcing bets the central bank will cut at its July 30-31 meeting.
This afternoon at 1:00 pm the Treasury will begin borrowing with $38B of 3s. Tomorrow it will auction $24B of 10s, re-opening the issue from May; it should be an interesting and important auction.
PRICES @ 10:00 AM
10 yr. note: 2.06% +1 bp
5 yr. note: 1.86% unch
2 Yr. note: 1.90% +1 bp
30 yr. bond: 2.55% +2 bp
Libor Rates: 1 mo. 2.379%; 3 mo. 2.337%; 6 mo. 2.256%; 1 yr. 2.201% (7/8/19)
30 yr. FNMA 3.5: @9:30 102.27 unch (-11 bp from 9:30 yesterday)
15 yr. FNMA 3.0: @9:30 101.88 +2 bp (-11 bp from 9:30 yesterday)
30 yr. GNMA 3.5: @9:30 103.30 unch (-10 bp from 9:30 yesterday)
Dollar/Yuan: $6.8878 +$0.0059
Dollar/Yen: 108.83 +0.11 yen
Dollar/Euro: $1.1204 -$0.0010
Dollar Index: 97.51 +0.13
Gold: $1393.40 -$6.60
Crude Oil: $57.55 -$0.11
DJIA: 26,702.83 -103.81
NASDAQ: 8092.89 -5.49
S&P 500: 2968.81 -7.14
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.