June 12th, 2018 9:16 AM by Richard Sardella MLO.100007700/NMLS 233568
The brief summit is over; now the hard work will begin with many still skeptical that North Korea will not easily give up its nuke program. Global markets took it in stride with not much movement in global equities or interest rate markets. The US 10-yr yield was up 2 bps from yesterday’s close and MBS prices early this morning fell 9 bps from yesterday. The meeting in Singapore went as well as could be expected, neither of the attendees had a tantrum or walked away; they signed a perfunctory communique that was symbolic with little substance. Critics are out en masse this morning talking about the signed statement as if they are disappointed; hard to square that view. Trump agreed to stop military exercises for now with South Korea. If North Korea reneges or drags feet allowing inspectors into the country to verify the takedown of nuke development, the military exercises will be back. Those annual exercises usually happen in early May —a year away before they would happen again. Lots of political chatter is presently being aired.
Markets look to the FOMC tomorrow with a rate increase on tap. This morning the May NFIB small business optimism index was better than thought at 107.8 from 104.8 in April (forecasts were 105.2). The second highest level in the 45-year history of the survey; leading the monthly index higher was a 10-point increase in expectations of higher real sales to a net 31 percent and increases of 7 points each in the view that now is a good time to expand (to a net 34 percent) and expectations that the economy will improve (to a net 37 percent). But the rise in optimism among small business owners was broad-based, with 8 of the 10 components of the index showing improvement.
At 8:30 am EST May CPI was in line with forecasts; +0.2% overall, +0.2% for the core. Yr/yr overall +2.8% the highest since 2012, yr/yr core +2.2%. The data showed wages adjusted for inflation were not increasing much even with employment at an 18 year low.
The FOMC meeting begins this morning concluding tomorrow afternoon with the policy statement that is expected to include a rate hike of 0.25% for the Federal Funds rate. At 2:00 pm EST we will see the policy statement, the release of the Fed’s quarterly forecasts for inflation, GDP, and employment. At 2:30 pm Jerome Powell will hold his press conference. Recent comments from Fed officials: Governor Lael Brainard said in a May 31 speech that “it seems likely that the neutral rate could rise in the medium term above its longer-run value.” In short, the Fed could boost rates above long-run neutral without intentionally curbing growth. John Williams, the San Francisco Fed president, has made it clear that he’s OK with moving into an actually tight territory. On the other side of the debate, presidents Robert Kaplan, Raphael Bostic and Patrick Harker have urged caution.
Later this afternoon the Treasury will report its May budget that will show a deficit of $144B for the month and following April’s $214.3B surplus (tax revenues).
The 10-yr is still holding below 3.00% but with a slight negative bias now. Not likely it will exceed 3.00% today, but likely there will not be much improvement. MBS prices are lower this morning and also not likely to improve. The momentum oscillators we use have turned negative this morning but are still close to neutral readings.
PRICES @ 10:00 AM
10 yr. note: -4/32 (12 bp) 2.97% +2 bp
5 yr. note: -3/32 (9 bp) 2.82% +2 bp
2 Yr. note: -1/32 (3 bp) 2.53% +1 bp
30 yr. bond: -7/32 (22 bp) 3.11% +2 bp
Libor Rates: 1 mo 2.047%; 3 mo 2.332%; 6 mo 2.493%; 1 yr. 2.757% (6/11/18)
30 yr. FNMA 4.0 June: @9:30 101.41 -9 bp (-5 bp from 9:30 yesterday)
15 yr. FNMA 4.0: @9:30 102.66 unch (+5 bp from 9:30 yesterday)
30 yr. GNMA 4.0: @9:30 102.16 -5 bp (+6 bp from 9:30 yesterday)
Dollar/Yen: 110.22 +0.18 yen
Dollar/Euro: $1.1793 +$0.0008
Dollar Index: 93.58 -0.02
Gold: $1301.60 -$1.60
Crude Oil: $66.23 +$0.13
DJIA: 25,298.39 -23.92
NASDAQ: 7670.50 +10.57
S&P 500: 2783.36 +1.36
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.