May 14th, 2018 10:06 AM by Richard Sardella MLO.100007700/NMLS 233568
Last Friday there was no change in rate markets. This morning no change in rates but the 10 yield did open at 2.98%, +1 bps, with MBS prices down 3 bps on the opening trades.
This is the week each month that doesn’t have much economic news, so there is no economic data today. Expect retail sales, housing starts and permits (the May NAHB housing market index), and May Philadelphia Fed business index highlight the data this week. But nothing today and nothing on Friday.
President Trump commented he would help China to reduce the ban from exporting to a tech company (ZTE) in China after the Commerce Dept. banned American companies from selling to the firm for seven years. This was done as punishment for ZTE breaking a 2017 agreement after it was caught illegally shipping U.S. goods to Iran and North Korea. This is a huge reversal in sentiment leading to possible extended trade talks and lessening the potential of a trade war between the two largest economies. According to news reports, China had demanded the ZTE issue be resolved before more detailed trade talks. ZTE had been cut off from semiconductors and other telecommunications that has led to the company suspending operations. “Too many jobs in China lost. Commerce Department has been instructed to get it done!” the President wrote on Twitter, saying he and Chinese President Xi Jinping were working together on a solution for ZTE.
The Fed’s Cleveland President Loretta Mester in Paris this morning said The U.S. should keep its debt-to-GDP in mind before things "get out of hand." Currently, the US debt as a percentage of GDP is 75% and expected to continue to increase with increasing government spending and the possibility that the US economy may enter into a recession next year after 10 yrs of expansion. The IMF is saying the U.S. is the only advanced economy where debt-to-GDP is scheduled to increase in the next five years. Given our political situation, there is very little reason to believe US debt to GDP can be controlled until a crisis occurs; spending is what our politicians are expected to do, and they have proven they do it well. U.S. debt-to-GDP reached 104 percent in 2017, its highest level since 1946 when it hovered around 120 percent. Total U.S. debt has surpassed $21 trillion this year, a more than 120 percent increase from a decade ago.
Mohamed A. El-Erian commented today about the outlook. He has three points about stocks not presently reflecting the true conditions. 1. Having already outpaced the actual improvements in the economic and corporate landscape in 2017, this market is simply a reversion to the mean. 2. Concerns about sustainability: Less reassuring for investors is the view that the pause in market prices this year goes beyond mean reversion and reflects mounting concerns about the durability of improved economic and corporate conditions. Parts of the global economy are already showing signs of losing momentum. 3. Losing artificial support: Those most concerned about sustainability also worry about the policy transition in central banking. It has become increasingly obvious to traders and investors that central banks have been stepping back from the practice of repressing financial volatility at the first sign of market instability. This accentuates a risk factor that requires some rerating of financial assets, especially stocks.
Although economic releases this week are thin there are Fed officials out every day; it’s not likely, however, that they will offer any comments that will move markets. Markets well aware of what the Fed is thinking — a rate increase in June and more angst about inflation that so far hasn’t shown much increases. Close to 3.00% this morning but traders are looking more toward 3.04% the inter-day high three weeks ago before slipping back to 2.90% and now moving back to the high of the range (2.92% to 3.00%). Mortgage rates generally unchanged over the last three weeks.
This Week’s Calendar:
8:30 am April retail sales (+0.3%, ex auto and truck sales +0.5%.
10:00 am May NAHB housing market index (69, unchanged from April)
7:00 am weekly MBS mortgage apps
8:30 am April housing starts and permits (starts 1324K +0.4%; permits 1350K -0.3%)
9:15 am April industrial production and capacity utilization ( production +0.6%, cap utilization 78.4% up from 78.0% in March)
8:30 am Weekly claims (215K +4K)
10:00 am April leading economic indicators (+0.4% from +0.3% in March)
PRICES @ 10:00 AM
10 yr. note: -6/32 (18 bp (2.99% +2 bp
5 yr. note: -3/32 (9 bp) 2.86% +2 bp
2 Yr. note: -1/32 (3 bp) 2.55% unch
30 yr. bond: -12/32 (37 bp) 3.13% +3 bp
Libor Rates: 1 mo. 1.918%; 3 mo. 2.342%; 6 mo. 2.515%; 1 yr. 2.765% (5/11/18)
30 yr. FNMA 4.0 June: @9:30 101.59 -6 bp (-4 bp from 9:30 Friday)
15 yr. FNMA 4.0: @9:30 102.60 -4 bp (-3 bp from 9:30 Friday)
30 yr. GNMA 4.0: @9:30 102.23 +5 bp (+1 bp from 9:30 Friday)
Dollar/Yen: 109.54 +0.15 yen
Dollar/Euro: $1.1989 +$0.0048
Dollar Index: 92.26 -0.27
Gold: $1320.70 unch
Crude Oil: $70.83 +$0.13
DJIA: 24,937.93 +106.76
NASDAQ: 7441.88 +38.99
S&P 500: 2738.22 +10.50
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.