October 7th, 2019 9:00 AM by Richard Sardella MLO.100007700/NMLS 233568
Early this morning, the interest rate markets were up slightly, the 10 yr. 1.54% +1 bp, MBS prices at 8:30 am ET -3 bps. Stock indexes weaker but not much (DJIA -50 at 8:30).
Trade talks re-start this week, markets skittish about what may occur, as usual when the two countries get together anxiety increases within markets. This week as Chinese Vice Premier Liu He and his entourage of officials head to Washington to resume talks with their US counterparts. There is a concern that China will stick to its hardline now as President Trump is under political attack. China thinks a weak president may increase the opportunity for a better deal; it is a gamble. If President Trump is reelected without a trade deal with China, China has to expect a much more difficult outlook. Chinese officials are signaling they're increasingly reluctant to agree to a broad trade deal pursued by President Trump. Liu He told visiting dignitaries he would bring an offer to Washington that won't include commitments on reforming Chinese industrial policy or the government subsidies that have been the target of longstanding US complaints.
Impeachment update: closed-door testimonies from US diplomats, among those due to testify: Gordon Sondland, the US ambassador to the European Union who was involved in efforts to get Ukraine to open the investigations, and Masha Yovanovitch, who was abruptly recalled from her post as US ambassador to Ukraine in May after Trump supporters questioned her loyalty to the president. The White House may formally tell Nancy Pelosi as early as today that it will ignore lawmakers' demands for documents until the Democratic-controlled House of Representatives holds a vote to formally approve the impeachment inquiry. Congress returns to Washington on Oct 15th after a two-week recess. Yesterday lawyers said a second whistleblower had come forward to substantiate an August complaint from an unnamed US government official, which touched off the investigation. Markets still are not reacting but are on edge; the prime focus for markets now is the slowing of US growth and weakening GDP outlooks.
Last Friday, the Atlanta Fed GDPNow outlook was updated; it was unchanged from Oct 1st at 1.8%. We were surprised given the ISM decline last Monday and what we think was a soft employment report last Friday. "Following data releases by the US Bureau of Economic Analysis, the US Bureau of Labor Statistics, the US Census Bureau, and the Institute for Supply Management, increases in the nowcasts of real personal consumption expenditures growth and real government spending growth were offset by decreases in the nowcasts of real gross private domestic investment growth and real net exports" The next revision will be on Wednesday this week.
Will the Fed cut the Federal Funds rate again at the October FOMC meeting (10/29 and 30)? Interest rate markets increasingly believe the potential has increased after the weakening of the manufacturing sector, and the global economic outlook continues to soften. China's September FX Reserves decreased to $3.092 trillion from $3.107 trillion. Japan's August Leading Index decreased to 91.7 from 93.7, while Coincident Indicator decreased 0.4% m/m (last 0.2%). September FX Reserves dipped to $1.32 trillion from $1.33 trillion. Eurozone's October Sentix Investor Confidence decreased to -16.8 (expected -13.0) from -11.1, hitting its lowest level in more than six years. Germany's August Factory Orders decreased 0.6% m/m (expected -0.3%; last -2.1%).
At 9:30 am ET the DJIA opened -80, NASDAQ -22, S&P -8. 10 yr. note 1.54% -1 bp. MBS prices at 9:30 -3 bps from Friday's close and +5 bps from 9:30 Friday.
At 3:00 pm ET August consumer credit; all our focus is on the revolving credit component measuring consumer use of credit cards.
Presently, there is a likelihood rates will increase. We still expect the 10 yr. note will test the recent US low at 1.44%, all of our technical indicators are now positive. The recent rapid fall in rates has to be digested, like eating a huge tomahawk rib-eye steak.
This Week's Calendar:
3:00 pm August consumer credit (+$18.2B from $23.3B n July)
8:30 am Sept PPI (+0.1%, yr./yr. +1.8%; core PPI +0.2%, yr./yr. +2.3%)
1:00 PM $38B 3 yr. note auction
7:00 am weekly MBA mortgage applications
10:00 am August wholesale inventories (+0.4%)
1:00 pm $24B 10 yr. note auction
2:00 pm FOMC minutes from Swept meeting
8:30 am weekly jobless claims (216K -3K)
1:00 PM $16B 30 yr. bond auction
2:00 pm Sept budget statement
8:30 am Sept import and export prices (imports -0.1%, exports 0.0%; yr./yr. imports -1.8%, yr./yr. exports -1.2%)
10:00 am U. of Michigan consumer sentiment index (92.0 from 93.2 in Sept.
PRICES @ 10:00 AM
10 yr. note: 1.54% +1 bp
5 yr. note: 1.36% +1 bp
2 Yr. note: 1.43% +1 bp
30 yr. bond: 2.03% +2 bp
Libor Rates: 1 mo. 1.978%; 3 mo. 2.027%; 6 mo. 1.950%; 1 yr. 1.853% (10/4/19)
30 yr. FNMA 3.0: @9:30 101.89 -3 bp (+5 bp from 9:30 Friday)
15 yr. FNMA 3.0: @9:30 102.42 -11 bp (-3 bp from 9:30 Friday)
30 yr. GNMA 3.0: @9:30 103.08 -3 bp (+2 bp from 9:30 Friday)
Dollar/Yuan: $7.1484 unch (China still on holiday until tomorrow)
Dollar/Yen: 106.92 unch
Dollar/Euro: $1.0995 +$0.0015
Dollar Index: 98.80 -0.01
Gold: $1505.00 -$7.90
Crude Oil: $53.28 +$0.87
DJIA: 26,4461.09 -112.13
NASDAQ: 7949.41 -33.06
S&P 500: 2938.70 -13.31
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.