September 10th, 2019 8:53 AM by Richard Sardella MLO.100007700/NMLS 233568
Treasury markets opened basically unchanged from yesterday, stock indexes before the 9:30 am ET open about unchanged after a quiet session yesterday.
Early this morning the August NFTB small business optimism index slipped a little, from 107.7 to 103.1 (forecast was 103.5). It isn't one of the first tier data points and the slippage due to the trade war.
This afternoon Treasury will kick off this week's borrowing with $38B of 3s; tomorrow it is a 10 yr and Thursday a 30 yr. The 3 yr isn't as interesting as the 10 and 30 that demand will be critical coming a week before the FOMC. Thursday the ECB and Bank of Japan meetings. The ECB is widely expected to lower interest rates deeper into negative territory and re-start QEs. This will be the last meeting for Mario Draghi, the ECB's new leader Christine Lagarde former head of the IMF. Bond gains have faltered and the euro has staged a recovery from the weakest since 2017 this month after opposition from some officials raised doubts over the size and timing of any new asset purchases. Money markets are still betting on a 15-basis-point interest rate cut, a bigger drop than the 10 basis points forecast by economists. The ECB has tried for years to get inflation moving but with no success, this time will be another failure at least initially.
Global bond yields rose today, amid growing caution over the extent to which the ECB will add stimulus to boost its economy this week and rising hopes that Berlin could loosen its purse strings. The German 30 yr bond went positive today to 0.8%, two weeks ago it traded -0.9%. The more important 10 yr bund is still -0.56%.
Central banks the rest of the week and next are the focus now. The Fed will lower the Federal Funds rate by 0.25%. It has completely factored in current prices of treasuries and equity markets. There are a few FOMC members and other Fed officials that are outwardly questioning that another cut now is necessary. One argument for not cutting is based on the belief that the Fed should not use bullets now and save them for later if needed. Nevertheless, there will be a cut because if for no other reason markets expect it and the Fed shies away from disappointing markets and the ensuing volatility associated with a move not anticipated.
At 9:30 am ET the DJIA opened -44, NASDAQ -41, S&P -10. 10 yr note 1.65% +2 bps. MBS prices -5 bps from yesterday's close and -12 bps from 9:30 yesterday.
At 10:00 am ET the JOLTS job openings, expected at 7.311 mil from 7.348 mil in June. Doesn't matter though, we all know jobs are plentiful. Job openings reported at 7.217 mil.
At 1:00 pm ET $38B of 3s will be sold.
Trade is still the elephant; will China and the US make a deal? Both countries are slowing economically. China's economy is weaker than the US, and that may help to get some kind of a deal. The US faces an election next year, and President Trump is losing support quickly, another force that may help negotiations. Here we have two political parties in China there is just one party; Chinese officials don't worry about being voted out. New trade meetings are scheduled for next month, a long time in these days of angst. China's August CPI increased 0.7% m/m (expected 0.5%; last 0.4%), rising 2.8% yr/yr (expected 2.6%; last 2.8%). August PPI decreased 0.8% yr/yr (expected -0.9%; last -0.3%).
The 10 yr now trading above its 20 and 40-day moving averages; it broke above the month-long range that had held at 1.60%, and the momentum oscillators are now neutral. Not likely we will see any significant improvement now until at least next Wednesday at the conclusion of the FOMC meeting when the policy statement and Powell's press conference.
No market-moving events so far today and likely there won't be unless we get an unexpected tweet.
PRICES @ 10:00 AM
10 yr. note: 1.64% +1 bp
5 yr. note: 1.51% +2 bp
2 Yr. note: 1.60% unch
30 yr. bond: 2.12% +1 bp
Libor Rates: 1 mo. 2.049%; 3 mo. 2.138%; 6 mo. 2.035%; 1 yr. 1.948% (9/9/19)
30 yr. FNMA 3.5: @9:30 102.45 -5 bp (-12 bp from 9:30 yesterday)
15 yr. FNMA 3.0: @9:30 102.33 unch (-13 bp from 9:30 yesterday)
30 yr. GNMA 3.5: @9:30 103.63 -9 bp (-14 bp from 9:30 yesterday)
Dollar/Yuan: $7.1099 -$0.0121
Dollar/Yen: 107.20 -0.04 yen
Dollar/Euro: $1.1038 -$0.0008
Dollar Index: 98.39 +0.10
Gold: $1506.10 -$5.00
Crude Oil: $58.14 +$0.29
DJIA: 26,765.93 -69.58
NASDAQ: 8017.33 -70.10
S&P 500: 2961.14 -17.29
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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