September 5th, 2019 8:54 AM by Richard Sardella MLO.100007700/NMLS 233568
Last night at 10:00 pm ET it hit the wires that the US and China would be going back to trade talks in October. The 10 yr. yield increased to 1.51% +6 bps from the level at 5:00 pm yesterday. At 8:00 am ET this morning the 10 yr. 1.52%. Of course, the stock indexes are improving this morning. Trade news continues to dominate markets. Chinese Vice Premier Liu He, US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin spoke by phone on Thursday morning Beijing time and agreed to meet next month for high-level trade talks. Both sides said deputy-level officials would work together in mid-September to lay the groundwork. Expectations for a breakthrough in trade talks are low, as tensions have risen between the two countries. Neither Beijing nor Washington specified a start date for the talks.
August ADP private jobs were expected to up 150K, as reported +195K, July jobs were revised from 156K to 142K.
Weekly jobless claims 217K +1K.
Final Q2 productivity and unit labor costs; productivity +2.3% unchanged from the preliminary report, unit labor costs +2.6% up from 2.4% on the preliminary. From the second quarter of 2018 to the second quarter of 2019, productivity increased by 1.8%.
Central bank meetings this month will be interesting — the FOMC on the 17th and the ECB next week. The Fed will lower rates by 0.25% no matter the increasing difference of opinions within the Fed. The Fed has to do it because markets fully expect it. At the last ECB meeting, Mario Draghi made it clear some stimulus would be announced at the Sept meeting next week (the 12th). The governor of the central bank of Finland commenting that the stimulus would be larger than what is now expected. Olli Rehn said the slowing global economy would see the ECB rolling out fresh stimulus measures that should include "substantial and sufficient" bond purchases as well as cuts to the bank's key interest rate. Analysts expect the ECB will announce next month a 0.1 percentage-point cut to its key interest rate, currently set at minus 0.4%, as well as around €50 billion ($56 billion) a month of fresh bond purchases under its quantitative easing program. Economic data from Germany and China yesterday showed two of the world's economic powerhouses weakening amid headwinds in the global economy that range from trade tensions to the possibility of a disorderly Brexit.
At 9:30 the DJIA opened +302, NASDAQ +90, S&P +27. 10 yr. 1.53% +7 bps. MBS price at 9:30 -11 bps and -9 bps from 9:30 yesterday.
At 10:00 am ET the August ISM non-manufacturing index, expected at 54.0, hit at 56. July factory orders +1.4%, ex transportation +0.3%. Durable goods orders +2.0% best since August last year, ex transportation orders -0.4%, capital spending +0.2%. Germany's July Factory Orders fell 2.7% m/m (expected -1.5%; last 2.7%).
Brexit: The British House of Commons voted in favor of forcing Prime Minister, Boris Johnson, to seek another Brexit extension if there is no deal by October 31. Meanwhile, Mr. Johnson's motion to call a snap election failed due to insufficient backing from Labor, a party that would likely lose significant support in the event of an election.
Tomorrow August employment data. Two key indicators -- hiring for temporary-help positions and weekly working hours -- have declined this year even as unemployment has remained near a half-century low. Economists are keeping an eye on those figures in the employment report even as the main payrolls number is expected to show steady hiring.
Two times now the 10 yr. note yield has fallen to 1.36%, both times in overseas trading. A double bottom that technically sends a warning sign. We were looking for 1.30% to be the low for the 10 yr. but when looking at 24 hour 10 yr. charts last night the 1.36% lows startled me a little. Not yet a critical concern but it will be if the 10 yr. note yield moves above 1.60% area; if that happens the technical outlook would project the 10 to increase to 1.80% very quickly. Today rates are increasing and prices are declining on the unexpected news last night that trade talks are going to re-start. We've seen that before only for the two sides walking away. At the moment still positive technically, but any progress in trade talks will quickly push rates higher.
PRICES @ 10:10 AM
10 yr. note: 1.58% +12 bps
5 yr. note: 1.44% +13 bps
2 Yr. note: 1.55% +12 bps
30 yr. bond: 2.06% +10 bps
Libor Rates: 1 mo. 2.057%; 3 mo. 2.112%; 6 mo. 2.896%; 1 yr. 1.896% (9/4/19)
30 yr. FNMA 3.5: @9:30 102.75 -11 bp (-9 bp from 9:30 yesterday)
15 yr. FNMA 3.0: @9:30 102.58 -14 bp (-3 bp from 9:30 yesterday)
30 yr. GNMA 3.5: @9:30104.03 -12 bp (-8 bp from 9:30 yesterday)
Dollar/Yuan: $7.1511 +$0.0051
Dollar/Yen: 106.89 +0.49 yen
Dollar/Euro: $1.1078 +$0.0041
Dollar Index: 98.13 -0.33
Gold: $1539.40 -$21.00
Crude Oil: $56.78 +$0.52
DJIA: 26,792.48 +437.01
NASDAQ: 81109.5 +134.07
S&P 500: 2981.09 +43.01
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.