September 6th, 2019 9:17 AM by Richard Sardella MLO.100007700/NMLS 233568
Prior to the 8:30 am ET release of August employment data the 10 yr. yield at 1.60% +3 bps from yesterday’s 11 bp increase; MBS prices before employment down 8 bps from yesterday.
August employment data weaker than most were expecting; the unemployment rate at 3.7% unchanged as expected. Non-farm jobs estimated at +163K were +130K, July jobs revised from 164K to 159K. Private jobs +96K on estimates of 150K and July revised from 148K to 131K. Average hourly earnings +0.4% higher than 03% forecasts; yr./yr. earnings +3.2%. Manufacturing jobs continue to decline; +3K on forecasts of 8K and July manufacturing jobs down from 16K to 4K. The labor participation rate better than thought at 63.2%, the only positive in the headlines, the best since 2014. Although jobs were less than expect the increase in average hourly earnings will give the Fed FOMC meeting something to think about on the 17th. Stagflation is an initial reaction to a widely mixed August employment report that builds up cases for both a rate cut at the mid-month FOMC and no action at all. Earnings have now posted three straight high readings.
The initial reaction in the bond market improved a little from 1.60% to 1.57%. Our regular readers know that we hold 1.60% as critical, as long as 1.60% holds our work will remain positive, although it is becoming testy. At 12:30 pm ET this afternoon, Jerome Powell will deliver an address on “Economic Outlook and Monetary Policy.”
The news that the U.S. and China will be holding high-level, face-to-face negotiations in the coming weeks has predictably cheered financial markets wary of the growing economic fallout of the trade war. However, that reflects how eager investors have been to seize on even the faintest positive signal rather than any material change in the talks. The coming dialogue is still talk about more talks. The two sides got close to wrapping up a 150-page deal in late April before negotiations collapsed in May due to a mixture of Chinese backsliding and the Trump administration’s refusal to commit to lifting any tariffs as part of a pact. But that was effectively the last time the two sides batted around issues of substance. (Bloomberg).
The Fed issued a paper on the effects of the trade war, saying the results are almost a trillion dollars of economic growth has been lost, and it is lowering GDP growth by 1.0%.
Eurozone's Q2 GDP increased 0.2% q/q, as expected (last 0.4%), growing 1.2% yr./yr. (expected 1.1%; last 1.3%). Q2 Employment increased 0.2% q/q, as expected (last 0.4%), rising 1.2% yr./yr. (expected 1.1%; last 1.4%). Germany's July Industrial Production fell 0.6% m/m (expected 0.4%; last -1.1%).
The European Central Bank is all but certain to approve new stimulus measures on Sept. 12 to boost an ailing economy, but the composition of its package is far from clear as a rift has opened between hawkish northern European policymakers and doves from the south. There appears to be a consensus among policymakers to make this move, but the size of the cut is uncertain. Markets are looking for a cut to -0.6% from -0.4%.
China’s central bank, feeling the economic pain, said it will cut the amount of cash banks must hold as reserves to the lowest level since 2007, injecting liquidity into an economy facing both a domestic slowdown and trade-war headwinds.
At 9:30 the DJIA opened +51, NASDAQ +8, S&P +3. 10 yr. at 9:30 1.56% -1 bp. MBS prices +5 bps from yesterday’s close and -5 bps from 9:30 yesterday.
The August household survey +590K jobs. The Fed will lower the Federal Funds rate at the FOMC meeting; markets are completely expecting it, and the Fed does not like to disappoint.
PRICES @ 10:00 AM
10 yr. note: 1.56% -1 bp
5 yr. note: 1.43% unch
2 Yr. note: 1.53% -1 bp
30 yr. bond: 2.03% -2 bp
Libor Rates: 1 mo. 2.042%; 3 mo. 2.102%; 6 mo. 1.988%; 1 yr. 1.891% (9/5/19)
30 yr. FNMA 3.5: @9:30 102.70 +5 bp (-5 bp from 9:30 yesterday)
15 yr. FNMA 3.0: @9:30 102.54 unch (-4 bp from 9:30 yesterday)
30 yr. GNMA 3.5: @9:30 103.97 +3 bp (-7 bp from 9:30 yesterday)
Dollar/Yuan: $7.1178 -$0.0308
Dollar/Yen: 106.67 -0.27 yen
Dollar/Euro: $1.1053 +$0.0017
Dollar Index: 98.24 -0.18
Gold: $1533.10 +$7.60
Crude Oil: $55.23 -$1.07
DJIA: 26,766.09 +36.94
NASDAQ: 8108.09 -8.74
S&P 500: 2977.47 +1.47
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.