September 9th, 2019 9:09 AM by Richard Sardella MLO.100007700/NMLS 233568
Last Friday the 10 yr. note tested what we see as critical support at 1.60%, this morning and overnight it continued to run up to it two times. At 8:30 am ET this morning it hit1.59%. Stock indexes before the 9:30 am ET open a little better. By 9:30, the 10 yr. has moved higher to 1.62%; the entire yield curve is increasing in rates.
UK Prime Minister Boris Johnson is pressing ahead with his hard-line plan to leave the European Union "do or die" by Oct. 31. His spokesman announced Parliament will be suspended at the end of Monday's business, sparking anger from opposition politicians. It is going to be a long day in the UK; two applications for emergency debates today. A debate to ensure the law barring a no-deal Brexit is respected by the prime minister after Johnson's insistence he will not extend negotiations with the EU and the other wanting the government to publish its assessment of no-deal preparedness.
This week begins two weeks of central bank meetings. It's going to be very interesting to see what the ECB will do with its anticipated rate cut and possibly re-starting QEs. Next week the Bank of Japan also thinking about more negative rates with another cut to even more negative rates just like the ECB. The elephant though is the FOMC meeting on the 17th and 18th, a 0.25% cut will happen but the policy statement and Jerome Powell's press conference is what the markets are waiting for. Also next week the Swiss National Bank will step in with what may also be a cut in rates.
Weakness in global economies continues to increase. China's economy is a lot worse than the 'official' data from the government suggests. The US holding on according to Powell's speech last Friday in Zurich. Holding on but increasingly subject to further slippage. All the talk that the US won't weaken just because the global economies are declining is becoming harder to defend. In China, private analysts and economists are refuting the government data as unreliable and weaker than the government has been saying for years. One private analysis on manufacturing growth was +2.7% in 2018 compared to China's read of 5.0%, in 2019 the Eaton Corp is estimating manufacturing growth at 2.5% about half of what the Chinese government is forecasting. There is little reason to continue believing the US will hold on, our manufacturing data is slowing quickly over the last six months, and job losses are growing. What it means is that central banks, including the Fed, will be forced to continue to lower rates…as long as inflation doesn't get a grip. And increasingly more optimistic of a trade deal between the US and China.
Traders see a 91.2% chance of a quarter percentage point cut in the Fed's September policy meeting, up from 90% on Friday, according to CME's FedWatch.
The only data today; July consumer credit; overall thought to be +$16B but we only have an interest in the revolving credit number (credit card use).
Treasury will sell $78B of notes and bonds this week; Wednesday 10 yr. note and Thursday 30 yr. bond. Debt owed by governments, businesses, and households around the globe is up nearly 50% since before the financial crisis to $246.6 trillion at the beginning of March, according to the Institute of International Finance, an association of global financial firms. Increasing debt is causing issues with repo markets as the demand for government notes and bonds is starting to infect swaps, repos, and demand for 30 yr. bonds. Treasury has to decide whether to increase the money supply that has been stagnating for a few years.
Technically our work is now neutral after holding positive biases for the last month. Not yet turning negative but unless the 10 yr. backs down it outlook is cloudy now. There are huge numbers of stops resting at these levels that if triggered, will push the 10 yr. toward 1.80% with the next technical support at 1.70%. Two weeks ago our models were pointing to 1.30% as the low; it hit 1.36% times in overnight trade, a double bottom that in our models a close above 1.60% will project to 1.80%.
This Week's Calendar:
3:00 pm July consumer credit (+$16B)
6:00 am NFIB Small business optimism index (103.3 from 104.7)
10:00 am July JOLTS job openings (7.311m from 7.348m)
1:00 PM $38B 3 yr. note auction
7:00 am weekly MBA mortgage applications
8:30 am August PPI (+0.1%,yr/yr. +1.8%; core PPI +.2%, yr./yr. +2.2%)
1:00 pm $24B 10 yr. note auction
8:30 am weekly jobless claims (215K -2K)
1:00 pm $16B 30 yr. bond auction
2:00 pm August Treasury budget balance
8:30 am August retail sales (+0.3%, less autos +0.2%, less autos and gas +0.4%, control group +0.5%)
10:00 am Sept preliminary U. of Michigan consumer sentiment index (90.7 from 89.8)
PRICES @ 10:00 AM
10 yr. note: 1.62% +7 bp
5 yr. note: 1.48% -6 bp
2 Yr. note: 1.56% +4 bp
30 yr. bond: 2.10% +8 bp
Libor Rates: 1 mo. 2.049%; 3 mo. 2.134%; 6 mo. 2.034%; 1 yr. 1.949% (9/6/19)
30 yr. FNMA 3.5: @9:30 102.56 -11 bp (-14 bp from 9:30 Friday)
15 yr. FNMA 3.0: @9:30 102.46 -8 bp (-8 bp from 9:30 Friday)
30 yr. GNMA 3.5: @9:30 103.77 -9 bp (-20 bp from 9:30 Friday)
Dollar/Yuan: $7.1223 +$0.0066
Dollar/Yen: 107.01 +0.09 yen
Dollar/Euro: $1.1053 +$0.0022
Dollar Index: 98.25 -0.15
Gold: $1517.50 +$2.00
Crude Oil: $57.39 +$0.89
DJIA: 26,835.01 +37.55
NASDAQ: 8101.35 -1.73
S&P 500: 2981.99 +3.28
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.