January 31st, 2019 8:56 AM by Richard Sardella MLO.100007700/NMLS 233568
Yesterday the markets took the ball and ran with it after the FOMC policy statement and Jerome Powell’s press conference. Three things; the Fed has finally put its imprimatur on the lack of inflation and that it isn’t likely to increase. Two: that the Fed is done increasing rates this year. The view that the Fed would stop increasing rates had gained momentum with traders and investors and was confirmed by Powell. And three: the Fed had been selling its assets lowering its balance sheet, but Powell implied the balance sheet reduction would lessen relieving markets that there may be less money available. Treasuries and stocks rallied, especially in the MBS markets. Prices increased 24 bps for Fannies. The 10-yr yield was down 2 bps, but the short end improved more, 5 yr yield fell 7 bps, and the 2 yr dropped 7 bps. Mortgage price gains (lower rates) appeared to suggest there were a lot of forward short positions; most in the mortgage world were of the belief rates would head higher; as you know we were on the other side looking for a decline in rates.
Weekly jobless claims this morning increased 53K to 253K. Not to worry though, since the increase attributed to the government shutdown.
Q4 employment cost index, expected 0.8%, was up 0.7%; more good news on the increasing belief in markets and fortified by the FOMC policy statement yesterday that wage increases were moderating “Although market-based measures of inflation compensation have moved lower in recent months, survey-based measures of longer-term inflation expectations are little changed.”
Bloomberg is reporting more weakness in China; Roughly 440 Chinese companies warned on Wednesday that their financial results for 2018 have weakened. China's Manufacturing PMI (actual 49.5; expected 49.3) for January inched up from the December reading, but remained below 50.0, indicating continued contraction. Germany's December Retail Sales -4.3% month-over-month (expected -0.5%; last 1.4%); -2.1% year-over-year (last 1.1%). January Unemployment Change -2,000 (expected -11,000; last -14,000) and Unemployment Rate 5.0%, as expected (last 5.0%). Global economic data continues to confirm the universal view that the world is slowing.
At 9:30 am EST the DJIA opened down -105, the NASDAQ added +32, and the S&P was up +1. The 10-yr stood at 2.65%, down -4 bp.
At 9:45 am the January Chicago purchasing managers’ index was expected at 62.5 from 65.4 in December. The index increased to 56.7, the highest index read since January 2017.
According to President Trump, the US/China trade talks are going well. The two-day meeting with key Chinese officials ends today. the president expressed optimism this morning about high-level trade talks with Chinese officials in Washington but said no final deal would be made until he meets with Chinese President Xi Jinping in the near future.
We finally got November new home sales numbers; a huge increase to 657K from 544K in October, a 17% increase.
Looking ahead; tomorrow we get the January employment report. Usually, when the first Friday of the month is on the 1st, the data is delayed until the following Friday. Tomorrow will also see the final January University of Michigan consumer sentiment index, which is expected at 91.4 from 90.7 on the mid-month report. The Jan ISM manufacturing index is estimated at 54.0 from 54.1 in December.
The rest of the day likely to be quiet. Employment numbers are expected tomorrow, along with a huge rapid move lower in the rate markets over the last 24 hours. Expect an increase in volatility tomorrow, but the outlook is positive. The 10-yr is at 2.65% presently, and we expect it to move down to 2.60% before a possible pause. The movement yesterday and today shook the tree of bearishness and caught most leaning the other way with the wrong expectations. However, we have been bullish since a week ago yesterday.
PRICES @ 10:00 AM
10 yr. note: +7/32 (22 bp) 2.66% -3 bp
5 yr. note: +3/32 (9 bp) 2.47% -2 bp
2 Yr. note: +2/32 (6 bp) 2.48% -2 bp
30 yr. bond: +8/32 (25 bp) 3.02% -2 bp
Libor Rates: 1 mo. 2.509%; 3 mo. 2.736%; 6 mo. 2.811%; 1 yr. 3.020% (1/30/19)
30 yr. FNMA 4.0: @9:30 102.30 +11 bp (+42 bp from 9:30 yesterday)
15 yr. FNMA 3.5: @9:30 101.78 +4 bp (+31 bp from 9:30 yesterday)
30 yr. GNMA 4.0: @9:30 102.81 +9 bp (+43 bp from 9:30 yesterday)
Dollar/Yuan: $6.7018 -$ 0.0147
Dollar/Yen: 108.66 -0.38 yen
Dollar/Euro: $1.1481 unch
Dollar Index: 95.35 -0.06
Gold: $1329.00 +$13.50
Crude Oil: $54.87 +0.64
DJIA: 24,897.84 -117.02
NASDAQ: 7249.04 +65.96
S&P 500: 2689.15 +8.10
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.