Weekly claims were expected at +315K, as released +332K +20K frm the previous week. The unexpected increase due to Hurricane Ida in Louisiana, Overall job gains are occurring so we don’t give too much attention to the increase. Have to take weekly claims looking at a wider number of weeks.
August retail sales were substantially better than forecasted because it was incorrectly believed consumers are slowing down. Instead sales were strong. The consensus for sales -0.8%, as reported +0.7%; when autos are subtracted the estimates were -0.1%, as reported +1.8%. Yesterday JP Morgan Chase economists revised their outlook projected gross domestic product to expand at a 5% annual rate in July through September, down from a prior estimate of 7%, citing lower demand and production shortages, particularly in the car industry. Economists believe retail sales could recover quickly as more Americans become vaccinated and feel safe again to venture out, and as product shortages ease.
The final data released at 8:30 am ET; Sept Philadelphia Fed business index, expected at 19.2 frm 19.4 in August, another stronger report. The index jumped to 30.7.
The initial reaction to the 8:30 am releases sent the 10 yr note to 1.34% +4 bps and MBS prices down 20 bps on the 2.0 coupon and -14 on the 2.5 FNMA 30 yr coupon.
At 9:30 am the DJIA opened +39, NASDAQ -51, S&P -5. 10 yr 1.34% +4 bps. FNMA 2.0 coupon -22 bps and -31 bps frm 9:30 am yesterday; FNMA 2.5 -17 bps and -30 bps frm 9:30 am yesterday.
We are not looking for any major changes in interest rates until at least when the FOMC policy statement and Powell’s press conference next Wednesday. The daily trading in the stock market is a MBS trading factor; these days when the key indexes decline it tends to support the bond and mortgage markets, although the underlying concerns over potential inflation, the economy, and what the Fed will announce next Wednesday about its tapering plans dominate the direction of interest rates in the broader perspective. In the prices section below MBS prices are from 9:30 am; by 10:00 am MBS prices 8 bps lower than at 9:30 am.
PRICES @ 10:00 AM ET
10 yr note: 1.35% +5 bp
5 yr note: 0.84% +4 bp
2 Yr note: 0.22% +1 bp
30 yr bond: 1.90% +3 bp
Libor Rates: 1 mo 0.084%; 3 mo 0.120%; 6 mo 0.148%; 1 yr 0.221% (9/15/21)
30 yr FNMA 2.0: @9:30 am 101.08 -22 bp (-31 bp frm 9:30 am yesterday)
30 yr FNMA 2.5: @9:30 am 103.64 -17 bp (-30 bp frm 9:30 am yesterday)
30 yr GNMA 2.5: @9:30 am 103.17 -12 bp (-24 bp frm 9:30 am yesterday)
Dollar/Yuan: $6.4516 +$0.0191
Dollar/Yen: 109.38 unch
Dollar/Euro: $1.1765 -$0.0050
Dollar Index: 92.91 +0.36
Gold: $1755.20 -$39.60
Bitcoin: 47,786 -289
Crude Oil: $72.20 -$0.41
DJIA: 34,736 -78
NASDAQ: 15,084 -76
S&P 500: 4469 -16
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.
A nice small rally yesterday with the stock market taking another hit in what some are saying it is overdue for a 10% correction. The 10 yr. 1.27% -1 bp and MBS prices +5 bps from yesterday.
Weekly MBA mortgage applications last week; the composite +0.3%, purchase apps +8.0% but re-finance apps declined 0.3%.
At 8:30 am August import and export prices. Import prices expected +0.3% declined 0.3%, yr./yr. expected +9.6% increased 9.0%. Export prices expected +0.4% increased 0.4%; yr./yr. estimates +17.0%, as reported +16.8%. No reaction to the report as usual.
At 9:15 am August industrial production and factory use; production expected +0.5% from +0.9% in July, as reported
At 9:30 am the DJIA opened -15, NASDAQ +38, S&P +7. 10 yr. 1.28% -1 bp. FNMA 2.0 coupon +2 bps from yesterday and +6 bps from 9:30 am yesterday; the 2.5 +2 bps and +8 bp from 9:30 am yesterday.
The $3.5 trillion spending bill is moving through the House and Senate but as noted yesterday the plan isn’t going to go unchanged from what many in the House are proposing. In the Senate Centrist Democrats are raising concerns over Democratic leaders’ plans to assemble a package of $3.5 trillion in spending and tax cuts, even if offset by other sources of revenue and savings. Because Democrats cannot afford to lose a single vote from their own caucus in the evenly-split Senate, that means that overall spending level will likely have to come down, either by excluding or shortening the length of some proposed programs. In the House, committees are drafting and voting on Democratic-written bills that total roughly $4.5 trillion over a decade. In the House, Democrats can lose no more than three of their own votes on legislation opposed by all Republicans. Don’t expect any bill to be voted on until later this year.
The 10 trading under 1.30%, bullish technically but to keep the buying going it will depend on how equity markets trade. Hedging the possible correction in equities that has grown within markets recently is supporting the minor decline in rates. This morning stock indexes starting generally unchanged and the 10 and MBS prices unchanged from yesterday when the DJIA dropped 292 points. Next week the FOPMC meeting that is expected to unveil the Fed’s plan to begin selling its balance sheet, the $120B a month buying treasuries and MBSs. Likely the taper will be slow, $10B a month selling treasuries and $5B a month of MBSs. The Fed wants to stop buying to allow a possible interest rate increase next year if inflation were to continue increasing.
Today the rate markets will track the stock indexes, if the indexes are pressured interest rates will edge lower. That said, with the FOMC meeting next Tuesday and Wednesday it’s not likely interest rate markets will improve much.
10 yr. note: 1.29% +1 bp
5 yr. note: 0.80% +2 bp
2 Yr. note: 0.21% unch
30 yr. bond: 1.86% unch
Libor Rates: 1 mo. 0.084%; 3 mo. 0.118%; 6 mo. 0.147%; 1 yr. 0.222% (9/14/21)
30 yr. FNMA 2.0: @9:30 am 101.39 +2 bp (+6 bp from 9:30 am yesterday)
30 yr. FNMA 2.5: @9:30 am 103.94 +2 bp (+8 bp from 9:30 am yesterday)
30 yr. GNMA 2.5: @9:30 am 103.41 +3 bp (+2 bp from 9:30 am yesterday)
Dollar/Yuan: $6.4324 -$0.007
Dollar/Yen: 109.30 -0.39 yen
Dollar/Euro: $1.1817 +$0.0013
Dollar Index: 92.52 -0.11
Gold: $1799.70 -$7.40
Bitcoin: 47,705 1.174
Crude Oil: $72.51 +$2.05
DJIA: 34,687 +105
NASDAQ: 15,015 -19
S&P 500: 4452 +9 bp
Not much movement again early this morning. August CPI at 8:30 am ET generally about what had been expected, inflation at the consumer level slightly less than in July. CPI expected +0.4%, as reported +0.3%; July CPI +0.5%; yr./yr. expected and reported at 5.3%, July yr./yr. +5.4%. Ex food and energy +0.1% on expectations of +0.3%, yr./yr. expected 4.2%, as reported +4.0%; July yr./yr. +4.3%.
The headlines better than what was thought but not enough to initially move interest rates much; at 9 am the 10 yr. note traded at 1.33% unchanged from yesterday after increasing to 1.35% just before the 8:30 am release of CPI. It was the smallest advance in seven months, according to Labor Department data. The question now is, has inflation run its upward course and the Fed has continued to think it would. Declines in the prices of used cars, airfares and auto insurance led the way lower. While price spikes associated with the economy’s reopening are beginning to abate, tenuous supply chains could linger well into 2022 and keep inflation elevated. The Federal Reserve Bank of New York released a survey yesterday showed that consumers expect inflation at 4% over the next three years, the highest in data back to mid-2013. The CPI report also showed the hot housing market is starting to filter through to rent prices, which rose by the most since March 2020. At the end of the day, although inflation held well in August, the transitory Fed view is still in play. The FOMC meeting is next week.
Earlier this morning the National Federation of Independent Businesses (NFIB) released its August small business optimism index, expected at 99.0 from 99.7 in July, the index increased to 100.1.
At 9:30 am the DJIA opened +96, NASDAQ +55, S&P +15. 10 yr. at 9:30 am 1.32% -1 bp. FNMA 2.0 30 yr. coupon +11 bps from yesterday and unch from 9:30 am yesterday; the 2.5 coupon at 9:30 am +8 bps from yesterday and +11 bp from 9:30 am yesterday.
That’s it for today’s data.
The Congress continues to work on the $3.5 trillion spending bill; for all of the optimism from the far left the bill is facing a lot of tough negotiations with moderate Democrats questioning what their constituents will tolerate. No Republican will vote for the bill when it does come up for a vote. Many centrist Democrats would like to see the sweeping budget package paid for with government savings and new tax revenues from closing what they see as tax loopholes exploited by businesses, instead of new debt. But those sources of revenue can be deeply controversial, particularly changes proposed by Mr. Biden to how capital-gains are taxed.
MBS prices have been volatile so far while the 10 yr. note remained generally unchanged until 10 am not just this morning but for the past five sessions. Stocks started better at 9:30 am but 30 minutes later began the decline; increasing numbers of stock analysts are talking the potential for a 10% correction from the recent highs. When stocks rolled over the 10 yr. yield caught a nice bid; after sitting unchanged this morning the 10 yr. at 10 am dropped to 1.29% -4 bps and MBS prices improved from 9:30 am.
10 yr. note: 1.29% -4 bp
5 yr. note: 0.77% -4 bp
2 Yr. note: 0.21% -1 bp
30 yr. bond: 1.87% -4 bp
Libor Rates: 1 mo. 0.083%; 3 mo. 0.116%; 6 mo. 0.148%; 1 yr. 0.223% (9/13/21)
30 yr. FNMA 2.0: @9:30 am 101.33 +11 bp (unch from 9:30 am yesterday)
30 yr. FNMA 2.5: @9:30 am 103.86 +8 bp (-10 bp from 9:30 am yesterday)
30 yr. GNMA 2.5: @9:30 am 103.39 +11 bp (+12 bp from 9:30 am yesterday)
Dollar/Yuan: $6.4398 -$0.0121
Dollar/Yen: 109.84 -0.16 yen
Dollar/Euro: $1.1826 +$0.0015
Dollar Index: 92.47 -0.20
Gold: $1793.60 -$0.80
Bitcoin: 46,533 +1,809
Crude Oil: $70.93 +$0.48
DJIA: 34,769 -100
NASDAQ: 15,097 -8
S&P 500: 4460 -9
Mixed bag: job openings are plentiful, while unemployment figures drop. But what about housing?
That old saying, “It ain’t over ’til it’s over” has never been more true than when applied to this pandemic. Realtor’s Chief Economist Danielle Hale reports, “As signs of a turn in the Delta wave of the COVID pandemic emerged, the administration announced new vaccine rules for Federal workers and employees at larger companies. Estimates suggest that these rules will likely apply to more than half of U.S. employees.”
She goes on to say that this announcement followed data showing job openings in July hit a new high for the 5th month in a row. “With plenty of companies looking to hire, the rate at which workers are leaving jobs voluntarily remains high–this is the 8th month in the last 10 that the quits rate has equaled or exceeded pre-pandemic highs. In other words, massive turnover in the labor market continues.”
Weekly jobless claims offered a glimpse of hope, however, dropping to their lowest level since mid-March 2020 and registering just slightly above the 300,000 level that might be considered relatively normal. It could be that those re-entering the workforce are becoming more selective regarding pay and benefits.
As for housing data, Hale reports that mortgage rates rose just one basis point this past week and have trended flat for roughly the last month. “Steady rates help homebuyers better predict what their monthly payment will be for any given purchase price and still-low rates create opportunities for existing owners to refinance.”
In the meantime, homes continue to sell quickly and for higher prices as the number of homes for sale remains limited. "Of note, the number of homeowners listing a home for sale this week was 8 percent lower than last year–the first drop in 9 weeks though only the 4th decline in the last 6 months. We’ve seen temporary dips before and this could be similar, but since finding a home to buy remains a key buyer hurdle, we’re watching this metric closely,” she says.
Why is finding a home such a challenge? Hale and her colleagues looked at how construction has tracked against household growth and admitted their findings were revealing. “Single-family home construction has lagged household formation by more than 5 million over the last decade. While recently slower household formation and strong construction have started to close the gap, we’d need completions to double and household formation to stay near this recent slower pace to close the gap in 5 to 6 years.”
How Rates Move:
Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I’m among few mortgage professionals who have access to live trading screens during market hours.
Rates Currently Trending: Neutral
Mortgage rates are trending unchanged this morning. Last week the MBS market was essentially unchanged. The MBS market was fairly calm last week.
This Week's Rate Forecast: Neutral
Three Things: These are the three areas that have the greatest ability to impact rates this week. 1) Inflation, 2) Retail Sales, and 3) Geopolitical
1) Inflation: Last week's PPI of 8.3% was very scary, will that translate to a big spike in Consumer Prices? The headline CPI is projected to hit around 5.3% which is more than double the Fed's target rate of 2.0%.
2) Retail Sales: Retail Sales are expected to decline again, this time by -0.8%. Of course a big chunk of that is Autos. Ex-Autos, Retail Sales are expected to decline by -0.2%.
3) Geopolitical: This is really a grab-bag full of different things. We have the continued surge of the Delta Variant, along with (at least) 2 new variants that are making headlines, after last week's Treasury auctions, we are fast approaching our debt ceiling while the $3.5T infrastructure bill continues to concern markets with the newly proposed higher corporate tax rate of 26.5%.
This Week's Potential Volatility: Neutral
This morning we're expecting to stay within our narrow trading channel. Volatility should remain moderate pending developments with Covid or Congress.
If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.
This morning the 10 yr. started down 2 bps after increasing 4 bps on Friday. MBS prices began 5 bps higher. The 10 in a seven bps range from 1.37% to 1.30%. The stock market beginning to look heavy after months of very strong buying, this morning in premarket trading the indexes traded higher after declining last Friday. From what we are reading there are is a growing chorus of analysts warning investors they may be in for a bumpy ride the rest of the year.
Inflation, is it, or not? It is presently but markets following the Fed’s lead that it isn’t systemic and won’t last. Not much we can add to the present markets. August CPI data due tomorrow is set to show annual growth in U.S. consumer prices stayed above 5% in August for a third straight month, according surveys. The median forecast was 5.3%, down from 5.4% the previous month. Most other developed countries have seen a spike too -- just not nearly as big.
Much of the current wave of inflation has been driven by stretched global supply-chains. But research by the Institute of International Finance shows that while problems like longer delivery times are affecting all economies, they’re most acute in the U.S. –- and price markups by firms are bigger there too. That suggests stronger American demand is a key part of the picture. “What’s striking is just what an outlier the U.S. is, when you actually put all the countries’ supply-chain statistics next to each other,” says Robin Brooks, the IIF’s chief economist. “It’s pretty clear to me that the fiscal side is what makes the U.S. stand out.”
So, are investors really worrying about a longer inflation spiral; no. Even if prices do climb a bit faster as a result, there’s no reason to fear a 1970s-style spiral -- because labor isn’t strong enough now to keep pushing wages higher like it did back then -- and monetary policy can easily rein inflation in. Economists are thinking Biden’s economic plan would be less inflationary than the $1.9 trillion stimulus approved in March, because it invests in building the economy’s capacity. All that said; inflation worries still there, but not serious enough to keep interest rates from increasing. The idea that interest rates have a chance of declining though is difficult to square.
At 9:30 am ET the DJIA opened +249 after declining 272 last Friday; NASDAQ +90, down 133 Friday; S&P +32, down 35 Friday. The 10 yr. note 1.32% -2 bp. FNMA 2.0 30 yr. coupon at 9:30 am +5 bp and unchanged from 9:30 am Friday; the 2.5 coupon +6 bps and +2 bp from 9:30 am Friday.
The only data today, the August treasury budget, expected a deficit of -$303.5B. Markets already know 2021 budget deficit will be about $3 trillion, Sept is the last month of the fiscal year.
House Democrats detailed their proposed tax increases, calling for raising the corporate tax rate to 26.5% from 21%, a 3-percentage-point surtax on top earners and a capital-gains tax increase. A vote on the bill is scheduled this week in the Ways and Means Committee. 10 yr. so far this morning
10 yr. note: 1.32% -2 bp
5 yr. note: 0.80% -1 bp
2 Yr. note: 0.22% unch
30 yr. bond: 1.92% -2 bp
Libor Rates: 1 mo. 0.083%; 3 mo. 0.115%; 6 mo. 0.149%; 1 yr. 0.222% (9/10/21)
30 yr. FNMA 2.0: @9:30 am 101.33 +5 bp (unch from 9:30 am Friday)
30 yr. FNMA 2.5: @9:30 am 103.97 +6 bp (+2 bp from 9:30 am Friday)
30 yr. GNMA 2.5: @9:30 am 103.27 +5 bp (+2 bp from 9:30 am Friday)
Dollar/Yuan: $6.4538 +$0.0095
Dollar/Yen: 109.97 +0.06 yen
Dollar/Euro: $1.1801 -$0.0012
Dollar Index: 92.70 +0.12
Gold: $1792.60 +$0.50
Bitcoin: 46,256 +1233
Crude Oil: $70.71 +$0.99
DJIA: 34,840 +232
NASDAQ: 15,083 +32
S&P 500: 4470 +11
Yesterday the 10 yr. note fell 4 bps to its significant technical pivot at 1.30%, MBS prices improved 17 bps. This morning at 8:30 am ET August producer price index was reported; prior to the release the 10 yr. at 1.32% +2 bps, MBS prices down 8 bps from yesterday. PPI expected +0.6% increased to 0.7%; yr./yr. expected +8.3%, as reported +8.3% and up from +7.8% in July. The core PPI (less food and energy) expected +0.5% increased 0.6%; yr./yr. expected +6.6%, as reported +7.3%. Excluding food, energy and trade services increased 6.3% yr./yr. from 6.1% in July. Persistent supply chain disruptions squeezing production costs higher. Although inflation did increase a little more than estimates there was no reaction to the report compared to where rates and prices were prior to 8:30 am. PPI is lower than in July. On Monday August consumer prices; which are forecast to show a 0.4% advance in the CPI from the prior month and a 5.3% increase from August of 2020.
There are no other economic releases today that will influence trading.
Interest rates have flat-lined the last two weeks. Fed tapering coming, inflation edging higher, the economic outlook, even with the current Delta slowdown is almost universally believed to be short-lived. While rates have held steady so far there is an increasing belief interest rates will begin to increase when the Fed puts the final decision on tapering in play when the FOMC meets on the 22nd of the month. Tapering is going to occur, the only remaining issues are when it will start (we look to November to begin). Worries abound that as the Fed and ECB begin to cut support that rates will increase.
Fed Vice Chairman Richard Clarida said last month he thought the risks of higher-than-projected inflation were more prominent than the risks of lower-than-anticipated inflation. He also said he thought the unemployment rate could fall to 3.8% next year with inflation running above 2.1%, which would satisfy by the end of next year the thresholds the Fed has laid out to raise interest rates. Fed officials have pushed to conclude the asset purchases by the middle of next year to clear the decks for a potential rate increase. It could be even trickier if new projections at the coming meeting show most officials expect they will need to raise rates next year.
At 9:30 am the DJIA opened +208, NASDAQ +98, S&P +26. 10 yr. 1.32% +2 bp. FNMA 2.0 -9 bps and -1 bp from 9:30 am yesterday; 2.5 unch and +7 bp from 9:30 am yesterday.
Democrats in the House are readying the $3.5 trillion social infrastructure bill; its Nancy Pelosi’s plan to bring the bill to a vote within the next two weeks. The House Ways and Means, Education, Labor committees introduced the text of their sections of the $3.5 trillion-plus spending bill late Tuesday and Wednesday. As the WSJ commented today; “On your mark, set, go for the 100-meter dash. Within 36 hours, the committees had begun mark-ups. Pelosi wants a vote by Sept 27th.
Standing back for a wider view; with strong stimulus on the horizon, increases in taxes, the Fed backing away from its monthly buying and the government taking evermore control of the economy it isn’t realistic to expect interest rates will decline but will increase. Presently though there is not much reason to jump the gun now, interest rates are more likely to continue in the tight ranges until more details are cemented; that will take a month or so and very dependent on how the Delta variant impacts economic growth.
10 yr. note: 1.32% +2 bp
2 Yr. note: 0.22% +1 bp
30 yr. bond: 1.92% +2 bp
Libor Rates: 1 mo. 0.082%; 3 mo. 0.114%; 6 mo. 0.146%; 1 yr. 0.223% (9/9/21)
30 yr. FNMA 2.0: @9:30 am 101.33 -9 bp (-1 bp from 9:30 am yesterday)
30 yr. FNMA 2.5: @9:30 am 103.95 unch (+7 bp from 9:30 am yesterday)
30 yr. GNMA 2.5: @9:30 am 103.25 -39 bp (-16 bp from 9:30 am yesterday)
Dollar/Yuan: $6.4380 -$0.0174
Dollar/Yen: 109.89 +0.15 yen
Dollar/Euro: $1.1826 unch
Dollar Index: 92.45 -0.03
Gold: $1796.00 -$4.40
Bitcoin: 45,874 -394
Crude Oil: $69.67 +$1.53
DJIA: 34,885 +5
NASDAQ: 15,331 +82
S&P 500: 4502 +8
The only data today, weekly jobless claims, expected at 344K, declined to 310K. The lowest since late June as the labor market continues toward a full recovery. Claims are higher than pre-pandemic levels, and economists expect economic growth to slow in the third quarter as stimulus spending moderates. Claims rose by more than 7,200 in Louisiana, one of the states hit hardest by Hurricane Ida last week. Claims for pandemic unemployment assistance fell by more than 6,000 as the program is phased out. Last Friday the August employment report showed U.S. hiring fell abruptly in August with the smallest jobs gain in seven months. The initial reaction didn’t move the interest rate markets. The 10 down just 0.5% to 1.33%; MBS prices generally unchanged.
The ECB meeting concluded with what was widely expected; the Bank said it would slightly scale back its massive bond-buying program amid robust economic growth and inflation in the euro-zone, turning the corner on its stimulus despite a resurgence in Covid-19 cases globally and signs of slowdowns. Central banks including the Fed have been moving gradually toward phasing out emergency stimulus programs in recent weeks as inflation surges and growth recovers. But there is a fly in the ointment after the weak job growth reported in the August. The Fed was ready to begin tapering of its monthly buying of treasuries and MBSs, the markets expecting the beginning of cutting back as early as October, announcing it at the Sept 22nd FOMC meeting. Markets await Christine Lagarde’ s press conference. Analysts said the ECB would likely buy around €60 billion to €70 billion of Eurozone debt a month through the end of the year, down from around €80 billion a month at present.
On the Democrat $3.5 trillion healthcare, education and climate bill, there are numerous drafts being constructed trying to get a bill all Dems can support. Lawmakers are trying to pre-emptively sort through differences between House and Senate Democrats over many of its provisions, a task that has so far proven difficult. No matter when the bill is finalized it is very unlikely it will pass both the House and Senate as presently constructed, given the wide split between Dems and Republicans the bill may not go to a vote this year. Moderate Democrats are demanding that the full cost of the bill be covered with tax increases and new government savings, though many have also raised concerns about significantly increasing taxes. Meanwhile Pelosi has tied the bill to extending the debt limit now facing Treasury.
At 9:30 am ET the DJIA opened -36, NASDAQ +14, S&P -2. 10 yr. at 9:30 am 1.33% -1 bp. FNMA 2.0 30 yr. coupon +5 bps from yesterday and +9 bps from 9:30 am yesterday. The FNMA 2.5 30 yr. coupon at 9:30 am +6 bps and +8 bps from 9:30 am yesterday.
This afternoon Treasury will complete its $120B borrowing this week with $24B of 30 yr. bonds at 1 pm. Yesterday’s 10 yr. auction was met with very strong bidding and demand.
Nothing scheduled the remainder of the day, tomorrow August PPI. Inflation at the wholesale level; current consensus, m/m +0.6%, yr./yr. +8.3% from +7.8% in July. Ex food and energy m/m +0.5%, yr./yr. +6.6% from 6.2% in July.
So far this morning interest rate markets have been very quiet, no movement on the 10 yr. or MBSs since the openings this morning. Inflation still a question mark with traders, recent data confirms prices and wages are increasing, consumers are pulling back spending, the increase in Delta cases have slowed job growth; it’s a mixture that still confounds investors. The Fed though remains adamant that any inflation is going to be short-lived.
10 yr. note: 1.34% unch
5 yr. note: 0.81% unch
30 yr. bond: 1.96% unch
Libor Rates: 1 mo. 0.084%; 3 mo. 0.115%; 6 mo. 0.149%; 1 yr. 0.223% (9/8/21)
30 yr. FNMA 2.0: @9:30 101.34 +5 bp (+9 bp from 9:30 am yesterday)
30 yr. FNMA 2.5: @9:30 103.88 +6 bp (+8 bp from 9:30 am yesterday)
30 yr. GNMA 2.5: @9:30 103.41 -2 bp (unch from 9:30 am yesterday)
Dollar/Yuan: $6.4536 -$0.0082
Dollar/Yen: 109.84 -0.42 yen
Dollar/Euro: $1.1817 unch
Dollar Index: 92.55 -0.11
Gold: $1796. 10 +$2.60
Bitcoin: 46,985 +830
Crude Oil: $68.85 -$0.45
DJIA: 35,093 +62
NASDAQ: 15,332 +45
S&P 500: 4523 +9
Last Friday the August employment report reported much lower job growth. It is about weak jobs, the weakness in growth has momentarily moved traders to re-consider whether the Fed will execute the tapering of its debt that as had become generally expected.
The 10 yr note this morning at 1.37% the top of its near term range and the highest since 8/26; if the note breaches 1.37% this week the next technical target is 1.44%. MBS prices at 8:30 am ET this morning -16 bps frm last Friday.
There are no data points today and the key economic release won’t hit until Friday when the August PPI data is reported; the estimates are an increase in producer prices frm what was reported in July. This afternoon at 1 pm Treasury will begin this week’s $120B borrowing with $58B of 3 yr notes, tomorrow $38B of 10 yr notes and on Thursday $24B of 30s.
Goldman Sachs out with its revision of economic growth. The company revised its forecast from 6.0% to 5.7%, pointing to a “harder path” ahead for the American consumer than previously anticipated. For 2022, a forecast of improvement but we won’t take much frm it with so much uncertainty that is presently dominating financial markets now. The 2022 guess, an increase from 4.5% to 4.6%. American consumers are likely to spend less amid the Delta variant’s emergence, fading fiscal support and a switch from demand for goods to services; and the supply chain disruptions that show little improvement.
Expect to hear more talk about stagflation in the days to come. The mounting concern now is of a toxic mixture of weak demand and accelerating prices. Job growth so far has been disappointing, as of last week the extra unemployment payments expired.
At 9:30 am the DJIA opened -62, NASDAQ +17, S&P -5. 10 yr at 9:30 am 1.37% +3 bp. FNMA 2.0 30 yr coupon at 9:30 -11 bps frm Friday’s close and -7 bps frm 9:30 am Friday. The 2.5 coupon at 9:30 am -8 bps on the day and +2 bps frm 9:30 am Friday.
At 1:00 pm ET $58B 3 yr note auction.
The 10 is sitting on the next near term technical support at 1.37%, looking at the 9 day relative strength index the 10 is running into near term over-sold conditions.
PRICES @ 10 AM ET
10 yr note: 1.37% +5 bp
5 yr note: 0.82% +4 bp
30 yr bond: 1.99% +4 bp
Libor Rates: 1 mo 0.083%; 3 mo 0.114%; 6 mo 0.148%; 1 yr 0.219% (9/6/21)
30 yr FNMA 2.0: @9:30 101.23 -11 bp (-7 bp frm 9:30 am Friday)
30 yr FNMA 2.5: @9:30 103.77 -8 bp (+2 bp frm 9:30 am Friday)
30 yr GNMA 2.5: @9:30 103.34 -5 bp (+20 bp frm 9:30 am Friday)
Dollar/Yuan: $6.4646 +$0.0064
Dollar/Yen: 110.11 +0.27 yen
Dollar/Euro: $1.1854 -$0.0017
Dollar Index: 92.37 +0.34
Gold: $1816.10 -$17.60
Bitcoin: 50,839 -1091
Crude Oil: $68.70 -$0.59
DJIA: 35,1181 -188
NASDAQ: 15,365 +2
S&P 500: 4521 -14
Prior to 8:30 am ET the 10 yr. note 1.30% +1 bp; MBS prices -5 bps from yesterday.
At 8:30 am the August employment data: the unemployment rate expected at 5.2% was 5.2%. Job gains didn’t meet forecasts, NFP jobs expected +740K were up just 235K but July NFP jobs were revised higher to 1.053 mil from 943K. Private jobs expected 693K reported at 243K, July revised top 798K from 703K. Average hourly earnings increased more than thought, to +0.6% twice 0.3% forecasts, yr./yr. earnings +4.3% with estimates at 3.9%; July revised to 4.1% from 4.0%. The labor participation rate at 61.7%.
The reaction sent MBS prices lower. The negative reaction primarily due to the strong upward revisions in July and the better average hourly earnings. The unemployment rate at 5.2% was as expected and down from 5.4% in July, a strong month to month increase. Job creation in August fell short of forecasts, both last Wednesday’s ADP jobs and this morning’s BLS numbers; likely the softer jobs are driven by the spread of the Delta variant in August. Job growth in August was the lowest in seven months. In August, 5.6 million people reported they were unable to work because of the pandemic, up from 5.2 million a month earlier, the Labor Department said. There was a 42K decrease from July in leisure and hospitality.
Softer job growth would normally be a positive for interest rates, suggesting the economic growth may be stalling, that isn’t the initial reaction. Traders are focusing on the strong increase in average hourly earnings and tying it to the Fed’s thinking that inflation isn’t a long term issue. Still, jobless claims, a proxy for layoffs, reached a new pandemic low of 340,000 last week. Many employers also report difficulty filling job openings, which touched record highs this summer. Online job postings in the U.S. increased 13% in August from July, according to job site ZipRecruiter.
At 9:30 am the DJIA opened -88, NASDAQ -13 bp, S&P -8. 10 yr. 1.33% +3 bps. 2.0 FNMA coupon at 9:30 am -14 bps from yesterday’s close and -3 bps from 9:30 am yesterday. The 2.5 coupon -14 ps and -5 bps from 9:30 am yesterday.
At 10 am August ISM non-manufacturing index was expected at 62.0, as released 61.7.
Probably not going to see any significant improvement from morning levels of MBS pricing; the markets will be closed on Monday, usually short term traders go into long weekends with a conservative bias. The 10 yr. has very key technical support at 1.37%. We don’t agree with how the markets are taking this morning’s employment data. Markets still reacting to the 8:30 am data; should settle down the remainder of the day. The MBS markets at 9:30 am this morning down just 4 bps from 9:30 am yesterday, lenders however may be conservative with their prices.
10 yr. note: 1.33% +4 bp
5 yr. note: 0.79% +2 bp
2 Yr note: 0.21% unch
30 yr. bond: 1.95% +5 bp
Libor Rates: 1 mo. 0.082%; 3 mo. 0.117%; 6 mo. 0.147%; 1 yr. 0.222% (9/2/21)
30 yr. FNMA 2.0: @9:30 101.30 -14 bp (-3 bp from 9:30 am yesterday)
30 yr. FNMA 2.5: @9:30 103.75 -14 bp (-5 bp from 9:30 am yesterday)
30 yr. GNMA 2.5: @9:30 103.14 -28 bp (-5 bp from 9:30 am yesterday)
Dollar/Yuan: $6.4390 -$0.0178
Dollar/Yen: 109.75 -0.18 yen
Dollar/Euro: $1.1885 +$0.0010
Dollar Index: 92.13 -0.10
Gold: $1823.70 +$12.20
Bitcoin: 50,744 +1218
Crude Oil: $70.11 +$0.12
DJIA: 35,3322 -122
NASDAQ: 15,273 +41
S&P 500: 4533 -4
Locked in a very narrow range the last four sessions, the 10 yr. note has traded between 1.31% and 1.27%, 4 bps. This morning the 10 yr. started at 1.28% -2 bps from yesterday, at 8:30 am ET weekly jobless claims, expected at 350K, declined to 340K down 14K from the prior week. The less claims didn’t get much reaction although the 10 yr. inched up 1 bp to 1.29%. MBS prices at 9 am +3 bps. Weekly claims now the lowest since the beginning of the pandemic. Even so, claims remain elevated compared to pre-pandemic levels, and the fast-spreading delta variant has injected uncertainty into the economic outlook, posing a risk of future layoffs.
Q2 productivity didn’t meet estimates at +2.4%, as reported +2.1%. Unit labor costs were higher than the 1.0% expected to 1.3%. The two points add a little to the inflation debate.
US July trade deficit narrowed; consumers and businesses pulled back on purchases of imported goods amid rising Covid-19 cases caused by the Delta variant. The trade gap in goods and services shrank 4.3% from the previous month to a seasonally adjusted $70.1 billion. Imports fell 0.2% in July from June to $282.9 billion as demand slowed for consumer goods including toys, sporting goods and cellphones. Purchases of industrial supplies and material also declined. Exports expanded 1.3% to $212.8 billion. That was helped in part by a rebound in auto shipments. In June the deficit was a record high.
Lest we overlook it, the Treasury is about to run out of borrowing power with the debt ceiling already exceeded. There isn’t going to be a government shutdown or a Treasury debt default; what is likely is a short term extension of the debt limit according to House Budget Committee Chairman John Yarmuth. “I don’t think there’s any other option,”….. “A CR is inevitable.”
At 9:30 am the DJIA opened +130, NASDAQ +60, S&P +17. 10 yr. at 9:30 am 1.29% -1 bp. FNMA 2.0 30 yr. coupon at 9:30 am +2 bps from yesterday and -9 bps from 9:30 am yesterday; the 2.5 coupon unchanged and -11 bp from 9:30 am yesterday.
Tomorrow August employment data; the rest of the day should be quiet ahead of the report. That said mortgage lenders will likely price conservatively today, hedging the employment data.
Typically the Thursday before monthly employment data is quiet with investors and traders positioning for what is usually a volatile trade when the report hits at 8:30 am tomorrow. Technically, all of our short term indictors reflect the flat trading over the last four sessions are neutral, neither bullish or bearish. That won’t likely be the situation tomorrow at this time.
PRICES @ 10 AM
10 yr. note: 1.29% -1 bp
5 yr. note: 0.77% unch
30 yr. bond: 1.92%unch
Libor Rates: 1 mo. 0.083%; 3 mo. 0.118%; 6 mo. 0.152%; 1 yr. 0.227% (9/1/21)
30 yr. FNMA 2.0: @9:30 101.33 +2 bp (-9 bp from 9:30 am yesterday)
30 yr. FNMA 2.5: @9:30 103.80 unch (-11 bp from 9:30 am yesterday)
30 yr. GNMA 2.5: @9:30 103.19 -9 bp (-23 bp from 9:30 am yesterday)
Dollar/Yuan: $6.4570 -$0.0030
Dollar/Yen: 109.97 -0.06 yen
Dollar/Euro: $1.1862 +$0.0020
Dollar Index: 92.39 -0.06
Gold: $1814.30 -$1.70
Bitcoin: 50,132 +1835
Crude Oil: $70.17 +$1.58
DJIA: 35,399 +86
NASDAQ: 15,352 +43
S&P 500: 4538 +14