August 31st, 2021 8:59 AM by Richard Sardella MLO.100007700/NMLS 233568
10 yr. note and MBSs started slightly weaker, at 8:30 am ET the 10 1.29% +1 bp, FNMA 2.0 30 yr. coupon -9 bps from yesterday’s close.
Last week Powell made it clear that the Fed would begin tapering its monthly purchases of treasuries and MBSs; today the ECB appears to be jumping on the wagon. In an interview that brought the taper debate from the U.S. to Europe, European Central Bank Governing Council member Robert Holzmann said the region’s recovery allows the monetary authority to consider scaling back emergency bond purchases. Like in the US inflation in Europe is on the increase, the highest in 10 yrs. Broad consumer prices were 3% higher in August than a year earlier, a pickup from the 2.2% rate of inflation recorded in July and the sharpest rise since November 2011. The ECB and the Fed married at the hips, both believe inflation is a passing phenomenon and will not last. There are signs that shortages of key parts such as microprocessors are also pushing consumer prices higher, threatening a lengthier period of stronger inflation, and that doesn’t even include increasing food prices, wage growth that is escalating at the low end of the income scale.
Bond traders listening closely to Fed officials and the ECB about the lack of concern over inflation; listening and acting are two different things. While interest rates remain low so far, under the surface savvy traders are not yet convinced that inflation will be transitory. Look closely and you will notice increasing numbers of private economists and analysts voicing concerns that inflation isn’t going to be as transitory as central banks uniformly believe currently. Here is one quote among an increasing number of economists: “Clearly, risks that inflationary pressures prove more sustainable are on the rise,” wrote Fabio Balboni, an economist at HSBC, in a note to clients. The current consensus that inflation will be temporary dominates but we note a growing view that the central banks may have it wrong.
The countdown to job growth continues, the key for traders this week. Tomorrow it starts in earnest when ADP reports its private jobs total. ADP and BLS data have history in deviating from each other but each month ADP numbers can change the forecasts for Friday’s BLS data.
At 9 am the June Case/Shiller home price index increased 1.8%, the consensus 1.7%. The June FHFA June home price index +1.6% against 1.8% estimate, yr./yr. +18.8% as expected.
At 9:30 am the DJIA opened -43, NASDAQ -15, S&P -4. 10 yr. note at 9:30 am 1.29% +1 bp. FNMA 2.0 30 yr. coupon -6 bps from yesterday’s close and +7 bps from 9:30 am yesterday. The 2.5 coupon +10 bps from 9:30 am yesterday.
At 9:45 am August Chicago purchasing mgrs. index expected at 69.8 from 73.4 in July, the index at 66.8 the weakest in three months.
At 10 am the most interesting data today, the Conference Board’s consumer confidence index thought to be at 123.0 from original 129.1 in July, dropped to 113.8 as consumers continue to circle wagons with Delta and the end of the excess unemployment payments in Sept. The Index now stands at 113.8 (1985=100), down from 125.1 in July. The Present Situation Index—based on consumers' assessment of current business and labor market conditions—fell to 147.3 from 157.2 last month. The Expectations Index—based on consumers' short-term outlook for income, business, and labor market conditions—fell to 91.4 from 103.8.
10 note sitting on its 20 and 40 day averages at 1.29% and barely holding its key 1.30% pivot. On the upside the 10 has strong support at 1.37%, on the downside 1.22%; the range will hold until at least Friday morning.
PRICES @ 10:10 AM ET
10 yr note: 1.28% unch
5 yr note: 0.76% -1 bp
2 Yr note: 0.20% unch
30 yr bond: 1.88% -2 bp
Libor Rates: London closed yesterday
30 yr FNMA 2.0: @9:30 101.48 -6 bp (+7 bp frm 9:30 am yesterday)
30 yr FNMA 2.5: @9:30 103.94 -2 bp (+10 bp frm 9:30 am yesterday)
30 yr GNMA 2.5: @9:30 103.44 -2 bp (+6 bp frm 9:30 am yesterday)
Dollar/Yuan: $6.4595 -$0.0071
Dollar/Yen: 109.72 -0.20 yen
Dollar/Euro: $1.1826 +$0.0028
Dollar Index: 92.49 -0.16
Gold: $1815.50 +$3.30
Bitcoin: 47,798 -872
Crude Oil: $68.75 -$0.47
DJIA: 35,343 -57
NASDAQ: 15,225 -40
S&P 500: 4523 -6
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.