December 14th, 2020 10:46 AM by Richard Sardella MLO.100007700/NMLS 233568
This week is a big week for markets. Today the Electoral College will meet and officially elect Joe Biden. Tomorrow the FOMC meeting begins with Jerome Powell press conference. Negotiations in the EU and UK are trying to craft an acceptable trade deal once the UK exits on Dec 31st, although talks of an extension are in the air. A stimulus bill for businesses and consumers is still in the works. The vaccine is starting to be administered.
The new deadline for increasing the debt ceiling is Friday; a group of lawmakers is readying a two-part proposal with $908B in pandemic relief to help boost the battered US economy. They are planning to release it later today at 4:00 pm ET. McConnell has suggested that Congress move forward with a bill that doesn’t include the two most controversial provisions: liability protection for employers from virus-related lawsuits and $160B in aid for state and local governments. Two bills, one will include just liability protections and the aid for state and local governments. The other will include all the other provisions that have broad consensus, including aid for small businesses. Markets this morning are optimistic that a stimulus bill to support the economy will stabilize the slowdown and what has become a less optimistic economic outlook as Congress deadlocks.
On Brexit, credit rating firm S&P Global said this morning a ‘no deal’ Brexit that cut Britain off from key European markets for a prolonged period of time could leave the country facing another sovereign rating downgrade. The EU and UK continue to talk, but the clock is ticking down, where we see the most global importance is what will happen to the British pound and EU currency markets if both sides can’t agree and the UK loses trade access with Europe. The recent focus on the virus, the US election, the incoming administration, and the stimulus have over-shadowed the breakup. As time winds down, markets will begin to focus more on what possible implications may be.
On the FOMC; In about two weeks, at least 9 million jobless US residents are at risk of losing the unemployment benefits that have helped sustain them through the pandemic. Delayed rent, estimated at $70 billion spread among perhaps 11 million families, will start coming due. According to economists, officials this week will link the future of asset purchases to measures of employment and inflation without taking any immediate action to alter the pace or composition of bond buying. Bloomberg surveyed 47 dismal scientists, the majority expected the new guidance would be approved. Two-thirds of economists anticipated the Federal Open Market Committee will extend the average maturity of ongoing bond purchases before the end of 2021; just 23% of those forecasting such a step saw it coming at the meeting on Wednesday.
At 9:30 am ET, the DJIA opened +194, NASDAQ +88, S&P +23. 10 yr. 0.92% +3 bps. 2.0 FNMA 30 yr. coupon at 9:30-5 bps from Friday’s close and -6 bps from 9:30 am Friday.
Starting to hear some rumbling from large investors and money managers about the broader outlook for long-dated interest rates (the 10 yr. and MBSs) will not increase but decline from present levels. Maybe, maybe not; as you know, we are currently bearish in our outlook, based mostly on how the 10 yr. note has been trading over the last four months. The 10 yr. has continued to increase since early August. In that time frame our technical outlook has pointed to increased rates and has never wavered in our analytics. As long as the present bearish reads holds, we won’t jump into the lower interest rate thoughts. What will it take for us to turn around? The 10 yr. closing below 0.82% and holding below it the following session; if that occurs, our view will change and look for the 10 yr. declining to 0.75%, and that will drive mortgage rates further down. In the last three weeks, mortgage interest rates have held and slipped a little, although the 10 yr. has banged up against support level each time only to step back; breaking 1.00% will not come easy and will require a huge change in sentiment.
PRICES @ 10:00 AM ET
10 yr. note: 0.92% +3 bp
5 yr. note: 0.38% +1 bp
2 Yr. note: 0.12% unch
30 yr. bond: 1.66% +4 bp
Libor Rates: 1 mo. 0.158%; 3 mo. 0.216%; 6 mo. 0.248%; 1 yr. 0.335% (12/11/20)
30 yr. FNMA 2.0: @9:30 103.53 -5 bp (-6 bp from 9:30 Friday)
30 yr. FNMA 2.5: @9:30 104.78 -5 bp (unch from 9:30 Friday)
30 yr. GNMA 2.5: @9:30 104.59 +9 bp (-2 bp from 9:30 Friday)
Dollar/Yuan: $6.5459 -$0.0008
Dollar/Yen: 103.68 -0.33 yen
Dollar/Euro: $1.2160 +$0.0048
Dollar Index: 90.50 -0.47
Gold: $1840.90 -$2.70
Crude Oil: $46.75 +$0.18
DJIA: 30,292 +246
NASDAQ: 12,520 +143
S&P 500: 3697 +34
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.