July 14th, 2021 8:54 AM by Richard Sardella MLO.100007700/NMLS 233568
Yesterday, June CPI was stronger than expected; the reaction sent the 10 yr. note up 5 bps and MBS prices down 18 bps. This morning, June PPI (wholesale prices) also stronger than estimates. PPI expected +0.6%, as reported +1.0%, yr./yr. +7.3% on estimates of 6.8%. Excluding food and energy, the forecasts were +0.5%, as reported +1.0%; yr./yr. thought to be +5.1% increased to 5.6%. When food, energy, and trade services are grouped together, it isn’t quite as nefarious, m/m +0.5% on estimates of +0.6%, yr./yr. +5.5% against forecasts of +5.6%. The initial reaction kept the 10 yr. note where it traded before the release, at 1.38% -5 bps from yesterday and MBS price +13 bps from yesterday’s close.
The recent decline in mortgage rates translated to strong mortgage applications last week after three weeks of declines. The composite increased 16.0% from the prior week, purchase apps +8.0%, and refinance applications +20.0%.
Jerome Powell headed to the House Committee on Financial Services at 12:00 pm ET. He will say the U.S. economic recovery still hasn’t progressed enough to begin scaling back the central bank’s massive monthly asset purchases while adding that inflation is likely to remain high in the coming months before moderating. “At our June meeting, the committee discussed the economy’s progress toward our goals since we adopted our asset purchase guidance last December,” Powell said Wednesday in remarks prepared for delivery before the House Financial Services Committee. “While reaching the standard of ‘substantial further progress’ is still a ways off, participants expect that progress will continue.” ….. “Strong demand in sectors where production bottlenecks or other supply constraints have limited production has led to especially rapid price increases for some goods and services, which should partially reverse as the effects of the bottlenecks unwind,” Powell said. “Prices for services that were hard hit by the pandemic have also jumped in recent months as demand for these services has surged with the reopening of the economy.”….. “Household balance sheets are, on average, quite strong, business leverage has been declining from high levels, and the institutions at the core of the financial system remain resilient,”….. “Measures of longer-term inflation expectations have moved up from their pandemic lows and are in a range that is broadly consistent with the FOMC’s longer-run inflation goal,”….. “Conditions in the labor market have continued to improve, but there is still a long way to go,” “Powell said. “Job gains should be strong in coming months as public health conditions continue to improve and as some of the other pandemic-related factors currently weighing them down diminish.”
Lumber prices are no longer a problem for home builders. Its price has crashed since mid-May and now at $713 per 1,000 board feet, the lows of the year. It is still at a very high level compared to its historical price between $200 and $400 going back to the 1990s.
At 9:30 am ET, the DJIA opened +178, NASDAQ +100, S&P +22. 10 yr. at 9:30 am 1.37% -5 bps (yesterday the 10 was +5 bps). FNMA 2.5 30 yr. coupon at 9:30 am +13 bps from yesterday’s close, and -3 bps from 9:30 am yesterday.
At 12:00 pm ET, Powell is scheduled to begin his testimony at the House Financial Services Committee; the interest rate markets won’t move much until this testimony and all of the Q&A. Tapering of the Fed’s $120B a month purchases, $80B of treasuries and $40B of MBSs is key. The consensus-building that the Fed should begin tapering with fewer MBSs on the belief the mortgage industry is in good shape and doesn’t need the stimulus.
PRICES @ 10:00 AM ET
10 yr. note: 1.36% -6 bp
5 yr. note: 0.81% -4 bp
2 Yr. note: 0.24 -3 bp
30 yr. bond: 2.00% -5 bp
Libor Rates: 1 mo. 0.093%; 3 mo. 0.126%; 6 mo. 0.151%; 1 yr. 0.243% (7/13/21)
30 yr. FNMA 2.0: @9:30 101.20 +22 bp (-10 bps from 9:30 yesterday)
30 yr. FNMA 2.5: @9:30 103.47 +13 bp (-3 bps from 9:30 yesterday)
30 yr. GNMA 2.5: @9:30 103.28 +14 bp (+1 bps from 9:30 yesterday)
Dollar/Yuan: $6.4565 -$0.0124
Dollar/Yen: 110.08 -0.56 yen
Dollar/Euro: $1.1825 +$0.0050
Dollar Index: 92.45 -0.30
Gold: $1826.20 +$16.30
Bitcoin: 32,814 +472
Crude Oil: $75.07 -$0.19
DJIA: 34,978 +85
NASDAQ: 14,780 +102
S&P 500: 4387 +17
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.