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Daily Market Analysis November 1, 2021

November 1st, 2021 9:31 AM by Richard Sardella MLO.100007700/NMLS 233568


Daily Market Analysis

Interest rate markets up this morning after dipping last Friday to 1.56%, this morning the 10 began at 1.60%; MBSs started -16 bps after increasing 17 bps Friday.

Economic data this week (except for Oct employment data Friday) will take a back seat to the FOMC meeting on Wednesday. The meeting begins tomorrow, at 2 pm ET Wednesday the policy statement and Jerome Powell’s press conference. The markets prepared for the official announcement that the Fed will begin withdrawing its $120B monthly purchases of treasuries and MBSs. Expectations are for pulling back at $15B a month until the QE is completed, at that pace the Fed would be out by July. Lot of uncertainty and opinions now about when (if) the Fed will begin to increase rates; the one consensus that is any rate increases won’t occur until the tapering is completed.

Strong difference of opinions about inflation and the economic outlook. The U.S. yield curve -- as measured by the gap between two-year and 10-year Treasury yields -- flattened the most last week since the summer of 2020. The move has been triggered in part by expectations the Federal Reserve will start raising interest rates sooner than previously anticipated, to cool inflation. Yesterday Janet Yellen offered her thoughts; she dismissed recent moves in the bond market that have signaled concern about monetary policy makers squelching economic growth, and expressed confidence in the continuing recovery from the Covid-19 pandemic. On Bloomberg News Sunday she indicated she wasn’t concerned by the flattening yield curve: “No, not me. I think what we’re going to see is a good, solid recovery. The unemployment rate has gone down considerably, and this is nothing like the recovery from the 2008 financial crisis.”

Markets last week are implying investors are increasingly betting on the Fed raising U.S. interest rates next summer, following recent inflation reports and signals from other major central banks that they are moving toward tightening policy. European Central Bank President Christine Lagarde last week pushed back against market expectations that the ECB will increase interest rates next year, but investors thought her message was too weak and added to their bets that the ECB would soon increase rates. The Bank of England, Canada, Australia all musing about increasing rates; interesting, but it’s the Fed that beats the drums. Powell is likely to seek a middle ground that assures investors he is closely monitoring inflation risks while not appearing so worried. In the U.S. so-called core prices that exclude volatile food and energy categories rose 3.6% in September from a year earlier, using the Fed’s preferred gauge. Since May, such 12-month price changes have been holding near 30-year highs.

At 9:30 am the DJIA opened +106, NASDAQ +33, S&P +11. 10 yr 1.60% +4 bps. FNMA 2.5 30 yr coupon at 9:30 am -16 bps from Friday and +26 bps from 9:30 am Friday.

At 10 am October ISM manufacturing index at 60.8. better than 60.3 forecasts. Sept construction spending expected +0.5%, as reported -0.5%.

Biden’s economic agenda appears on track for passage by Congress even as Democrats are still skirmishing over lingering differences on a $1.75 trillion social-spending plan. House Democratic leaders are pushing hard to get that package finalized, with votes on both that bill and a smaller infrastructure plan this week -- the latest in a string of self-imposed deadlines. The Senate, which already approved the public-works bill, is likely to vote on the larger package later in the month.

Don’t expect much movement in the rate markets until Wednesday at the earliest. FOMC and Powell anticipation should keep traders and investors quiet until then.

PRICES @ 10:00 AM ET

10 yr. note: 1.16% -3 bp

5 yr. note: 0.65% -5 bp

2 Yr. note: 0.35% -3 bp

30 yr. bond: 1.80% -2 bp

Libor Rates: 1 mo. 0.085%; 3 mo. 0.134%; 6 mo. 0.151%; 1 yr. 0.241% (7/19/21)

30 yr. FNMA 2.0: @9:30 102.08 +27 bp (+30 bp from 9:30 am ET yesterday)

30 yr. FNMA 2.5: @9:30 104.05 +19 bp (+25 bp from 9:30 am ET yesterday)

30 yr. GNMA 2.5: @9:30 103.48 -14 bp (-7 bp from 9:30 am ET yesterday)

Dollar/Yuan: $6.4835 -$0.0070

Dollar/Yen: 109.56 +0.10 yen

Dollar/Euro: $1.1770 -$0.0030

Dollar Index: 93.12 +0.23

Gold: $1824.90 +$15.70

Bitcoin: 29,544 -1,144

Crude Oil: $66.04 -$0.38

DJIA: 34,453 +462

NASDAQ: 14,322 +47

S&P 500: 4297 +39

About Richard Sardella

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.

About This Report And Disclosure Information

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.

Posted by Richard Sardella MLO.100007700/NMLS 233568 on November 1st, 2021 9:31 AM

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