November 15th, 2021 9:00 AM by Richard Sardella MLO.100007700/NMLS 233568
No critical news today, the stock market traded better in futures markets prior to the 9:30 am ET open. The 10 yr. note yield 1.57% unchanged, MBS prices +5 bps at 8:30 am.
Inflation still the prime focus but remains a wild card. No matter inflation is the highest in 30 yrs., some say that strong corporate earnings are over-shadowing inflation concerns. Likely due to the continued belief by central banks that price increases are not going to last long once supplies begin to flow again. That outlook isn’t likely to be quick and it is a stretch that there will be declines in prices even when goods flow at normal paces. Take wages, they are increasing and will likely continue as businesses compete for workers; on prices, businesses won’t lower prices, just increase profit margins.
Bloomberg News: Inflationary headwinds may become a bigger force against U.S. stocks next year, according to Morgan Stanley strategists who prefer peers in Europe and Japan. They forecast the S&P 500 will end 2022 at 4,400 -- some 6% below current levels. For bonds, they expect 10-year yields to rise to 2.10% by the end of next year on improving growth and higher real rates, up from 1.54% on Monday. “One reason we like equities in Europe and Japan is that we think inflationary challenges there are much less daunting than elsewhere,” strategists led by Andrew Sheets wrote Sunday. They also cited “more reasonable valuations, limited central bank tightening and less risk from higher taxes” vis-à-vis the U.S.
Congress is back. After passing the $1 trillion infrastructure bill, now it’s the $2 trillion Build Back Better plan. Pelosi saying she has the votes in the House to pass it; centrists in the House committed to vote for the legislation no later than this week, as long as cost and revenue estimates from the Congressional Budget Office largely line up with administration figures showing the bill is fully paid for; a major hurdle, the consensus among traders is it won’t pass the test but apparently politicians on both sides believe CBO will score it as “being totally paid for”. A White House official said the president told progressives at a meeting on the day of the vote on the infrastructure bill that if the infighting didn’t stop, he would have to drop the Build Back Better package and move on.
At 9:30 am the DJIA opened +93, NASDAQ +28, S&P +9. 10 yr. note +2 bps at 1.58%. FNMA 2.5 30 yr. coupon at 9:30 am unchanged from Friday but 10 bps lower than 9:30 am Friday. By 9:45 am MBS prices down 9 bps and 19 bps lower than 9:30 am Friday.
U.S. Treasuries are increasing as the day wears on; Treasury futures began inching higher on Sunday evening, continuing their advance in slow fashion into the night. The market reached highs just after 3 am ET, followed by some light backtracking. Overnight action saw the release of growth figures from China and Japan. China's data for October was mostly better than expected while Japan's GDP contracted more than expected in Q3.
Don’t dismiss that volatility remains high, interest rates will continue to increase but the path has bumps to traverse. This week the main event is the $2 trillion spending bill. I doubt traders will be willing to front run the outcome; that adds to the potential of continued volatility.
PRICES @ 10 AM
10 yr. note: 1.60% +3 bp
5 yr. note: 1.25% +2 bp
2 Yr. note: 0.53% +1 bp
30 yr. bond: 1.98% +4 bp
Libor Rates: 1 mo. 0.089%; 3 mo. 0.155%; 6 mo. 0.226%; 1 yr. 0.398% (11/12/21)
30 yr. FNMA 3.0: 103.92 -5 bp (-17 bp from 9:30 am Friday)
30 yr. FNMA 2.5: 102.31 unch (-10 bp from 9:30 am Friday) @10:00 -18 bps from 9:30 am Friday
30 yr. GNMA 2.5: 101.95 -39 bp (-8 bp from 9:30 am Friday)
Dollar/Yuan: $6.3827 +$0.0031
Dollar/Yen: 113.96 +0.05 yen
Dollar/Euro: $1.1441 -$0.0004
Dollar Index: 95.11 -0.02
Gold: $1862.50 -$6.00
Bitcoin: 64,846 +675
Crude Oil: $79.42 -$1.37
DJIA: 36,161 +61
NASDAQ: 15,881 +21
S&P 500: 4689 +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.