October 27th, 2020 10:18 AM by Richard Sardella MLO.100007700/NMLS 233568
Early this morning, the stock indexes were trading fractionally better after heavy selling yesterday; the 10 yr. note at 8:00 am ET 0.79% -1 bp from yesterday’s 4 bps decline.
At 8:30 am ET, Sept preliminary durable goods orders were expected +0.4%, orders jumped 1.9%, excluding transportation orders +0.8% against 0.4% expectations. Core capital goods also stronger, +1.0%, twice what was thought. No reaction to the stronger report; it will be revised in two weeks when we get the final. Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, increased 1.0% last month; August was revised higher to show these so-called core capital goods orders increasing 2.1% instead of 1.9% as previously reported. It is Q3 data; the quarter will likely show the strongest growth in a quarter than the economy has ever shown.
At 9:00 am ET, August Case/Shiller 20 city home price index was thought to be +0.4%, as reported +0.5%; yr./yr. price increase was better +5.2% on forecasts of +4.1%. Also, at 9:00 am August FHFA home price index was stronger than thought, +1.5% against +0.7% forecasts, yr./yr. +8.0% compared to +6.5% in July.
At 9:30 am ET, the DJIA opened -327, NASDAQ +17, S&P unchanged. 10 yr. at 9:30 am 0.79% -1 bp. FNMA 2.0 30 yr. coupon at 9:30 am +3 bps from yesterday’s close, and +7 bps from 9:30 am yesterday. FNMA 2.5 coupon at 9:30 am +2 bps and +3 bps from 9:30 yesterday.
At 10:00 am ET, the October consumer confidence index, expected at 102.0, slipped to 100.9; Sept confidence revised lower, from 101.8 to 101.3.
The virus is increasing in Europe and here in the US. The second wave, as it’s called and blamed on the lack of masks and social distancing, has resurrected calls for shutdowns, although there is little likelihood we will see them. It’s a 100% certainty if Trump wins, and about a 90% certainty if Biden wins. The global economies cannot withstand another massive closure of businesses again. Even Biden knows it, and governments in Europe while talking about some closures won’t likely succumb to closing down again. The infections are increasing; the death rates are declining, a vaccine is close.
No stimulus before the election and possibly not until next year. Senators are now gone until the election. The result of no stimulus will likely keep the equity markets worrying about current valuations that have increased over the last four months. “We’ll come back in November. The question might be, will there be something then?” Senate Appropriations Chairman Richard Shelby, an Alabama Republican, said yesterday. The chances of a coronavirus relief bill before Election Day are “very, very slim,” he added. Both sides have a motive to keep negotiations going; walking away would only invite blame from voters for killing off hopes for relief. Polls show that control of both the Senate and the White House are in play on Nov. 3, complicating the outlook for a post-election stimulus deal. Markets are about the trajectory of the virus and dependent on more stimulus; the prospect of trillions more in federal support for a struggling economy in which 23 million people remain on some type of unemployment assistance, and some businesses face a grim winter from the coronavirus.
The 10 yr. last week tested 0.90% (0.89%) and held, up 15 bps in two weeks pushed the 10 yr. to technically overbought near term conditions, as we noted last Thursday. The bounce was not unexpected, and yesterday was driven by stock market selling. The 10 yr. is currently trading at its 20-day average (0.79%). From a technical perspective, it may slip to 0.75%, but we are not expecting the note will fall below that. Now, fundamentally, interest rates are not likely to increase much with the Fed supporting low levels and promising it would do whatever it takes to keep rates low. With the election just a week away, regardless of the current polls, investors and pundits, for all of the ink and comments, that Biden will win cannot overlook how the 2016 election turned out compared to the polls before it.
PRICES @ 10:00 AM ET
10 yr. note: 0.79% -1 bp
5 yr. note: 0.34% -1 bp
2 Yr. note: 0.15% unch
30 yr. bond: 1.58% -2 bp
Libor Rates: 1 mo. 0.151%; 3 mo. 0.222%; 6 mo. 0.246%; 1 yr. 0.332% (10/26/20)
30 yr. FNMA 2.0: @9:30 103.13 +3 bp (+7 bps from 9:30 yesterday)
30 yr. FNMA 2.5: @9:30 104.20 +2 bp (+3 bp from 9:30 yesterday)
30 yr. GNMA 2.5: @9:30 104.16 -5 bp (+6 b p from 9:30 yesterday)
Dollar/Yuan: $6.7059 -$0.0063
Dollar/Yen: 104.64 -0.19 yen
Dollar/Euro: $1.1829 +$0.0020
Dollar Index: 92.90 -0.15
Gold: $1907.50 +$1.80
Crude Oil: $38.80 +$0.24
DJIA: 27,669 -16
NASDAQ: 11,406 +47
S&P 500: 3404 +3
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.