September 6th, 2022 10:19 AM by Richard Sardella MLO.100007700/NMLS 233568
Last Friday’s August employment data weaker than estimates dropped the 10 yr. 6 bps to 3.20% and MBS prices +34 bps on the day. This morning all gone, the 10 at 8 am ET 3.25% +5 bp and MBSs -41 bps. Friday the stock indexes were under pressure driven by weaker job gains on the passing thought the economic outlook may be slowing as Powell pointed to a week ago at Jackson Hole. This morning in futures trading the indexes bouncing back.
This week there is very little in the way of economic data. Markets will focus a little more on Europe and China where there is little doubt those economies are facing uphill outlooks for those economies. The ECB will meet on Thursday. Europe is slowing quickly, the outlook even more serious as winter approaches and Russians already squeezing natural gas deliveries. The ECB thinking that it may slow increasing rates if a deep euro-area recession damps inflation, the outlook for continued recession is increasing and we don’t see any light coming soon. Governing Council member Martins Kazaks: “The persistence of core inflation and its impact on inflation expectations along with wage dynamics will be key to determine whether a steady pace of interest-rate hikes should be maintained,” Kazaks said. “The risks of a broad-based and protracted recession with a reductive impact on inflation would point towards a slower pace of rate hikes or a pause.”
China can’t get a grip on COVID, shutting down a number of huge cities; ironic. The banking system and debt defaults driven by excessive real estate development mirrors the mess here in 2006 to 2008 that caused our financial system to teeter on the edge and brought down historic Lehman Bros, one of Wall Street’s oldest and revered investment banks and forced numerous mergers and major Fed and treasury intervention.
This week is packed with Fed officials; Wednesday Mester, Brainard, and Barr; Thursday Evens, Friday Evens and Waller. The ECB on Thursday.
At 9:30 am the DJIA opened +111, NASDAQ +28, S&P +12. 10 yr. note at 9:30 am 3.28 +8 bps. FNMA 5.0 30 yr. coupon at 9:30 am -47 bp and -36 bps from 9:30 am Friday.
At 10 am August ISM Services index expected at 55.4, jumped to 56.9
Morgan Stanley strategist Michael J. Wilson, one of the biggest Bears on the Street, cut his expectations for earnings-per-share growth for the year, saying that a slowing economy is now likely to be a bigger concern for stocks, rather than scorching inflation and a hawkish Federal Reserve. In 2023, he expects earnings to fall 3% even in the absence of a recession. “We think the next several quarters will end up containing some of the most significant downward revisions to forward EPS forecasts we have seen in the past several cycles,” If he is right, there is a lot more to go on the downside for stocks, and the potential to slow the increases in US interest rates. For every bear though, there is a bull. The S&P 500 has already given up about half its gains since a June low as the Fed indicated it will stick to rate hikes to tame inflation.
Stock indexes started a little better at 9:30 am; it isn’t likely the indexes will improve. If the indexes do rally expect interest rates will be under pressure, if the indexes roll over some stability in rates.
PRICES @ 10:00 AM
10 yr note: 3.33% +13 bp
5 yr note: 3.43% +12 bp
2 Yr note: 3.50% +10 bp
30 yr bond: 3.46% +12 bp
Libor Rates: 1 mo 2.642%; 3 mo 3.145%; 6 mo 3.690%; 1 yr 4.148% (9/5/22)
30 yr FNMA 5.0: @9:30 am 100.52 -47 bp (-36 bp from 9:30 am Friday) …..@10:00 am -58 bps on the day
30 yr FNMA 4.5: @9:30 am 98.98 -48 bp (-40 bp from 9:30 am Friday)
30 yr GNMA 4.5: @9:30 am 99.69 -48 bp (-40 bp from 9:30 am Friday)
Dollar/Yuan: $6.9606 +$0.0266
Dollar/Yen: 142.45 +1.86 yen
Dollar/Euro: $0.9890 -$0.0042
Dollar Index: 110.25 +0.71
Gold: $1718.30 -$4.30
Bitcoin: 19,792 +49
Crude Oil: $87.43 +$0.56
DJIA: 31,248 -71
NASDAQ: 11,540 -91
S&P 500: 3907 -17
Richard Sardella has been actively managing and providing services in the mortgage industry for over 30 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.
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MLO of record MLO.100007700 / NMLS#233568 / CHM NMLS#127716.