Trade on Friday in the bond market pushed the 10-yr yield down to 2.895% for about five minutes before it moved back above resistance at 2.90% where any improvements have ended. The 10-yr ended the session at 2.92%. This morning the 10-yr was at 2.91% at 9:00 am EST. Germany’s 10-year yield decreased one basis point today to 0.40%, hitting the lowest in almost two weeks with its fifth straight decline.
China said over the weekend it would put tariffs on oil imports from the US, sending stocks of oil companies lower in futures trading this morning. The DJIA at 8:30 am was down 200 points from an 84 point drop on Friday. Oil prices are not reacting to the Chinese tariffs, however. Crude is trading unchanged from last week after initially declining; Markets were closed for holidays in China and Hong Kong. Most of the tariffs China is considering are directed to agricultural items and crops aimed at Trump supporters in the heartland as well as auto exports; the tariffs will begin on July 6th according to news reports. Meanwhile, OPEC members are at odds about output; Russia and the Saudis want to increase production while Iran, Iraq, and Venezuela want to keep production at present levels.
The US calendar this week is thin on data; what there is is about the housing sector (starts and permits, existing home sales,). On Wednesday Mario Draghi (ECB), Reserve Bank of Australia Governor Philip Lowe, Bank of Japan Governor Haruhiko Kuroda, and Fed Chairman Jerome Powell join a panel on central bank policy. Last week the FOMC, ECB and Bank of Japan, on Thursday the Bank of England met.
At 10:00 am June NAHB housing market index was expected unchanged at 70, but the index declined to 68. Housing markets are okay, but not as firm as some experts say.
From theoretical to reality; trade issues are becoming more tense and beginning to move into markets from mere talk. In the meantime, in a front-page article in this morning’s WSJ is pointing to US corporations’ slowing profits as another challenge to a long bull market that is already contending with slower global growth. Some analysts say the first quarter could represent a peak in profit growth. Earnings growth is expected at 19% in the second quarter, 21% in the third and 17% in the fourth, according to FactSet. Earnings are expected to grow only in the single- to low-double-digit range next year.
No change in our view; the 10-yr note remains tied between 3.00% and 2.90%. All of our momentum measurements remain neutral as is evident in the tight trading range for the 10-yr and mortgage rates. If 2.90% on the 10-yr gives way, the next trading target would be at 2.84%, dropping 30-yr mortgage rates slightly. The big picture continues to hold a bearish outlook for rates, although for all of the bearish chatter about the long end of the curve isn’t increasing. Inflation, the big talking point from the Fed and economists, also hasn’t increased much, even with commodity prices moving higher. Wage growth is still anemic after all of the optimism when the tax cuts were installed at the beginning of the year. The lemming-like reaction from almost every analyst, economist, and the central banks was the belief wages would increase. Some have, but the wider impact is muted with not much improvement. Until wages increase, sellers and producers don’t have much pricing power while holding their market shares.
This Week’s Calendar:
10:00 am June NAHB housing market index (expected unchanged at 70, as reported 68)
8:30 am May housing starts and permits (starts 1320K +2.5%; permits 1350K -0.2%)
7:00 am weekly MBA mortgage applications
8:30 am Q1 current account balance (-$129.2B)
10:00 am May existing home sales (5.52m +1.2% from April)
8:30 am weekly jobless claims (220K +2K)
June Philadelphia Fed business index (28.0 from 34.4)
9:00 am April FHFA home price index (+0.4%)
10:00 am May leading economic indicators (+0.4%)
PRICES @ 10:00 AM
10 yr. note: +4/32 (12 bp) 2.91% -1 bp
5 yr. note: unch 2.79% unch
2 Yr note: +1/32 (3 bp) 2.55% -1 bp
30 yr. bond: +2/32 (3 bp) 3.04% unch
Libor Rates: 1 mo 2.084%; 3 mo 2.325%; 6 mo 2.503%; 1
yr. 2.772% (6/15/18)
30 yr. FNMA 4.0 July: @9:30 101.66 +2 bp (-9 bp from 9:30 Friday)
15 yr. FNMA 4.0: @9:30 102.49 -2 bp (-15 bp from 9:30 Friday)
30 yr. GNMA 4.0: @9:30 102.41 -3 bp (-8 bp from 9:30 Friday)
Dollar/Yen: 110.45 -0.20 yen
Dollar/Euro: $1.1604 -$0.0004
Dollar Index: 94.82 -0.06
Gold: $1283.00 +$4.50
Crude Oil: $65.39 +$0.33
DJIA: 24,872.04 -218.44
NASDAQ: 7708.28 -38.09
S&P 500: 2762.96 -17.05