Yesterday markets roiled on disappointing trade talks with China and the IMF and others, lowering the growth outlooks for 2019 and 2020. The stock indexes dropped (-301 DJIA) and the 10-yr yield increased 5 bps to 2.79%, MBS prices were up 6 bps from Friday’s close.
This morning stock indexes in early trading were better. The 10-yr at 8:00 am ET was 2.77 %, -3 bps.
Weekly MBA mortgage applications at 7:00 apps lost -2.0% and refinance apps were down -5.0%. Doesn’t take much movement to move the apps these days. The November FHFA housing market index, expected to have increased 0.3%, as reported added +0.4% and yr/yr +5.8%, the same as in October on an upward revision from 5.7% to 5.8%. This data has little attention within markets.
At 9:30 amthe DJIA opened up +225, the NASDAQ added +41, and the S&P was up +13. The 10 yr note rate was at 2.77%, +3 bps.
Shutdown…..Breakdown. Still no progress. In fact, no real discussions to argue about. Tomorrow more theater with no movement; the Senate is planning a vote on a Democratic proposal that would fund the government for three weeks but does not include the $5.7B in U.S.-Mexico border wall funding demanded by President Donald Trump. The House has passed somewhat similar bills with no wall funding only to be rejected by Trump. In previous comments, Republican Senate Majority Leader Mitch McConnell said he would not consider a bill the President won’t sign. This one is also likely to flame out. Democrats are saying no negotiations over the Wall until the government re-opens; President Trump not likely to take the bait realizing once the government re-opens his wall is doomed.
Markets are beginning to worry over the Fed’s lack of data with the shutdown. Fourth-quarter GDP is due Jan. 30 -- as the Fed wraps up a two-day meeting -- a delay in the release is all but assured, given that the Commerce Department unit that produces the figures has been closed for a month. Durable goods, new home sales, retail sales, Treasury December budget, housing starts and permits, personal income and spending and PCE all likely to continue unreleased. William English, an economics professor at Yale University and former senior Fed adviser commenting “now there’ll be just greater uncertainty about the state of the economy, and that clearly creates its problems for monetary policy.” As the uncertainty grows, market volatility will increase, nervousness is increasing; markets reacting on any news whether long term, significant or not. Trade with China is a flashpoint, sentiment swinging widely on any news.
How will the shutdown end? Presently it looks like it never will but we know nothing lasts forever. Who will blink? Trump’s Wall is one of his signature promises in the campaign;. House Speaker Nancy Pelosi, after two years of biting her lip, isn’t likely to back down much.
We remain bearish near term, although we don’t believe interest rates will increase much on any selling. The rate markets this year are likely to remain constructive; no inflation, a weakening growth outlook, and the Fed is not likely to resume rate increases.
PRICES @ 10:00 AM
10 yr. note: -8/32 (25 bp) 2.77% +3 bp
5 yr. note: -4/32 (12 bp) 2.60% +3 bp
2 Yr. note: -1/32 (3 bp) 2.60% +2 bp
30 yr. bond: -15/32 (47 bp) 3.08% +2 bp
Libor Rates: 1 mo. 2.519%; 3 mo. 2.779%; 6 mo. 2.853%; 1
yr. 3.037% (1.22.19)
30 yr. FNMA 4.0: @9:30 101.64 -9 bp (-14 bp from 9:30 yesterday)
15 yr. FNMA 3.5: @9:30 101.27 -6 bp (-13 bp from 9:30 yesterday)
30 yr. GNMA 4.0 @9:30 102.30 +7 bp (+1 bp from 9:30 yesterday)
Dollar/Yuan: $6.7927 -$0.0152
Dollar/Yen: 109.92 +0.54 yen
Dollar/Euro: $1.1359 -$0.0003
Dollar Index: 96.33 +0.04
Gold: $1284.40 -$5.10
Crude Oil: $53.29 +$0.28
DJIA: 24,686.25 +281.77
NASDAQ: 7080.15 +59.79
S&P 500: 2651.05 +18.15