The US and global equity markets are getting hit hard again today. There are increased worries that 2019 economic outlooks are weakening. On the open this morning the three key indexes have given back all of the 2018 gains. At 9:00 am ET The 10-yr note rate was down 1 bps from yesterday to 3.05%. Early prices in MBSs generally are unchanged from yesterday. Yesterday MBS prices were down 9 bps; as noted previously, most of the movement is in treasuries and even that market isn’t showing much reaction to the drawdown in stock valuations.
The Fed is still on track to increase the Federal Fund rate next month, but there is a sea change within markets now. After months of every economist and analyst insisting the Fed would increase the the rate three more times in 2019, the view now is only one more increase in 2019, not likely until mid-year. Once again, the Fed appears to have gotten its forecasts wrong with Fed speeches touting the strength in the economy; low unemployment drives that idea. More jobs and increased wages this time around may be fooling those historically-embedded views. Inflation, as we have continued to suggest, isn’t likely to be what the Fed has been thinking for four years….it isn’t happening. Aside from the tech crisis forecasts, retailers are not expecting huge sales this quarter — the major quarter each year for retail sales.
8:30 am revealed October housing starts and permits. Starts were at 1.228 mil on forecasts of 1.240 mil, but September starts were revised higher to 1.210 mil from 1.201 mil, allowing the percentage change of +1.5% from the revision. Building permits, expected at 1.260 mil, were 1.263 mil. September also revised higher to 1.270 mil from 1.241 mil; the percentage change dropped by -0.6%. Starts coming from multi-family units, jumping 10.3% to a 363,000 rate which offsets a second straight decline for single-family starts which slipped 1.8% to an 865,000 rate. Hurricane Michael, which struck Florida and Georgia during October, did not skew the data as starts in the South rose 4.7%. Starts were also strong in the Midwest, with the West and Northeast posting declines. Permit-wise, there were equal declines for single-family and multi-units, down 0.6% and 0.5% respectively. The bad news on the permit side comes from the West, which is a focused region for home builders and which declined 7.9% for a 17.2% year-on-year drop.
At 9:30 am the DJIA opened -435, the NASDAQ dropped -154, and the S&P lost -41. The 10-yr note stood at 3.05%, down -1 bp.
Last week the DJIA lost 576 points. Yesterday and so far this morning the decline adds up to 1500 points down in six+ sessions. Now the big boys (Goldman) are saying investors should push more money to cash. As for stocks, investors should tilt their portfolios toward defensive sectors including utilities, the Goldman strategists wrote. They forecast the S&P 500 will generate “a modest single-digit absolute return” next year as the “robust” profit and economic growth seen in 2018 slows.
Nothing on the calendar for the rest of the day. It looks like the bond and mortgage markets are content to sit out the stock market collapse; no movement yesterday and so far not much today. The 10-yr, as we have noted, has resistance at 3.06%, although it is lower at 3.05% now. 3.00% is the major resistance, and we don’t expect the 10-yr will fall below it….if we are correct we are very close to the bottom of this rate decline over the last two weeks.
PRICES @ 10:00 AM
10 yr. note: +6/32 (18 bp) 3.05% -1.5 bp
5 yr. note: +1/32 (3 bp) 2.87% unch
2 Yr. note: unch 2.79% unch
30 yr. bond: +12/32 (37 bp) 3.30% -2 bp
Libor Rates: 1 mo. 2.300%; 3 mo. 2.645%; 6 mo. 2.865%; 1
yr. 3.107% (11.19.18)
30 yr. FNMA 4.5: @9:30 102.53 -2 bp (-5 bp from 9:30 yesterday)
15 yr. FNMA 4.0: @9:30 101.69 -1 bp (-5 bp from 9:30 yesterday)
30 yr. GNMA 4.5: @9:30 102.76 -8 bp (-5 bp from 9:30 yesterday)
Dollar/Yuan: $6.9414 unch
Dollar/Yen: 112.37 -0.18 yen
Dollar/Euro: $1.1401 -$0.0053
Dollar Index: 96.49 +0.32
Gold: $1225.90 +$0.60
Crude Oil: $57.27 +$0.71
DJIA: 24,550.73 -466.71
NASDAQ: 6885.81 -142.67
S&P 500: 2646.12 -44.61