Softer open today in the bond and mortgage markets. At 8:30 AM EDT, September import and export prices; import prices expected up 0.5% but up 0.7%, export prices expected +0.4% doubled to 0.8%. Yr./yr. import prices +2.7% from 2.1% in August; yr./yr. exports +2.9% up from 2.4% in August. Oil prices sharply higher at the headline level in September, up 0.7. Petroleum import prices jumped 4.5% in the month on top of August's 5.0% increase. Excluding petroleum, import prices rose 0.3%, and a gain tied to a 1.8% jump for imported foods, feeds & beverages. Excluding both petroleum and foods, import prices managed only a modest 0.2% gain. Pressure on the export side is centered in industrial supplies, which rose 3.0% in September following August's 1.8% gain in a component where petroleum inputs play a significant part. This gain offsets a sizable 0.7% decline in agricultural exports. Finished goods holding steady; yr./yr. finished goods +1.2%. Yr./yr. change for consumer imports, which is a critical category for the economy, are up 0.2% on the year. Not much in the way of inflationary pressures when the skewed data is minimized. The bond and mortgage markets didn’t react much on the strong headlines after looking deeper into the data.
More earnings out in the financials this morning; both Morgan Stanley and Goldman Sachs beat forecasts. Banks doing quite well over the last six months. Johnson & Johnson beat estimates; so too did United Health, Comerica, Netflix, Harley Davidson.
September Industrial production at 9:15 +0.3%, better than 0.2% expected; August, originally -0.9%, was revised to -0.7%; manufacturing +0.1% but was expected +0.4%. Capacity utilization in September was thought to be at 76.2%, it fell to 76.0% but August capacity utilization, originally reported at 76.1%, was revised lower to 75.8%. Interesting, but the data generally doesn’t elicit much interest from traders, as it is reflected within other more direct data through the rest of the month’s reports.
At 10:00 am, the October NAHB housing market index, thought to be unchanged at 64, increased to 68, the best since last May; September index declined 3 points from August from 67 to 64, now improving. We will have more details at 4:30.
Later today at 2:00 pm, Treasury will report September budget data. and since it is the end of the fiscal year, the total deficit for 2017--and it will be a deficit. With the tax cuts and reforms still a white-hot topic, and if passed will likely increase deficit spending, we will watch this closely. No concrete plans yet for passage of a tax cut and any potential reforms, but yesterday Pres. Trump and Senate majority leader Mitch McConnell made nice when they met. Both have been jawing back and forth over the lack of Senate Republicans’ cohesiveness on health care and about anything else of importance.
More saber rattling from North Korea: the deputy U.N. ambassador warned Monday that the situation on the Korean Peninsula "has reached the touch-and-go point and a nuclear war may break out any moment." First of all, keep in mind he is the deputy--in North Korea a minor politician. He commented that NK is the only country in the world that has been subjected to "such an extreme and direct nuclear threat" from the United States since the 1970s ? and said the country has the right to possess nuclear weapons in self-defense. The war of words not likely to stop; and a nuclear war isn’t likely, but neither the US, the UN and now Russia will end the sanctions that are increasingly harming the rogue regime.
Technicals still bearish: the 10 yr. now trading at its support at 2.32%. I know we have said this many times recently, but unless stocks come under heavy selling or there is some other kind of black swan unexpected market shock, the rate markets will not have the momentum to decline much or increase much either. The Fed still thought to increase rates once again in December; some Fed officials out recently talking about three additional cuts in 2018 but we don’t give that outlook that much credibility at the moment. The lack of inflation remains a conundrum for the Fed and other key central banks. Economists are beginning to understand that the old measurements and results no longer apply in this global economy.
PRICES @ 10:10 AM
10 yr note: -3/32 (9 bp) 2.31% +1 bp
5 yr note: -5/32 (15 bp) 1.98% +3 bp
2 Yr note: -1/32 (3 bp) 1.55% +1 bp
30 yr bond: unch 2.82% unch
Libor Rates: 1 mo 1.236%; 3 mo 1.353%; 6 mo 1.533%; 1 yr 1.809%
30 yr FNMA 3.5 Nov: @9:30 102.97 -6 bp (-9 bp from 9:30 yesterday)
15 yr FNMA 3.0: @9:30 102.56 -6 bp (-13 bp from 9:30 yesterday)
30 yr GNMA 3.5: @9:30 104.22 +2 bp (-15 bp from 9:30 yesterday)
Dollar/Yen: 112.43 +0.24 yen
Dollar/Euro: $1.1741 -$0.0056
Dollar Index: 93.67 +0.40
Gold: $1286.70 -$16.30 (stronger dollar)
Crude Oil: $51.92 +$0.05
DJIA: 22,979.71 +22.75
NASDAQ: 6625.91 +1.90
S&P 500: 2557.97 +0.33