Rate markets opened weaker this morning (prices) and higher in yield. The 10-yr at 8:15 am EST was at 3.08%, +2 bps from Friday’s improvement that dropped the 10-yr to 3.06%, -5 bps, and MBS prices +100 bps. No real movement and not likely there will be much change this week. Trade meetings continue between the US and China; over the weekend Sec of Treasury Mnuchin and the administration’s Trade Representative Robert Lighthizer added more debate. Mnuchin on Fox News Sunday said the U.S. was “putting the trade war on hold” and wouldn’t assess tariffs on Beijing while the two sides talked. Lighthizer then out saying tariffs remained a tool in working out trade imbalances. This morning Mnuchin commenting that this isn’t a war but discussions to balance the trade between the two economic powers.
Initial reactions this morning to Mnuchin ’s remarks over the weekend is pushing US stock indexes higher in pre-open trading, DJIA +240 points. German markets are closed today, although it doesn’t’ mean much.
This week will see increasingly less trading as we move closer to the weekend and the Memorial Day holiday. April home sales and April durable goods orders are the headlines.
Stocks held strong following the increasing strength in the dollar and comments from Mnuchin over the weekend. He made a nice effort to remove the word “war” from the dialogue. The use of it does get headlines, but as we have continued to comment, no one wins an economic war between the two biggest economies in the world when both would suffer. It will take most of this year and possibly into next year to resolve the trade disputes to both countries’ benefits, but both will have to relent on some issues. China praised a dialing back of trade tension with the United States, saying an agreement was in the interests of both countries, while state media trumpeted what it saw as China's refusal to surrender.
Treasury auctions, the FOMC minutes and home sales for April are the dominant influences this week. Trade is also in the picture and depends on who in Washington is talking at the moment. $99B of notes are being sold this week as borrowing amounts will increase with increased spending and higher rates. The Fed will increase the Federal Funds rate at the June meeting next month. In the meantime, the minutes from the March meeting may influence market thinking. Trade volume should thin out by Wednesday afternoon, and by Thursday only caretakers will be on the desks.
This Week’s Calendar:
10:00 am May Richmond Fed manufacturing index (10 frm -3 in April)
1:00 pm $33B 2 yr note auction
7:00 am weekly MBA mortgage applications
8:30 am April new home sales (677K -2.5% from March)
1:00 pm $36B 5 yr note auction
2:00 pm FOMC minutes from March meeting
8:30 am weekly jobless claims ( -2K to 220K)
9:00 am March FHFA home price index (+0.7%)
10:00 am April existing home sales (5600K unchanged from March)
1:00 pm $30B 7 yr note auction
8:30 am April durable goods orders (-1.3%, ex transportation orders +0.6%)
10:00 am May final U. of Michigan consumer sentiment index (99.0 from 98.8)
2:00 pm bond and mortgage markets close.
PRICES @ 10:00 AM
10 yr. note: -3/32 (9 bp) 3.07% +0.5 bp
5 yr. note: -2/32 (6 bp) 2.90% +1 bp
2 Yr. note: -2/32 (6 bp) 2.90% +2 bp
30 yr. bond: -3/32 (9 bp) 3.20% unch
Libor Rates: 1 mo. 1.952%; 3 mo. 2.329%; 6 mo. 2.498%; 1
30 yr. FNMA 4.0 June: @9:30 101.17 -9 bp (+3 bp from 9:30 Friday)
15 yr. FNMA 4.0: @9:30 102.33 unch (+6 bp from 9:30 Friday)
30 yr. GNMA 4.0: @9:30 101.75 -8 bp (+5 bp from 9:30 Friday)
Dollar/Yen: 111.18 +0.43 yen
Dollar/Euro: $1.1767 -$0.0003
Dollar Index: 93.83 +0.12
Gold: $1288.60 -$2.70
Crude Oil: $71.65 +$0.37
DJIA: 24,995.18 +280.09
NASDAQ: 7426.20 +71.86
S&P 500: 2733.54 +20.57