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Opened unchanged this morning in the treasury and mortgage markets.
No key data today, but this week the calendar has a number of significant data points.
Angela Merkel survived the election in Germany and is assured of another term as Chancellor, but her margin has shrunk and her political leverage weakened.
In the Senate, the Republican health care bill looks doomed: Republicans need 50 of 52 Republicans on board, but as of yesterday, they only have 49. GOP leaders going to release another version today in a last-ditch attempt to placate Senators from Maine and Alaska, Paul Ryan, KY and John McCain already in the “no” camp. Conservative Republican Senator Ted Cruz, speaking at an event in his home state of Texas, warned on Sunday that Trump and McConnell could not count on his vote. U.S. Senate Democratic leader Chuck Schumer dismissed the late effort to revise the bill and add money for a few states, calling it “just as bad for those states and the rest of the states because it still contains a massive cut to Medicaid.”
Republicans can’t agree on almost anything: Democrats won’t support anything. But still, markets believe Congress can get a tax reform bill passed this year. Comments from politicians still keep the tax cuts dangling and markets lap it up as a done deal; hopefully, we still find it a steep hill. Democrats in campaign mode for 2018, Republicans a mixed bag of opinions and unable to rule.
This week has a number of key data points: new home sales, the final Q2 GDP data, durable goods orders, both consumer measurements and personal income and spending with the critical PCE included. North Korea still out there but not much said over the weekend. Treasury will borrow $88B in 2s, 5s and 7s.
Mario Draghi over the weekend: “Overall, we are becoming more confident that inflation will eventually head to levels in line with our inflation aim, but we also know that a very substantial degree of monetary accommodation is still needed for the upward inflation path to materialize.” Draghi continues to talk the talk but usually leaves any QE withdrawal a huge question, always leaving the possibility in the air. ”We still see some uncertainties with respect to the medium-term inflation outlook...Most notably, the recent volatility in the exchange rate represents a source of uncertainty which requires monitoring. We, therefore, need to be patient and persistent.”
No change in the two factors that will impact US interest rates this week—the stock market and threats from North Korea.
If interest rates have any chance to decline, it will come from either or both. Without a dynamic that pushes safe haven trades, the outlook for rates is a gradual increase. This week is data loaded, but stocks are not reacting much to economic data either positively or negatively. The technicals we have remain bearish for both MBSs and treasuries. Yellen speaks tomorrow. We are also keeping eyes on crude oil, now over $50.00 (Yellen and Draghi probably liking it as a talking point for inflation coming as Yellen has been saying since the beginning of the year.
This Week’s Calendar:
- Monday
- 8:30 am Sept Chicago Fed National Activity Index (-0.31 from +0.3; expected at 0.11)
- Tuesday
- 9:00 am July Case/Shiller home price index (5.9% yr./yr., m/m +0.4%)
- 10:00 am August new home sales (583K +3.1% from July)
- Sept Consumer confidence index (120.2 from 122.9 in August)
- Sept Richmond Fed manufacturing index (13 from 14)
- 11:50 am Janet Yellen ("Prospects for Growth: Reassessing the Fundamentals" 59th National Association for Business Economics Meeting in Cleveland, Ohio)
- 1:00 pm $26B 2 yr. note auction
- Wednesday
- 7:00 am weekly MBS mortgage apps
- 8:30 am August durable goods orders (+1.5%, ex transportation +0.4%, core capital goods orders (nondefense ex-aircraft) +0.3%)
- 10:00 am August pending home sales from NAR (-0.1%)
- 1:00 pm $34B 5-yr. note auction
- Thursday
- 8:30 am weekly jobless claims (270K -23K from prior week)
- Final Q2 GDP (3.1% from 3.0%; price index +1.0%; real consumer spending +3.3%)
- 1:00 pm $28B 7-yr. note auction
- Friday
- 8:30 am August personal income and spending and PCE inflation (income +0.3%, spending +0.1%; PCE+0.3%, core PCE +0.2%)
- 9:45 am Sept Chicago purchasing mgrs. index (58.6 from 58.9)
- 10:00 am U. of Michigan consumer sentiment index (95.3 from 95.1 mid-month)
PRICES @ 10:15 AM
10 yr note: +2/32 (6 bp) 2.25% -0.5 bp
5 yr note: -1/32 (3 bp) 1.87% unch
2 Yr note: -1/32 (3 bp) 1.44% +1 bp
30 yr bond: -1/32 (3 bp) 2.79% unch
Libor Rates: 1 mo 1.238%; 3 mo 1.329%; 6 mo 1.496%; 1 yr 1.775%
30 yr FNMA 3.5 Oct: @9:30 103.22 -1 bp (+1 bp from 9:30 Friday)
15 yr FNMA 3.0: @9:30 102.89 +2 bp (+7 bp from 9:30 Friday)
30 yr GNMA 3.5: @9:30 104.08 -2 bp (+1 bp from 9:30 Friday)
Dollar/Yen: 112.22 +0.23 yen
Dollar/Euro: $1.1887 -$0.0060
Dollar Index: 92.54 +0.39
Gold: $1297.00 -$0.50
Crude Oil: $51.28 +$0.62
DJIA: 22,346.37 -3.22
NASDAQ: 6402.94 -23.98
S&P 500: 2501.68 -0.54
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