Treasuries opened soft this morning with the 10 yr at 3.01% +2 bps and MBS prices down 8 bps from Friday’s close.
The only data point today, and it isn’t a first tier one; Sept NY Empire State manufacturing index expected at 23 dropped to 19 from 25.6 in August. This week has housing as its main event, other than that not much data.
Trump is expected to officially announce 10% tariffs on $200B of Chinese imports, maybe today. Meanwhile Chinese trade officials are coming to meet with US counterparts later this week; meanwhile, Chinese officials may refuse to meet with Treasury Secretary Steven Mnuchin to restart trade talks with Beijing. Chinese officials have signaled they’ll refuse to meet with Mnuchin if this next round of tariffs is imposed. The 10% tariffs are substantially less than the 25% that Trump originally had implied; a carrot? American business leaders are very much opposed to the tariffs, worrying over increased consumer prices if the tariff battle isn’t mitigated. Trump standing firm; saying tariffs have bolstered the U.S. bargaining position, while cost increases to consumers have been negligible and warned of more levies. Since July has already slapped 25% tariffs on $50B of Chinese goods.
China’s Shanghai Composite Index closing at the lowest level since 2014, dropping 1.1%. The benchmark index is heading for a fourth quarter of losses, its longest string of declines since 2008. China’s currency has fallen almost 7% since the end of March. A global game of Chicken; will China come to the table to negotiate or will Trump continue to squeeze harder?
At 9:30 the DJIA opened -12, NASDAQ -15, S&P -1. 10 yr 3.01% +2 bps. Fannie 4.0 30 yr coupon -8 bps from Friday’s close and -12 bps from 9:30 Friday.
Trade concerns are driving stocks and interest rates this morning but not much movements. The 10 yr at 3.01%, Friday we noted that the 10 could move a little over 3.00% before we expect some pullback and consolidation. There won’t be anything significant, however; the 10 will move into overbought near-term conditions that in turn will momentarily stop the recent drive higher. The 10 yr, since the end of August, has climbed from 2.82% +19 bps in two weeks. Next Tuesday the Fed will increase the Federal Funds rate, it is baked into the market, the next debate, will the Fed signal another increase in Dec with the policy statement and Powell’s press conference. Other than housing, nothing significant on consumer spending; last week the U. of Michigan consumer sentiment index jumped to 100.8 the best showing since March this year and after that the strongest since 2004. Still, no increase in overall inflation although forecasts haven’t changed in markets that wages will increase and inflation will begin to boil.
This Week’s Calendar:
8:30 am Sept NY Empire State manufacturing index (expected at 23.0 from 25.6 in August; as reported 19.0
10:00 am Sept NAHB housing market index (67, unch from Aug)
7:00 am weekly MBA mortgage applications
8:30 am August housing starts and permits (starts 1240K +5.1%; permits 1320K +0.7%)
- Q2 current account balance (-$104B)
8:30 am weekly claims (210K +6K)
- Sept Philadelphia Fed business index (19.2 from 11.9 in August)
10:00 am Aug existing home sales (5.36 mil +0.4%)
- August leading economic indicators (+0.5%)
PRICES @ 10:00 AM
10 yr. note: -2/32 (6 bp) 3.00% +1 bp
5 yr. note: -1/32 (3 bp) 2.91% +1 bp
2 Yr. note: unch 2.79% unch
30 yr. bond: -7/32 (22 bp) 3.14% +2 bp
Libor Rates: 1 mo. 2.164%; 3 mo. 2.337%; 6 mo. 2.568%; 1
yr. 2.880% (9/14/18)
30 yr. FNMA 4.0 Oct: @9:30 101.03 -8 bp (-12 bp from 9:30 Friday)
15 yr. FNMA 4.0: @9:30 101.97 -15 bp (-15 bp from 9:30 Friday)
30 yr. GNMA 4.0: @9:30 101.86 -4 bp (-17 bp from 9:30 Friday)
Dollar/Yuan: $6.8597 -0.0108
Dollar/Yen: 111.93 -0.12 yen
Dollar/Euro: $1.1689 +$0.0068
Dollar Index: 94.49 -0.47
Gold: $1205.80 +$4.70
Crude Oil: $69.44 +$0.45
DJIA: 26,130.83 -23.84
NASDAQ: 7945.71 -64.33
S&P 500: 2898.66 -6.32