The attack on Saudi Arabia that shut 5% of global crude output caused the biggest surge in oil prices since 1991. US officials blamed Iran, and President Donald Trump said Washington was "locked and loaded" to retaliate. Recently Pres. Trump appears to have made a mistake trying to make nice with Iran, and he was told that by John Bolton before he was replaced. Iran continues to push its luck with the US and will not cease as long as it 'isn't afraid to do so. Of course, the initial reaction sent crude prices soaring and interest rates down on safety reactions. There is plenty of oil in the world if needed; the US has huge amounts of oil in the strategic reserve, and our shale oil can be increased. US Energy Secretary Rick Perry pinned the blame squarely on Iran for "an attack on the global economy and the global energy market."
Early trade had the 10 yr note yield down to 1.83% -8 bps from 'Friday's increase of 13 bps, rates driven higher Friday on the increase in retail sales.
At 9:30 am ET the DJIA opened -86, NASDAQ -52, S&P -12. 10 yr at 9:30 1.86% -5 bp. MBS prices +13 bps from 'Friday's close and -9 bps from 9:30 Friday.
While the immediate news is about the Saudi attack, the main business this week is the FOMC meeting that begins tomorrow. Wednesday the policy statement, Powell's press conference and the Fed's quarterly forecast for inflation, unemployment, and growth over the next 24 months. No change in the thinking about a 0.25% rate cut, all about how the Fed frames the future for more cuts. There is an increasing idea that the Fed will cut the Federal Funds rate again at the December FOMC meeting. Inflation views were heightened last Thursday when August CPI core on an annual basis increased 2.4%, the highest in 4 years. That ignited the selling in treasuries pushing interest rates (10 yr) up 17 bps on Thursday and Friday.
GM workers went on strike for the first time in 12 years. The company offered $7 billion investment in eight US plants and more than 5,400 new jobs. That's short of the United Auto Workers union's demands that include wages of almost $30 an hour for entry-level employees within three to four years. The action may cost GM $50 million a day.
President Trump fired John Bolton last week; Trump is trying to ease tensions with Iran while Bolton warned not to cozy up. The chances of the US easing sanctions fell to zero after the secretary of state blamed Tehran for the attack on Saudi 'Arabia's Abqaiq facility. Trump tweeted, "Saudi Arabia oil supply was attacked," he tweeted. "There is reason to believe that we know the culprit, are locked and loaded depending on verification, but are waiting to hear from the Kingdom as to who they believe was the cause of this attack, and under what terms we would proceed!" The President has to do something to respond, and it 'can't be just more sanctions.
The Iran attack will stop the increase in rates for now although there is no change in the bearish rate outlook from a technical perspective; the 10 yr has to break back below 1.70% to change our work.
PRICES @ 10:00 AM
10 yr. note: 1.86% -5 bp
5 yr. note: 1.71% -5 bp
2 Yr. note: 1.78% -2 bp
30 yr. bond: 2.33% -5 bp
Libor Rates: 1 mo. 2.024%; 3 mo. 2.139%; 6 mo. 2.070%; 1
yr. 2.049% (9/13/19)
30 yr. FNMA 3.5: @9:30 102.22 +13 bp (-9 bp from 9:30 Friday) 3.0 coupon 100.78 +22 bp (-20 bp
from 9:30 Friday)
15 yr. FNMA 3.0: @9:30 101.86 +1 bp (-25 bp from 9:30 Friday)
30 yr. GNMA 3.5: @9:30 103.52 +13 bp (-7 bp from 9:30 Friday)
Dollar/Yuan: $7.0681 -$0.0114
Dollar/Yen: 107.94 -0.15 yen
Dollar/Euro: $1.1015 -$0.0059
Dollar Index: 98.51 +0.26
Gold: $1505.70 +$6.20
Crude Oil: $60.15 +$5.30
DJIA: 27,131.37 -88.15
NASDAQ: 8152.75 -23.96
S&P 500: 30000.40-7.35