Overnight the 10-yr note yield declined 3 bps to 2.67% and by 9:00 am ET to 2.69%, -1 bp. MBS prices started the session, adding +2 bps from Friday’s close.
There is no data today. This will be the first week when key economic measurements will not be released because of the shutdown. December retail sales, November business inventories, December housing starts and permits; although not reported we have included the estimates in the calendar.
This is the beginning of earnings season. According to the Wall Street Journal this morning the big companies are lowering their earnings. Back in September, it was the belief that Q4 earnings would grow 17%. That has now been jettisoned as more companies are lowering outlooks to the 11% area. US stock indexes are opening weaker this morning. Alongside the weaker US profit picture, China’s exports and imports both fell in December from a year ago as the impact of U.S. tariffs started to kick in and demand weakened. China’s exports dropped 4.4%, contrary to economists’ expectations of a 2.5% growth rate.
US stocks had a strong beginning of the year on belief trade talks with China would lessen, and a trade pact may emerge. Now, at least for the near term focus, comes the likelihood of less-than-expected earnings in the earnings season that gets underway this week. The government shutdown is also beginning to bite both in the US and China. This year the S&P 500 is up 3.6% for the year but still around 11% below its record after a steep selloff in the final months of 2018. Citigroup Inc. said this morning fourth-quarter profit surged from a year ago when it took a large write-down related to changes in the U.S. tax code. Other banks, including JPMorgan Chase, Wells Fargo and Bank of America, are set to report results later this week. For all of the hoopla that the holiday season was strong, the reality is sales were less than what was thought.
The DJIA at 9:30 am opened down -182, the NASDAQ dropped -63, and the S&P lost -21. The 10-yr, after trading at 2.67% earlier today, was at 2.69%, down -1 bp.
Shutdown…breakdown as the song goes. It’s the 24th day and counting. There has been no progress in any negotiations and given the rhetoric from both parties, no end in sight. While President Trump is insistent on the Wall, Democrats are equally insistent that there be no Wall. We wonder if there is any plan(s) other than a Wall that anyone has; Democrats and Republicans.
This Week’s Calendar:
8:30 am December PPI (-0.1%, core +0.2%)
- January Empire State manufacturing index (12.2 from 10.9)
7:00 am weekly MBA mortgage applications
8:30 am December import and export prices (imports -0.9%, exports -0.3%)
8:30 am December retail sales will be delayed due to shutdown (consensus +0.2%, less autos +0.2%)
10:00 am November business inventories will be delayed (consensus +0.3%)puary NAHB housing market index (57 from 56)
2:00 pm Fed Beige Book
8:30 am weekly claims (+5K to 216K)
- January Philadelphia Fed business index (10.0 from 9.4)
- December housing starts and permits delayed (consensus starts 1256K unchanged, permits 1297K from 1328K)
9:15 am December industrial production and capacity utilization (production +0.3%, cap utilization 78.5% unchanged from November)
10:00 am University of Michigan preliminary Consumer Sentiment Index (97.0 from 98.3 in December)
PRICES @ 10:00 AM
10 yr. note: +8/32 (25 bp) 2.67% -3 bp
5 yr. note: +3/32 (9 bp) 2.50% -2 bp
2 Yr. note: +2/323 (6 bp) 2.52% -1 bp
30 yr. bond: unch 3.03% unch
Libor Rates: 1 mo. 2.59=08%; 3 mo. 2.787%; 6 mo. 2.864%; 1
30 yr. FNMA 4.0: @9:30 101.97 unch (+1 bp from 9:03 Friday)
15 yr. FNMA 3.5: @9:30 101.50 -2bp (+4 bp from 9:30 Friday)
30 yr. GNMA 4.0: @9:30 102.55 +6 bp (+4 bp from 9:30 Friday)
Dollar/Yuan: $6.7690 +$0.0063
Dollar/Yen: 108.19 -0.35 yen
Dollar/Euro: $1.1466 -$0.0002
Dollar Index: 95.63 -0.05
Gold: $1292.30 +$2.80
Crude Oil: $51.55 -$0.41
DJIA: 23,892.47 -103.48
NASDAQ: 6905.77 -65.71
S&P 500: 2581.50 -14.76