Good Morning on this fantastic Tuesday,
This morning the 10-year yield is 2 bps higher around 2.16%. The yield was steady during Monday. The 10-year yield continues to trade around levels from September 2017 but has broken above a 2.14% ceiling in place during June. MBS is down 3 bps this morning after worsening by 9 bps yesterday. Mortgage rates have returned to levels in late May and previously late March of this year. Markets have priced in an 80% chance of Fed rate reduction in July, a 90% chance of a September Fed rate reduction and about 60% chance of three rate reductions accumulating up to 75 bps this year. The Administration continues to pressure the Fed for rate reductions.
Today the producer-price index was released and indicated continued low inflation pressure. The PPI increased 0.1% in May and the core PPI, excluding food and energy, increased 0.2%. Both met economists forecast reflective of slower inflation and economic growth. The consumer price index will be released tomorrow.
Stocks are the reason for the recent weakness in bonds. Until the party in the equity markets is over, bonds are going to stagnate, I still see the 10-yr drooping below 2% but it may be a bit longer. Hang tough, I suspect we’re not too far off.
Make today great!
Good Monday A.M.,
You have to love the after hours Twitter feed. POTUS on a late Friday afternoon saying that no tariffs with Mexico are needed. Whether true or not, you know stocks love the news and bonds are going to struggle. And that is where we are now, (from Dan Rawitch) Bonds in a bit of correction and the equity markets are stealing dollars from bonds as investors continue to believe there are no issues with the job market, wage growth, global slowing, deflation, the auto industry, record corporate subprime debt, trade war, etc, etc. At this point we may have fully priced in the FEDs next perceived move, if there is one. I am not saying the bond rally is over, far from it. I am saying that the stock market is still on crack and bonds will likely test the bottom of this channel before getting a bounce and this assumes the equity markets slow their roll. Today we learned that there were fewer jobs available this month than last month. Later this week we get CPI and PPI, both could be market movers.
And some other good news, America’s telecommunications regulator passed rules last week that will let phone companies automatically block more robocalls.
Make today great!
Good Morning on this fantastic Friday,
Good insight from Dan Rawitch this a.m.:
The 10-year is up again and now yielding 2.07%, as we speed toward a sub 2% yield! MBS are doing ok, but not as great. The jobs report was released and components were TERRIBLE. Only 75,000 jobs created while the market was looking for 180,000. Not to mention wage growth was nonexistent and missed expectations. Lastly, for the second month in a row, wholesale inventories grew because of insufficient sales. The crazy thing is that the DOW is up again, and this time 300 points. Unbelievable and what an amazing gift that Stock Market investors are getting. The problem is that this is not a gift that will keep on giving, it is a gift that will be taken back, once the market comes to its senses and realizes that the reason the FED must ease is due to economic slowing. I believe when he gives his post “we lowered rates” speech, the stock market will wake up and have to hear the Feds market concerns.
For now we remain range bound in the MBS. If we do not breakout today, it is because the stock market has the spot light and is dragging investor funds over the wrong side of the fence
Germany Growth for 2019 was cut from 1.6% to .6%. that doesn’t bode well for the EU as Germany is the largest economy and floats a lot of negative growth from other members. This will of course bleed over global economies in some smaller way.
Do you feel wealthy yet? U.S. household wealth rebounded to a record in the first quarter as the stock market recovered from a plunge in the prior period, supporting consumers after Federal Reserve interest-rate hikes and trade-war shocks rattled investors late last year. Net worth for households and non-profit groups increased by $4.69 trillion, or 4.5%, to $108.6 trillion after a 3.7% drop in the prior period, Federal Reserve data showed Thursday. Household debt growth slowed to a 2.3% annual pace, the least since late 2015, from a 2.8% rate in the prior quarter
That’s it for now. Rates should be lower with the movement in Treasuries. I am confident it will come, but I also suspect stocks will have to crack first.
Enjoy the weekend and first, make today great!
Good Morning on this terrific Thursday,
This morning’s action was brought to you by a little data and some interesting news. Unit Labor costs were down 1.9%, this is bond friendly and gives the FED more ammo to lower rates and the European Central Bank, who once again pushed back the timing of its first post-crisis rate hike in the hopes of reviving a slowing Euro Zone economy. Responding to rapidly deteriorating inflation expectations, the ECB pledged to keep its interest rates at their current, record-low level at least through the first half of 2020, instead of the end of this year as it had said it would do in March. With a slowing global economy and concerns about the longer term effect of all the trade issues.
Tomorrow’s jobs data has gained a bit more significance than it had when we started the week, since Fed Chair Jerome Powell’s comments the other day. Still, likely a knee jerk reaction to whatever news we get (versus any long term effect), and the wage data will be more important than the actual job numbers.
The 10-yr at 2.09% and heading south…
Make today great!
Good Wednesday A.M. on this best day of the week,
There are a few things on my mind to mention today after yesterday’s rebound in stocks and sell off in bonds..
- Fed Chairman Powell made a clear statement to markets that the Fed is watching the trade wars and will act as necessary (I think he means he is going to lower rates in September)
- There is still no deal with China, Congress is threatening Mr. Trump that they will veto any Mexican tariffs which he can/will override with an emergency order
- Prime Minister May is resigning later this week and the UK will likely leave the EU.
- ADP payrolls came out this a.m. and were a big miss, markets were expecting 180k, the report was 27k. Tough to grow without new jobs. This now becomes another consideration for the Fed. This is the worst ADP report since 2010
- Yield curve continues to invert at a steeper angle. I don’t buy the rhetoric that its not meaningful in today’s economy. We should always have a bigger return when taking a longer term investment. I am concerned how this looks in 12 months.
So with these bullet points, the 10-year is back to 2.11% today and I suspect there is a good chance it will drop below 2.10% by today’s close. Mortgage bonds are up a bit as well. The 2-year is outperforming the long end (steepening the curve inversion). This is due to increased expectations that the Fed will ease rates soon.
Additional reports and events this week include Thursday weekly jobless claims and European Central Bank announcement; and Friday non-farm payroll report.
I think it is a cautiously wait and see call for now.
Make today great!