Rates flat as stock market volatility continues

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Published Date 10/17/2018

There was strong movement yesterday in the stock market after last week’s beatdown. This morning in pre-opening trade in the futures markets the indexes started weaker. Volatility was high, as we have noted, and will continue to be high for a while. The bond and mortgage markets are holding well with the wild swings in stock indexes but not much movement last week or so far this week.

Weekly MBA mortgage applications dropped 7.1%, purchase apps were down -6.0% while refinances declined 9.0%. The seasonally adjusted decline, unadjusted purchase applications remained 2% higher than in the same week a year ago. The refinance share of mortgage activity decreased by 0.9 percentage points to 38.1% after jumping 9 basis points in the previous week.

September housing starts and permits were announced at 8:30 am ET. Starts were expected at 1.216 mil, but as reported starts were 1.201 mil, and August starts were revised lower from 1.282 mil to 1.268 mil. Percentage-wise from the revision in August, starts were down 5.3%. September building permits were expected at 1.272 million but were up 1.241 million, and August permits were revised higher, from 1.229 mil to 1.249 mil. Percentage-wise from the August revision, permits were down -0.70%. Hurricane Florence may have affected starts in the southeast.

At 9:30 am the DJIA opened down -134, the NASDAQ added +16, and the S&P dropped -3. The 10-yr was at 3.16%, unchanged from yesterday. And the MBS price bumped up +3 bp from yesterday’s close and +4 bps from 9:30 am yesterday.

At 2:00 pm the minutes from the Sept 26th FOMC minutes will be released. Markets will sift through every word and syllable for clues about what the Fed is intending. The thing is, the minutes won’t have the present stock market volatility in the equation, so whatever analysts glean from the minutes, they are already dated. President Trump has continued his criticism of the Fed’s pace of increasing rates, and with stock markets uncertain there is current questioning whether a December increase (as was almost a certainty until last week) may be delayed. Comments from Fed officials since the meeting and last week continue to fortify the Fed’s independence and will do what is necessary to continue growth and keep inflation from running hot. Inflation by the Fed’s own forecasts isn’t expected to increase in any major way all the way through to 2020. The central issue for the Fed now is to determine what interest rates will be to be considered neutral….not accommodative or restrictive. The December meeting takes place on the 18th and 19th, two months away — a long time in these markets.

President Trump was on Fox News yesterday continuing his rant against the Fed. “My biggest threat is the Fed,”…. “I put a couple of other people there I’m not so happy with too, but for the most part I’m very happy with people.” Referring to (Powell). Trump in the past week has called the Fed “crazy,” “loco,” “ridiculous,” and “too cute.” “Can I be honest? I’m not blaming anybody,”….. “I put (Powell) there. And maybe it’s right, maybe it’s wrong, but I put him there.”

As the earnings season rolls on, Netflix beat the forecasts, banks were strong, and the overwhelming outlook in the market is Q3 earnings will continue to be strong and likely support stocks. Interest rates remain bearish unless the 10-yr note yield falls below 3.10%.

Source: TBWS

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