Mortgage applications pick up as market volatility continues

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Published Date 10/24/2018

There is more volatility this morning. The US stock indexes were under more pressure early in the futures markets following the wild ride yesterday. The rebound in these very unsettled markets occurred when Boeing reported better results. European stocks rallied, while Asian shares slipped even as China’s gauge climbed. The dollar strengthened as the euro slumped. Earnings season continues to confound, while two weeks ago, before the beginning of earnings reports the markets, everyone was “sure” earnings would continue to improve in Q3. That view has not held up. Earnings and forward guidance have generally been disappointing compared to the optimism leading into the releases.

MBA weekly mortgage applications were better last week compared to the prior week where apps declined 7.1%. Last week applications were up +4.9%, with purchase apps adding +2.0%, and refinance apps jumping 10.0%. The share of refinances were at 39.8%. Despite the weekly increase, the year-on-year gain in purchase applications shrank by 1.8 percentage points to 0.2%.

At 9:00 am EST the August FHFA home price index added the expected +0.3%, Yr/yr added +6.1%, down from 6.6% in July.

President Trump is on a rampage, assailing Jerome Powell for the increasing interest rate plan the Fed is instituting and commenting that he may regret having appointed Powell. He said that he thinks Powell enjoys increasing interest rates. No President wants higher interest rates, especially one whose huge tax cuts and increased spending propelled the economy to levels not seen in five or more years. This gets ink, but Trump is not likely to fire Powell. That would be a financial disaster for the US and global markets.

At 9:30 am the DJIA opened up +60, all of it on the increase in Boeing stock. The NASDAQ opened down -4, and the S&P dropped -3. The 10-yr note yield improved at 3.13%, down -4 bp from yesterday’s close.

At 10:00 am Sept new home sales were expected to drop -0.7%, at 625K units. As reported sales fell to 553K and August was revised from 629K to 585K. This is very disappointing news, down 5.4% from the revision in August.

At 1:00 pm the Treasury will auction $39B of 5-yr notes; recent auctions have been soft.

The WSJ reported this morning that central bankers are backing away from purchasing US treasuries. Foreigners increased Treasury holdings by $78B the first eight months of this year, about half of what they bought in the same period last year. The pullback is primarily due to the increasing difficulty hedging the currency risk as the dollar increases.

While it is heartening to see the bond and mortgage markets stop climbing, until the 10-yr yield drops below 3.10% on a close, we will maintain our negative outlook. Fundamentally there is no inflation, but no matter. The Fed will increase rates again in December and so far there is no change in the language from Fed officials that there may be a pause next year, still saying to expect three more increases in 2019.

Source: TBWS

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