Mortgage applications soar on a drop in rates

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Published Date 6/12/2019

Let’s start with the weekly MBA mortgage applications: a huge increase in apps last week as rate declines finally engaged. Apps increased 26.8% overall, purchase apps +10.0%, refinance apps increased 47.0%. Applications had been rather meek the last month but last week buyers and refinancers jumped in.

May CPI this morning: overall CPI up 0.1% as was expected, the core (less food and energy) a little better at +0.1% with forecasts of 0.2%. Overall CPI yr/yr thought to be +1.9% was up 1.8%; core CPI yr/yr +2.0% with forecasts of 2.1%. More evidence for the Fed that inflation isn’t increasing. The initial reaction to the better than expected data dropped the 10 yr 2 bps to 2.12% and MBS prices +8 bps.

Trading in Federal Funds futures are signaling a 0.25% cut in the rate in the next two months; we don’t expect the Fed will move at the meeting next week, but the July meeting is in play and likely that is when the cut will occur. The cut is already being discounted in markets, both rate markets, and equity markets.

On the China trade war: news coming in from China indicating it and its business community are gearing up for a long trade dispute. Those optimistic views here in America led by non-other than Jamie Dimon at JP Morgan/Chase were wrong as it appears now. Businesses affected by the tariffs are making plans to move to places where they can continue to function. Has Trump pushed too hard? In May Xi exhorted his country to a second Long March, a reference of Mao’s strategy to preserve the communist revolution. What Xi didn’t say was that the new march -- this time in the service of China’s own model of capitalism -- is already underway. The next opportunity for meaningful trade talks will be at the G-20 meeting in a little over two weeks. Still uncertain though that a meeting between Trump and XI will occur. Over a trillion dollars has been wiped from global markets in the past month by the trade fight. Up to now, the consensus has been a prolonged trade war would be avoided; it may be time for analysts, big banks and Wall Street to re-think that view; the Fed appears to be doing just that.

At 9:30 the DJIA opened -9, NASDAQ -16, S&P unchanged. 10 yr at 9:30 unchanged from yesterday at 2.14% after dropping to 2.12% briefly on the CPI report. MBS prices +3 bps from yesterday close and -5 bps from 9:30 yesterday.

This afternoon at 1:00 pm ET Treasury will auction $24B of 10s, re-opening the issue from May. Yesterday the 3 yr auction got strong bids.

At 2:00 pm this afternoon Treasury will release the budget data for May, expecting a deficit of $198B.

Source: TBWS

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