Mortgage applications strong as Fed Chair Powell sees a pause in rate cuts

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Published Date 11/13/2019

Better interest rates this morning, it is a big day for markets with impeachment hearings on TV and Jerome Powell's testimony to the Congressional Joint Economic Committee. Between the two, the more important is what Powell has to say. Impeachment is an entertaining political show but has little interest in financial markets, a process that, in the end, may swing some voters, but President Trump will likely survive a trial in the Senate. Powell isn't likely to reveal any new initiatives or change what he said at his press conference two weeks ago. That said, anytime the Chair of the Fed testifies, the focus is intense. He will tell Congress the growing federal debt is unsustainable.

Rates are lower today partly on Powell and a little on impeachment, but it is the US/China trade talks that were seen the last few days as a crack in the discussions. Though Trump and his trade negotiators are not as optimistic that the deal to end tariffs will get done. A day-to-day back and forth with every comment taken as the last word. Tariffs are emerging as the main stumbling block in efforts by the US and China to come to a limited trade deal, a month after the two countries called a truce in their trade war. The concern now is whether the US will remove existing tariffs or cancel new tariffs set to start on Dec 15th. President Trump said yesterday that a "significant phase-one trade deal with China could happen, could happen soon." But he added that he is prepared to increase pressure on China if the two sides can't reach an agreement. "If we don't make a deal, we're going to substantially raise those tariffs, they're going to be raised very substantially," Mr. Trump said in a speech to the Economic Club of New York. Tomorrow is another day and who knows what the attitudes in markets will be.

October CPI this morning; expected +0.3%, as reported +0.4%; yr/yr +1.8% from +1.7% in Sept. Core CPI expected +0.2%, as reported +0.2%; yr/yr +2.3% against 2.4% expected and 2.4% in Sept. On the core prices, apparel continues to be very weak, down 1.8 percent on the month and down 2.3 percent on the year. Prices for new vehicles are flat, down 0.2 percent, and up only 0.1 percent on the year, with airline fares down 0.4 percent and up 1.5 percent from October last year. Computers and related components extended their usual declines with wireless services unchanged and down an annual 2.9 percent. The biggest core category for consumers is housing, where pressures are mostly steady, up 0.1 percent for rents at a noticeably high 3.7 percent yearly rate and up 0.2 percent for homeowners at a 3.3 percent rate.

Earlier this morning, weekly MBA mortgage applications were quite strong, +9.6% overall. Purchase apps increased 5.0% while refinance apps jumped 13.0% from the week prior. Purchase apps up 15 percent from this time last year; according to MBA 30 yr mortgage rates at 4.03%.

At 9:30 am ET, the DJIA opened -100, NASDAQ -32, S&P -12. 10 yr at 9:30 am ET 1.87% -5 bps. MBS prices at 9:30 +8 bps from yesterday's close and +3 bps from 9:30 yesterday.

According to the calendar, Treasury is scheduled to release the October budget, the first month in fiscal 2020. The budget deficit is expected -$130B. Currently, the 2020 deficit is expected to climb over $1 trillion.

Any movement in the rate markets through the remainder of the day will be predicated on surprising trade comments and comments from Jerome Powell. Absent of those, we don't look for any big changes the remainder of the today.

The 10 yr back below 1.90%, a positive but none of our technical indicators have changed. They're still negative and subject to bounce around the outlook for a trade deal with China.

Source: TBWS

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