US trade deficit at three year low

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Published Date 2/7/2024

Some improvement yesterday after the strong selling last Friday and Monday, the 10 year note edged lower to 4.10% -6 bps from Monday, MBS prices increased 20 bps. Overnight some volatility, the 10 slid to 4.08% then shot up to 4.13% but by 8:30 am ET today generally unchanged from yesterday, MBS prices began generally unchanged, -3 bps.

Weekly MBA mortgage applications weakened last week. The Market Composite Index decreased 7.2% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 8% compared with the previous week. The Refinance Index increased 2% from the previous week and was 3% higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 11% from one week earlier. The unadjusted Purchase Index increased 6% compared with the previous week and was 20% lower than the same week one year ago. The refinance share of mortgage activity increased to 34.2% of total applications from 32.7% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 6.6% of total applications.

Consumer sentiment in housing rose in January to the highest level in nearly two years, as people felt more confident about their jobs and expected mortgage rates to fall. The sentiment was measured by a monthly survey by FNMA, -2.82%. The monthly Home Purchase Sentiment Index rose 3.5 points in January to 70.7 — the highest level since March 2022. The HPSI uses information from Fannie Mae’s National Housing Survey, which goes back to 2010. The share of respondents who expect mortgage rates to go down in the next 12 months hit an all-time high of 36%, Fannie Mae said, up from 31% the previous month. The 30-year fixed-rate mortgage is averaging at 6.63% as of February 1st, according to Freddie Mac.

December US trade deficit expected at -$62.2B reported at $62.2B. The deficit at a three year low as the economy grew in 2023.

Another day dominated by Fed officials; Adriana Kugler Fed governor, Susan Collins Boston Fed, Tom Barkin Richmond Fed, Michelle Bowman Fed Governor. Fed officials all on the same page; rate cuts are coming but not in the near term until the Fed has more conviction inflation won’t bounce up with the strong job gains and stronger than expected economic growth. All major central banks are echoing the same message, this morning European Central Bank policymaker Schnabel warned that lower borrowing costs could reignite inflation, adding that patience and caution is needed before the first rate cut.

Rates fell from October to December discounting Fed rate cuts, the 10 yield from 5.00% to 3.80% before retracing back to 4.20% and now settling into a narrow range assessing ‘higher for longer’. The consensus for rate cuts is almost 100% probability, its when not if presently. Next week January CPI and PPI will be reported, the next key inflation report; any increase will send rates higher. Until CPI is released next Tuesday the rate markets are likely to stay in a narrow range.

At 9:30 am the DJIA opened +137, NASDAQ +70, S&P +23. 10 year note 4.12% +2 bps. FNMA 6.0 30 year coupon at 9:30 am -6 bps from yesterday’s close and +13 bps from 9:30 am yesterday.

At 1 pm Treasury will auction $42B of new 10 year notes, the demand is critical, the reaction depending how strong or weak the auction goes will set the stage for the remainder of the day.

At 3 pm December consumer credit expected at +$16.2B from $23.7B in November. Our concern is the revolving credit number, the use of credit cards. Recent data from the NY Fed showed credit card delinquencies on the increase.

Expect quiet until at least 1 pm when the 10 year note auction goes off, then possible movement on the reaction to it. Technically as long as the 10 doesn’t breach 4.20% the wider view will remain supportive.

Source: TBWS

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