The dollar is continuing to strengthen, supporting the heavy selling in the bond market. Trump’s surprising victory is continuing to roil markets. A week ago markets thought he was a dead man walking, many that now are ringing bells were trying to distance themselves now blowing trumpets. It is a Mad, Mad, Mad World. A week ago Trump was considered by many as unfit to be President; now he is, and those views seem to have moderated somewhat; if you can’t lick ‘um, join ‘um ? Less than a week and markets are going postal.
As you know we have been negative in rates well before the election, but prior to last Wednesday not much increase had occurred since mid-October when the 10 yr ran to 1.79% frm 1.55% at the end of September. Three weeks of consolidation then the election and an explosion pushing the 10 to 2.26% today. Mortgage rates up 25 bps in rate since last Tuesday. Technically the bond and mortgage markets are over-sold in the near term but the momentum continues so far. To remind, although we look for some rebound at best and consolidation at least, the trend for higher rates is on solid footing.
Here comes increasing Federal Debt with large increases in fiscal spending; not only in the US but in Europe as well as central banks have run out of stimulus that has had much benefits. One reason rates are driving higher, Treasury will have to borrow more to fund infrastructure and other social spending. It was a key in both Trump’s and Clinton’ campaign. Increasing wages, increasing economic growth with the knowledge inflation will likely increases. That said, the financial markets are over-reacting to possibilities that are still uncertain and possibly unlikely. The dollar’s strength also overdoing it . Nonetheless don’t fight it now; we tried to pick a minor turn last Friday and eating crow today.
Tomorrow Oct retail sales are expected up 0.6%, ex auto sales +0.5%. Oct import and export prices expected +0.1% on exports and +0.4% on imports. Nov Empire State manufacturing index expected at -2.3 frm -6.8. Sept business inventories expected +0.2%. The data in a sense is dated news with the election but retail sales are expected to increase now through the holidays, an increase in Oct will had more to that conviction. Most consumers presently, whether disappointed about the results or pleased, happy to have the national and local elections over.
Lenders are likely now to begin pricing to the 3.5 FNMA coupon; the 3 is at par now and mortgage rates edging above 4.0%. Presently the difference between the two 25 bps better for the 3.0 coupon. Wait for it though; both will still move in the same direction, the 3.5 less than the 3.
As you know we have been negative in rates well before the election, but prior to last Wednesday not much increase had occurred since mid-October when the 10 yr ran to 1.79% frm 1.55% at the end of September. Three weeks of consolidation then the election and an explosion pushing the 10 to 2.26% today. Mortgage rates up 25 bps in rate since last Tuesday. Technically the bond and mortgage markets are over-sold in the near term but the momentum continues so far. To remind, although we look for some rebound at best and consolidation at least, the trend for higher rates is on solid footing.
Here comes increasing Federal Debt with large increases in fiscal spending; not only in the US but in Europe as well as central banks have run out of stimulus that has had much benefits. One reason rates are driving higher, Treasury will have to borrow more to fund infrastructure and other social spending. It was a key in both Trump’s and Clinton’ campaign. Increasing wages, increasing economic growth with the knowledge inflation will likely increases. That said, the financial markets are over-reacting to possibilities that are still uncertain and possibly unlikely. The dollar’s strength also overdoing it . Nonetheless don’t fight it now; we tried to pick a minor turn last Friday and eating crow today.
Tomorrow Oct retail sales are expected up 0.6%, ex auto sales +0.5%. Oct import and export prices expected +0.1% on exports and +0.4% on imports. Nov Empire State manufacturing index expected at -2.3 frm -6.8. Sept business inventories expected +0.2%. The data in a sense is dated news with the election but retail sales are expected to increase now through the holidays, an increase in Oct will had more to that conviction. Most consumers presently, whether disappointed about the results or pleased, happy to have the national and local elections over.
Lenders are likely now to begin pricing to the 3.5 FNMA coupon; the 3 is at par now and mortgage rates edging above 4.0%. Presently the difference between the two 25 bps better for the 3.0 coupon. Wait for it though; both will still move in the same direction, the 3.5 less than the 3.
