A softer open this morning in the bond and mortgage markets because….wait for it….the stock market is opening better.
Nothing new there. More economic news from China, its GDP at 7.3% slightly better than 7.2% expected. China is in a serious tail spin that belies the growth rate that in the US would be stellar. Export demand quickened and services expanded, bolstering the government’s case for avoiding broader stimulus measures.
As they say, you can make anything out of statistics and data; the fractionally better report was met with some optimism in global markets. China’s Industrial production rose 8% in September from a year earlier, compared with the 7.5% median estimate of analysts and August’s 6.9%, which was the slowest in more than five years. Retail sales increased 11.6% from a year earlier, compared with the 11.7% seen by economists and August’s 11.9%. But things are not always as they appear to be, just look at where interest rates are today compared to almost 100% forecasts that rates would be 80- basis points higher than they are at the end of this year. China is the second largest economy in this global economic world, which is why we keep an eye on it.
China is suffering a huge housing crisis that was fed by central planners that let developers run wild
building massive housing complexes in cities that are still unoccupied. China’s banks are going to experience substantial losses unless the government steps in---which is highly likely. China’s growth will slow sharply during the coming decade to 3.9% as its productivity nose dives and the country’s leaders fail to push through tough measures to remake the economy, according to a report by the business-research group the Conference Board. Average new-home prices in China fell in September for the fifth month in a row, with the pace of month-to-month declines accelerating last month.
the DJIA opened +75, NASDAQ +44, S&P +14. 10 yr 2.22% +4 bp, 30 yr MBS price -13 bps from yesterday’s close, -3 bps from 9:30 yesterday.
The only U.S. data point today; Sept existing home sales at 10:00 am;
the estimates were for sales to increase 1.0% to 5.10 mil (annualized). As reported sales were better, up 2.4% to 5.17 mil units. Yr/yr sales up 1.7%, the median sales price $209.500.00. There are 2.3 mil homes for sale that is a 5.3% supply based on present sales pace and up 6.0% from last year. 29% of the sales were 1st time buyers, still a very weak percentage. Existing home sales data are based on closings. Cash transactions accounted for about 24%. Sales of existing single-family homes increased 2% to an annual rate of 4.56 million in September from August, the fastest pace in a year. Purchases of multifamily properties -- including condominiums -- rose 5.2% to a 610,000 pace. There was little initial reaction to the report in either stocks or bonds.
The Ebola concerns are lessening a little
(in markets) as more is known and some exposed Americans now cleared. It is not over and in Africa 10K new cases a week are expected by WHO. But for now, in terms of markets it isn’t as serious as it may have been a couple of weeks ago. We don’t see it as a market influence now, but that could well change if the disease spreads into Europe, the US or any other part of the world. In the US Flu will be the problem this winter season.
The rumor over night;
the ECB is considering buying corporate bonds. That hit at 3:45 am this morning and turned the US bond market from improvement to decline. At 4:30 I checked the 10, it was trading at 2.16%, now 2.22%. The world waits to see what Mario Draghi will do, can do, and does do. The ECB is fiddling while Berlin burns.
The broad perspective remains bullish technically; fundamentally, the level of rates is bothering investors currently.
To flip the 10 to a bearish bias it would have to close above 2.30%, as long as that holds our work will continue on the bullish side. That said, after last week’s unexpected and major decline in rates the bond and mortgage markets are not likely to resume any significant improvement this week ahead of the FOMC meeting next week----unless the stock market resumes its declines.
PRICES @ 10:15 AM
- 10 yr note: -9/32 (28 bp) 2.22% +4 bp
- 5 yr note: -4/32 (12 bp) 1.43% +3 bp
- 2 Yr note: unch 0.35% unch
- 30 yr bond: -15/32 (47 bp) 2.99% +3 bp
- Libor Rates: 1 mo 0.157%; 3 mo 0.231%; 6 mo 0.323%; 1 yr 0.546%
- 30 yr FNMA 3.5 Nov: @9:30 103.65 -13 bp (-3 bp from 9:30 yesterday)
- 15 yr FNMA 3.0: @9:30 104.14 -3 bp (-1 bp from 9:30 yesterday)
- 30 yr GNMA 3.5: @9:30 104.81 -8 bp ( -28 bp from 9:30 yesterday)
- Dollar/Yen: 106.74 -0.21 yen
- Dollar/Euro: $1.2742 -$0.0058
- Gold: $1253.50 +$8.80
- Crude Oil: $83.74 +$1.03
- DJIA: 16,471.14 +71.47
- NASDAQ: 4371.30 +55.22
- S&P 500: 1923.27 +19.26