Mortgage Rates Moving Slightly Lower

Bond and mortgage markets were closed yesterday for Columbus Day while the other markets traded. The stock indexes were lower but not much, generally a quiet session. This morning, the 10yr began unchanged from Friday’s close at 2.36%, but has rallied to 2.34% while MBS are at a positive 14BPS.

The only data today, and it is not generally a market mover - the September NFIB optimism index, expected at 105.4 from 105.3 in August, declined to 103.0, led by a sharp drop in sales expectations, not only in states affected by hurricanes in Texas and Florida, but across the country. The surprising drop put the index at the lowest level of the year after hovering just below the 12-year high set in January and came in not only below the consensus forecast of 105.4 but below the range of analysts' forecasts. Also planned increases in capital outlays by small business owners also fell significantly.  This was not that good of a report, but still the outlook from most small businesses are positive, with most saying they will increase inventories. This report does get looks, but investors do not actually react to it.

Another report this morning, the Redbook same store sales, a weekly measure of comparable store sales at chain stores, discounters, and department stores. Yr./yr. sales the prior week were +4.1%, this report 3.2%.

Tax reform being debated again - over the weekend Republican Senator Bob Corker and Pres. Trump spat at each other on Tweets. Over the weekend, Trump took to Twitter to label Corker a “negative voice” standing in the way of his agenda. He also claimed Corker had begged for an endorsement and decided to retire when Trump refused. Corker responded that the White House had become “an adult day care center. Someone obviously missed their shift this morning.” The keystone of the Trump agenda is tax reforms - now Republicans cannot get along, and that adds height to the hurdle of tax cuts. Republicans do not have much margin to disagree or Tweet each other to death.

No stopping the equity markets.  The indexes keep increasing, the volatility decreasing; complacency from investors, and there is no end in sight. Recently though, instead of interest rates rising as stocks increase and the Fed poised to increase rates again, the 10yr note held a very significant support level last week at 2.40%, and mortgage prices holding well. Big money (hedge funds, money managers, and Wall Street firms) are not huge sellers in the bond market. Why? The economic data has been positive, tax cuts are still expected by most, and central banks talking about removing stimuli. North Korea fears have ebbed. Later this week, markets will get September PPI and CPI along with September retail sales: key data.

I know that it has been a while since I last wrote a report, and I have to apologize as we have moved offices, and there were certain items that could not be given the due process that this report is justified on having.  In the past few weeks, the few analysts that I continue to follow have been stating that we need to be “Heads up - the bond market is about to see some improvement. Do not front-run it - the wider view remains bearish - wait and continue to follow the bearish trend. Stocks will lead the way - as long as the indexes continue to increase, interest rates will continue to move higher.” As long as equity markets continue to climb, rates at best will stabilize here for a while. The bond market is oversold based on all supporting data.  A lot depends on how this market will run when we get both September PPI and CPI on Thursday and Friday. Interest rates this morning are improving so far, but truthfully, there is no reason for it.