November 9, 2017
November 3, 2017
Stocks have ended the day higher, with the Dow, S&P 500, and NASDAQ setting new all-time closing highs. The Dow closed up 22.93 at 23,539.19 and the S&P 500 closed up 7.99 at 2,587.84. Mortgage Bonds ended the day higher, break through another ceiling of resistance.
The highly anticipated Jobs Reported showed that there were 261,000 jobs created in October, which was lower than market expectations of 325,000. There were positive revisions to the previous two months, which offset some of the miss in today’s headline figure – August was revised higher by 39,000 from 169,000 to 208,000 and September was also revised higher by 51,000 from -33,000 to a positive 18,000, for a combined two month revision of 90,000 jobs.
Average Hourly earnings dropped from 2.7% to 2.4%, which shows decreasing wage pressured inflation…this metric helped Bonds.
There are actually two different surveys within the Jobs Report – the Business Survey, where the headline jobs figure is derived from and the Household Survey, where the Unemployment Rate comes from. There is a job creation component within the Household Survey as well, which is very volatile. And after a wild spike of 906,000 jobs in September (which was literally a polar opposite of the job losses showed in the Business Survey), the Household Survey showed a loss of 484,000 jobs in October. However, because the labor force shrunk by 765,000, the Unemployment Rate improved from 4.2% to 4.1%. The all in U6 Unemployment Rate dropped from 8.3% to 7.9%, which matches the low from December 2006.
Economic Data
Jobs Report: Actual = 261,000; Consensus = 325,000; Prior = 18,000
Upcoming Events
Next week is a very quiet economic news week. There will be a 10 and 30-year Bond Auction, which could impact the markets, but the Charts and technical analysis will likely drive market direction.
Technical Picture
Mortgage Bonds have broken above the 25-day Moving Average and are now trading just beneath the 100-day Moving Average – Bonds have taken out several ceilings of resistance over the last few days, which is a positive sign. The 10-year Treasury Note Yield has broken beneath its 25-day Moving Average and now has the 200-day Moving Average in its sights.
Position
Floating
November 2, 2017
October 28, 2017
Stocks have ended the day higher, really led by the S&P 500 and NASDAQ. As mentioned this morning, both of
those indices got a boost from stronger than expected earnings from Google, Microsoft, and Amazon. The Dow
closed up 33.33 at 23,434.19 and the S&P closed up 20.67 at 2,581.07. Mortgage Bonds ended the day sharply
higher and back above an important resistance level at 102.50.
Earlier today there were reports that President Trump has narrowed his choice for the new Fed chair to Jerome
Powell and John Taylor…but he is leaning towards Powell, who is more dovish on monetary policy. Bonds reacted
favorably to this news.
In economic news, the first look at 3rd quarter Gross Domestic Product (GDP) showed that the US economy grew
by 3.0%, which was better than expectations of 2.5%, but a slight drop from the last reading of 3.1% in the second
quarter. This was the first time since 2014 that the economy has had two consecutive quarters of growth above
3.0%. It is important to note that full year GDP is much lower than 3%…the advanced reading of Q3 GDP shows
that the growth annualized in this quarter is 3%, but remember Q1 was much lower so full year is going to be less.
Consumer Sentiment was also released, showing that consumers’ attitudes on the economy are still very strong.
The index came out at 100.7, which is a slight drop from 101.1, but still at a very high level. Part of the reason for
this is likely the Stock market, which has essentially just gone up.
Economic Data
Q3 GDP: Actual = 3.0%; Consensus = 2.5%; Prior = 3.1% (Q2 Final)
Consumer Sentiment: Actual = 100.7; Consensus = 101; Prior = 101.1
Upcoming Events
Next week is an action-packed week. It is Jobs week, with the ADP and BLS Jobs Reports due for release on
Wednesday and Friday respectively. There will be a Fed Meeting starting on Tuesday, with the Statement at
2:00pm ET on Wednesday. Additionally, we will get the Fed’s favorite measure of inflation, Personal Consumption
Expenditures (PCE), along with the Employment Cost Index. And if that weren’t enough, there is also some
Housing data from the Case-Shiller Home Price Index.
Technical Picture
Mortgage Bonds bounced higher off off support at 102.297 and have broken through resistance 102.50. If Bonds
can confirm this move on Monday, the aforementioned technical level will act as support. The 10-year Treasury
Note Yield has moved back down to 2.42% and looks like it wants to test 2.385% once again. That will be a big
threshold and test. We can continue floating into the weekend.
Position
Floating
October 26, 2017
October 20, 2017
Stocks have ended the day sharply higher, the Dow closed up 165.59 at 23,328.63 and the S&P 500 closed up 13.11 at 2,575.21. This was mostly due to news that the Senate Republicans approved a $4 Trillion budget, which is a big step towards passing a tax plan this year. Mortgage Bonds ended the day lower.
In Economic news, Existing Home Sales, which tracks closings on Existing Homes, were up 0.7% in September at a 5.390M unit annualized pace, which was better than expectations of a drop and better than last month’s 5.350M unite pace. Inventory levels remained very tight – There were only 1.88M homes for sale, down 6.4% year over year, with a 4.2 month’s supply. Median Home Prices are up 4.5% year over year at $245,100, but have actually cooled a bit. Remember this may include some of the effects from the storms and even with these really tight levels of inventory, sales are still strong. Disappointingly, the first time home buyer fell from 31% to 29%, which is the lowest level in over a year.
Economic Data
Existing Home Sales: Actual = 5.390M; Consensus = 5.300M; Previous = 5.35M
Upcoming Events
Next week is a busy week. We will receive Mortgage Apps, Durable Goods, the FHFA House Price index, New Home Sales, Pending Home Sales and Jobless Claims, along with some Treasury Note Auctions.
Technical Picture
Mortgage Bonds ended the day lower but off their worst levels. Bonds are still beneath the 200-day Moving Average, which will now act as resistance on the way up. The next floor is located at 102.50. The 10-year Treasury Note Yield is trading just beneath a very important level at 2.385%. Begin the day carefully floating.
Position
Carefully Floating
October 19, 2017
October 13, 2017
Stocks have ended the day higher. The Dow closed up 30.71 at 22,871.72 and the S&P 500 closed up 2.24 at
2,553.17. Mortgage Bonds ended the session near their highs and above the 100-day Moving Average.
The Consumer Price Index (CPI), which measures inflation on the consumer level, increased 0.5% in
the monthly of September. On a year over year basis, headline CPI rose from 1.9% to 2.2%, which was slightly
lower than the 2.3 expected. The Core CPI Rate, which strips out food and energy prices, remained unchanged at
1.7%, which was lower than expectations of 1.8%. Both of these numbers being beneath expectations and Core
Inflation remaining unchanged and beneath 2% helped push Bonds higher.
Retail Sales for September were up 1.6%, which was weaker than the 1.8% gain expected. The Control Group,
which strips out autos, gas, and building materials, was up 0.4%. This was stronger than expectations looking for a
0.2% gain. Overall, this number is really market moving, but Sales minus autos and the control group were
stronger than expectations.
Consumer Sentiment was reported at 101.1, coming in over expectations of 95.4 and last month’s 95.1. Today’s
reading was nearly a 14 year high.
Economic Data
Consumer Price Index: Actual = 2.2%; Previous = 1.9%
Consumer Price Index Core: Actual = 1.7%; Previous = 1.7%
Retail Sales: Actual = 1.6%; Consensus = 1.8%; Previous = negative 0.1%
Consumer Sentiment: Actual = 101.1; Consensus = 95.4; Previous = 95.1
Upcoming Events
Next week is highlighted by Housing Data – We will be receiving the NAHB Housing Market Index, Housing Starts,
and Existing Home Sales.
Technical Picture
Mortgage Bonds have broken above the 103 resistance level and 100-day Moving Average that they were
battling with earlier in the day. Bonds are now just beneath the next ceiling at the 25-day Moving Average. The
10-year Treasury Note Yield has broken beneath the 200-day Moving Average and is now just above the 25-day
Moving Average, which is the next floor. The technicals are looking favorable.
Position
Continue Floating
October 12, 2017
October 12, 2017
Stocks have ended the day lower. The Dow closed down 31.88 at 22,841.01 and the S&P 500 closed down 4.31 at
2,550.93. Mortgage Bonds ended the day higher, just beneath overhead resistance at 103.
Boston Fed President, Eric Rosengren, spoke today and said that a December rate hike was likely…reinforcing our
thoughts that a December rate hike is almost certain.
Today’s 30-year Treasury Note Auction was met with outstanding demand. CNBC’s Rick Santelli grades the
auction an A-. The Yield awarded was 2.87% and the bid to cover was 2.53.
In economic news, The Producer Price Index, which measures wholesale inflation, was up 0.4% in September,
which was in-line with expectations. On a year over year basis Headline PPI moved up from 2.4% to 2.6%, which is
the biggest gain in over five and a half years. Core PPI, which strips out food and energy prices, was stronger than
expectations, rising by 0.4%. The year over year figure increased from 2.0% to 2.2%, which was also the highest
print since 2012. Most of the gains were due to the price of gasoline, which recorded its biggest increase in more
than two years, due to the disruptions at oil refineries in Texas caused by Hurricane Harvey. These wholesale
figures do not typically impact the market and do not always translate to the consumer.
Initial Jobless Claims, which measures individuals filing for unemployment benefits for the first time, was reported
at 243,000 for last week. This represents a drop of 15,000 from the previous report, which was revised slightly
lower from 260,000 to 258,000. This was a nice snap back from the higher Claims figures we have been seeing
due to the Hurricanes.
Economic Data
Producer Price Index: Actual = 2.6%; Prior = 2.4%
Producer Price Index: Actual = 2.2%; Prior = 2.0%
Initial Jobless Claims: Actual = 243,000; Consensus = 252,000; Prior = 258,000
Upcoming Events
Tomorrow morning’s Consumer Price Index report, which has been stubbornly low, will be important for the Bond
market. The last Headline and Core readings of CPI were at 1.9% for the Headline and 1.7% for Core. The market
is expecting the Headline figure to increase to 2.3% and the Core figure to increase to 1.8%. A higher inflation
reading could pressure Bonds lower, but we have not been seeing much inflation as of late.
Technical Picture
Mortgage Bonds are still trading in the middle of the range between support at 102.806 and overhead resistance
at 103…but Bonds are just beneath 103 after testing it earlier in the day and failing to break above it. The 10-year
Yield closed directly on the 200-day Moving Average – As we said this morning, if Yields can break beneath the
200-day Moving Average it would be a strong sign.
Position
Continue Floating