Dow finished up 59, decliners over advancers 4-3 & NAZ lost 3. The MLP index was 2 higher to 258 & the REIT index went up 1 to the 322s. Junk bond funds continued weak & Treasury yields rose again, taking the 10 year Treasury yield up to 3.02% (more below). Oil was up slightly in the 67s (more below) & gold dropped 9 to 1324.
AMJ (Alerian MLP Index tracking fund)
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Mortgage interest rates last week didn't start to climb until the end of the week, but even a few days were enough to dampen demand. Total mortgage application volume fell 0.2% for the week & was 0.8% lower than a year ago, according to the Mortgage Bankers Association's seasonally adjusted survey. The stall was equal for refinance & purchase applications, even though the former are far more rate-sensitive. Applications to refinance a home loan fell 0.3% last week & were 16% lower than a year ago. The refinance share of applications fell to 37.2% of all applications, the lowest level since Sep 2008 (Lehman collapse). Borrowers had no incentive to refinance, as the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453K or less) increased to its highest level since Sep 2013, 4.73%, from 4.66%, with points increasing to 0.49 from 0.46 (including the origination fee) for 80% loan-to-value ratio loans. Mortgage applications to purchase a home were unchanged for the week but 11% higher than a year ago. Homebuyers are less concerned about interest rates than they are about finding a home to buy. Demand is incredibly high, & even though more listings are coming on the market this spring, they are not enough to satisfy it. This dynamic is pushing home prices to new record highs & sidelining those buyers who are seeing entry-level homes. Gov loans, from the FHA or VA, offer low down payments, which entry-level buyers need. But there are few entry-level homes for sale, so there is less demand for loans to buy them. Sales of homes priced below $100K fell 21% in Mar from a year ago, according to the National Association of Realtors. Most of the sales activity is now in the move-up & high-end range.
Weekly mortgage applications stall as rates make sharp move higher
The 10-year Treasury yield rose above 3% for the first time since Jan 2014, in a signal that higher interest rates are ahead in the world's biggest bond market amid an onslaught of supply & a Federal Reserve intent on boosting interest rates. The yield, the benchmark for everything from mortgages to $ bonds in developing nations, climbed as high as 3.0014% yesterday, before retreating to 2.99%. Traders have been focused on the next round number on the horizon for days, even though no clear catalyst emerged as the main culprit for the longest selloff in a year. The move reinforces that yields are on the rise in the $14.9T Treasuries market. They surged in the first 2 months of the year, but pared that advance last month, leading some strategists to ponder whether 2018 might echo 2017, when optimism on the economy led yields to peak early in the year. Fed officials' most recent forecasts are for 2 additional rate increases in 2018. Traders are pricing in more than that. Bond traders have to grapple with a deluge of new gov debt. The US budget deficit will surpass $1T by 2020, 2 years sooner than previously estimated, the Congressional Budget Office said this month. At the same time, the Fed is trimming its balance sheet, meaning the amount of net new debt is poised to surge in the years ahead. The Treasury has asked primary dealers to give forecasts for America's borrowing needs over the coming 3 fiscal years, ahead of the next quarterly refunding announcement on May 2. Just this week, the department is issuing a combined $96B of 2-, 3- & 7-year notes, the largest slate of fixed-rate coupon sales since 2014. Yields on all the maturities are near multi-year highs.
Crude closed higher as investors remained laser-focused for any signals from French Pres Macron on an Iran nuclear deal, overshadowing a bearish US inventory report. Futures in NY settled 0.5% higher after fluctuating during the session. Early on, data from the Energy Information Administration initially took traders by surprise, showing a larger-than-expected build in US crude stockpiles. By the end of the session, investors refocused on Macron's speech & the lingering issues around an Iran nuclear deal. Investors are eyeing remarks from Macron, who is pushing the limits of intl diplomacy, as his last-ditch appeal to salvage the Iran nuclear deal wrong-footed European allies & was met with intransigence by Pres Trump. Earlier in the session, crude fell briefly after the EIA data showed a US crude stockpile build of 2.17M barrels last week, larger than the 1.1M-barrel boost reported by the American Petroleum Institute. West Texas Intermediate crude for Jun delivery added 35¢ to settle at $68.05 a barrel. Brent crude for Jun delivery rose 14¢ to end the session at $74 a barrel. The global benchmark crude traded at a $5.95 premium to Jun WTI. The EIA report showed US crude supplies rose to 429.7M barrels last week, as refinery utilization ticked lower. At the same time, crude exports jumped for a 2nd week to the highest level on record. Gasoline supplies rose 840K barrels, the biggest build since late Feb. Oil stored at Cushing, Oklahoma, rose by 459K barrels last week & crude production hit a fresh record-high.
Stocks had another wild day. At the close little was accomplished. The Dow surged off its lows, but finished with a modest gain largely due to the 13+ advance by Boeing (BA), & NAZ spent much of the day little changed. The big picture story is pretty much the same. Earnings are coming in underwhelming & trade talks are moving very slowly. So the Dow keeps clinging to 24K, going nowhere fast.
Dow Jones Industrials
AMJ (Alerian MLP Index tracking fund)
The German gov trimmed its economic growth
forecast for this year to 2.3%, though it said the
outlook remains good and is predicting that growth next year will be
almost as strong. The new forecast is slightly
lower than the gov prediction in Jan of 2.4% growth
in 2018. For 2019, officials are forecasting that GDP
will expand by 2.1%. That is in line
with last year's growth of 2.2%, the strongest in 6 years.
Economy Minister Peter Altmaier said that the economy, Europe's biggest,
is in a "robust state" & the new forecast is "in a very realistic
corridor." However, he voiced concern about developments in intl trade relations & noted that Germany is a major exporter. The
EU is seeking a continued exemption from new tariffs
imposed by Pres Trump on steel & aluminum imports. Altmaier
said that while German steel & aluminum exports to the US aren't a
huge factor in themselves, his concern is more general, that "such a
trade dispute could escalate, & so we would do well to avoid the
escalation." On top of the concerns over trade,
data on German factory orders & trade for the first 2 months of
this year have been disappointing. However, many economists argue that
talk of a slowdown is premature. Economic
indicators "are in no way pointing to a downturn," Altmaier said. "I
think any growth in the region of 2 percent or above is exceptionally
good growth, if you compare it with the history of the last 10-15 years
in Germany."
Germany trims 2018 growth forecast, but outlook still strong
China's foreign ministry said that it
welcomes a planned visit by Treasury Sec Steve Mnuchin to
Beijing next week amid trade tensions between the world's 2 largest
economies. Foreign
ministry spokesman Lu Kang said that China looks forward to
the visit for "consultation on trade and economic issues." The
US & China are entangled in their most consequential trade
dispute since World War II. Both countries have proposed tariffs of $50B on each other's products & Trump is looking to impose tariffs of
up to $100B more on Chinese goods. Announcing Mnuchin's visit, Trump said:
"We've put on very substantial tariffs, and that will continue unless
we make a trade deal. I think we've got a very good chance of making a
deal." Mnuchin
has expressed optimism that the countries can avoid a trade war. He met
last week with finance officials from China, Japan & Europe. Chinese President Xi Jinping, meanwhile, has vowed to open China's market wider to foreign companies.
China says it welcomes visit by US officials amid trade spat
Mortgage interest rates last week didn't start to climb until the end of the week, but even a few days were enough to dampen demand. Total mortgage application volume fell 0.2% for the week & was 0.8% lower than a year ago, according to the Mortgage Bankers Association's seasonally adjusted survey. The stall was equal for refinance & purchase applications, even though the former are far more rate-sensitive. Applications to refinance a home loan fell 0.3% last week & were 16% lower than a year ago. The refinance share of applications fell to 37.2% of all applications, the lowest level since Sep 2008 (Lehman collapse). Borrowers had no incentive to refinance, as the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453K or less) increased to its highest level since Sep 2013, 4.73%, from 4.66%, with points increasing to 0.49 from 0.46 (including the origination fee) for 80% loan-to-value ratio loans. Mortgage applications to purchase a home were unchanged for the week but 11% higher than a year ago. Homebuyers are less concerned about interest rates than they are about finding a home to buy. Demand is incredibly high, & even though more listings are coming on the market this spring, they are not enough to satisfy it. This dynamic is pushing home prices to new record highs & sidelining those buyers who are seeing entry-level homes. Gov loans, from the FHA or VA, offer low down payments, which entry-level buyers need. But there are few entry-level homes for sale, so there is less demand for loans to buy them. Sales of homes priced below $100K fell 21% in Mar from a year ago, according to the National Association of Realtors. Most of the sales activity is now in the move-up & high-end range.
Weekly mortgage applications stall as rates make sharp move higher
The 10-year Treasury yield rose above 3% for the first time since Jan 2014, in a signal that higher interest rates are ahead in the world's biggest bond market amid an onslaught of supply & a Federal Reserve intent on boosting interest rates. The yield, the benchmark for everything from mortgages to $ bonds in developing nations, climbed as high as 3.0014% yesterday, before retreating to 2.99%. Traders have been focused on the next round number on the horizon for days, even though no clear catalyst emerged as the main culprit for the longest selloff in a year. The move reinforces that yields are on the rise in the $14.9T Treasuries market. They surged in the first 2 months of the year, but pared that advance last month, leading some strategists to ponder whether 2018 might echo 2017, when optimism on the economy led yields to peak early in the year. Fed officials' most recent forecasts are for 2 additional rate increases in 2018. Traders are pricing in more than that. Bond traders have to grapple with a deluge of new gov debt. The US budget deficit will surpass $1T by 2020, 2 years sooner than previously estimated, the Congressional Budget Office said this month. At the same time, the Fed is trimming its balance sheet, meaning the amount of net new debt is poised to surge in the years ahead. The Treasury has asked primary dealers to give forecasts for America's borrowing needs over the coming 3 fiscal years, ahead of the next quarterly refunding announcement on May 2. Just this week, the department is issuing a combined $96B of 2-, 3- & 7-year notes, the largest slate of fixed-rate coupon sales since 2014. Yields on all the maturities are near multi-year highs.
U.S. 10-Year Yield Breaching 3% Bolsters Calls for Higher Rates
Crude closed higher as investors remained laser-focused for any signals from French Pres Macron on an Iran nuclear deal, overshadowing a bearish US inventory report. Futures in NY settled 0.5% higher after fluctuating during the session. Early on, data from the Energy Information Administration initially took traders by surprise, showing a larger-than-expected build in US crude stockpiles. By the end of the session, investors refocused on Macron's speech & the lingering issues around an Iran nuclear deal. Investors are eyeing remarks from Macron, who is pushing the limits of intl diplomacy, as his last-ditch appeal to salvage the Iran nuclear deal wrong-footed European allies & was met with intransigence by Pres Trump. Earlier in the session, crude fell briefly after the EIA data showed a US crude stockpile build of 2.17M barrels last week, larger than the 1.1M-barrel boost reported by the American Petroleum Institute. West Texas Intermediate crude for Jun delivery added 35¢ to settle at $68.05 a barrel. Brent crude for Jun delivery rose 14¢ to end the session at $74 a barrel. The global benchmark crude traded at a $5.95 premium to Jun WTI. The EIA report showed US crude supplies rose to 429.7M barrels last week, as refinery utilization ticked lower. At the same time, crude exports jumped for a 2nd week to the highest level on record. Gasoline supplies rose 840K barrels, the biggest build since late Feb. Oil stored at Cushing, Oklahoma, rose by 459K barrels last week & crude production hit a fresh record-high.
Stocks had another wild day. At the close little was accomplished. The Dow surged off its lows, but finished with a modest gain largely due to the 13+ advance by Boeing (BA), & NAZ spent much of the day little changed. The big picture story is pretty much the same. Earnings are coming in underwhelming & trade talks are moving very slowly. So the Dow keeps clinging to 24K, going nowhere fast.
Dow Jones Industrials
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