Published Date 1/9/2019

Stock indexes continue to improve. The 10- yr note at 7:00 am ET was at 2.74%, +1 bp. MBS prices dropped -8 bps on the first print at 8:30 am.

Weekly MBA mortgage applications last week indicated a nice bounce, the composite apps were up +23.5%, purchase apps increased +17.0%, and re-finance apps were up +35.0%. Purchase applications were back into positive year-on-year territory at 4% above the level in the same week a year ago. The refinance share of mortgage activity rose 3.1 percentage points to 45.8%, the highest level in 11 months. The average interest rate on 30-year fixed-rate fell to its lowest level since April 2018. The recent decline in rates over the two week holiday season drove markets; a shame the decline didn’t occur during normal non-holiday times.

Trade talks with China ended today, one day longer than was planned. China’s foreign minister commented, “I can only say that extending the consultations shows that the two sides were indeed very serious in conducting the consultations.” No statements from either side were released; tomorrow expect both to issue more detailed statements. More than tariffs, the central issue is China’s continued theft of intellectual property. People familiar with the negotiations told Reuters yesterday the two sides were further apart on Chinese structural reforms that the Trump administration is demanding in order to stop alleged theft and forced transfers of U.S. technology, and on how China will be held to its promises. Bottom line; progress was apparently made; tomorrow we may know about any continuing meetings.

Crude oil, on optimistic trade views and Saudi cuts, continues to increase, now about $5.00 higher than at the beginning of the year.

At 9:30 am the DJIA opened up +115, the NASDAQ added +24, and the S&P was up +8. The 10-yr at 2.73% remained unchanged from yesterday.

At 1:00 pm  the Treasury will auction $24B of 10s (9-yr 10 months). The demand is import after the recent decline in rates. Yesterday at the short end of the curve (3-yr note) the demand was weak and lower than the average of the last 12 3 yr auctions.

At 2:00 pm the minutes from the FOMC meeting will be released — always something that fuels discussion. Since the December meeting last week, in a shift in thinking at the Atlanta conference, Jerome Powell implied the Fed would be more focused on the actual economy and less on those models that have kept the Fed thinking more rate increases. Criticism of the Fed has risen recently on increasing rates that most now believe have contributed to the stock market rout in the US.

President Trump’s address to the nation last night about border security and the wall. The consensus is after both sides had their address, nothing has changed, and there’s still little hope of a breakthrough in negotiations over the shutdown.

The rate markets are continuing to rebound after the major rapid declines in rates. The 10-yr at 2.73% finds its first support at its 20-day average at 2.77%; the major support is 2.82%. The 10 dropped to 2.55% on the 3rd and is now 18 bps higher. Stock market improvement has lessened the stampede to safe havens; gold also falling after increasing as equity markets fell.

Source: TBWS