Morning Market Commentary - 3/2/18

Yesterday, Fed Chair Powell eased investors’ concerns that monetary policy will tighten at a faster pace than previously estimated, stating “There is no evidence the economy is currently overheating.” Using wage growth reports and the labor participation rate as indicators, he believes there is some slack in the market. Powell believes one-time transitory factors such as the Amazon effect have held back inflation from hitting the Fed’s 2% target. Equities seemed to stabilize following the testimony until President Trump announced he plans to impose tariffs on steel and aluminum imports. This coupled with the weak vehicle sales report, $16.9M vs $17.2 expected, sent the DIJA index plummeting more than -550 points from mid-day. Chrysler, General Motors, and Ford stocks all fell more than 3% on concerns that the new tariffs coupled with tightening credit requirements and higher interest rates may reduce sales for US auto makers even further. The DOW, S&P, and NASDAQ all fell on Thursday, -420.22 to 24608.98, -36.16 to 2677.67 and -92.45 to 7180.56, respectively.

Treasuries caught a bid in the afternoon showing sizable gains across the curve, with yield dropping on the 10yr 5bps to 2.80%. Mortgages underperformed treasuries closing at the wides of the day, -2/32nds, as they could not keep up into the afternoon rally despite better buying from real and fast money accounts. Supply picked up in the afternoon with an even split between the 3.5% and 4.0% coupon. The FN30yr 4.0% increased 9/32nds to 102-21+ and the FN15yr 3.5% rallied +6.5/32nds to 101-27. In agency swaps, the FG/FN 30yr 4.0% moved slightly higher to 1/32nds and the G2/FN 30yr 4.0% moved lower by 1.5/32nds to 5.5/32nds. Daily origination was $1.9B vs the 5 day average of $2.0B.  

This morning global stocks are down as concerns over a trade war following President Trump’s tariff announcement yesterday. Currently Britain’s FTSE 100 is down 1.03% to 7,101. EU Commission President Jean-Claude Juncker promised to hit back stating “The EU will react firmly and commensurately to defend our interests.”

Today is light on economic releases with University of Michigan sentiment at 10:00AM. The Fed is set to purchase $350M of FG30yr’s and 460M of FN30yr’s. This morning Theresa May will speak and set out her vision for Brexit moving forward. Equity futures are down with the S&P future -15.75.

Source: Fannie Mae

Michael Hess has more than 20 years of residential and commercial mortgage banking experience, serving on executive leadership teams of national mortgage banks, and managing regional lending divisions for federally chartered institutions. His Mindful Mortgage approach offers the resources and expertise of a national mortgage banker with the personal touch of a community lender. Contact him today for a stress-free solution for all of your real estate financing needs.

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