Morning Report: Weak data sends bond yields lower

Vital Statistics:

 

Last Change
S&P futures 2832.5 -6
Oil (WTI) 61.11 -0.59
10 year government bond yield 2.36%
30 year fixed rate mortgage 4.17%

 

Stocks are lower after weak economic data out of China. Bonds and MBS are up.

 

Some weak economic data this morning, which is pushing bond yields lower. The 10 year is trading at 2.63%, which is the lowest level since December 2017.

 

Mortgage Applications fell 0.6% last week as rates were more or less steady. Purchases fell 0.6%, while refis fell 0.5%. The typical 30 year fixed rate mortgage came in at 4.24%. “Purchase applications declined slightly last week but still remained almost 7 percent higher than a year ago,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Despite the third straight decline in mortgage rates, refinance applications decreased for the fifth time in six weeks, albeit by less than 1 percent.”

 

Separately, 30-day and 60-day delinquencies did tick up in the first quarter, however foreclosure inventory is at the lowest level since 1995.

 

Retail sales disappointed, with the headline number coming in -0.2%. Ex autos, they rose 0.1% and the control group was flat. YOY, they were up 3.1%

 

Industrial Production and manufacturing production both fell 0.5% in April, while capacity utilization fell to 77.9%.

 

After the weak data, the December Fed Funds futures are forecasting a 76% chance of a rate cut this year, and the June futures are factoring in a 1 in 5 chance of a 25 basis point cut. 1 month ago, the markets were handicapping a 40% chance of a cut this year, so there has been a big change in sentiment. While that seems aggressive given the language out of the Fed, it is hard to ignore what the markets are saying.

 

fed funds futures

 

 

 

 

4 Responses

  1. It’s another example of what political scientists call asymmetric polarization: the idea that the two parties are not, in fact, equally extreme, but that Republicans have become much more so.

    https://www.washingtonpost.com/us-policy/2019/05/15/republicans-couldnt-possibly-be-more-hypocritical-about-economy/?utm_term=.8f2f727ef722

    Goes to The that whole “watching two different movies” metaphor Scott Adams likes so much.

    I don’t have any problem conceding Republicans are hypocritical on policy and use of power when they are in power vs. out. Like all politicians.

    But they idea that Democrats are any less creatures of political convenience and expedience is … doubtful.

    And in a general sense, the idea they are less “extreme” …. have you seen the 2020 Democratic field?

    Like

    • Dr. Cowbell’s view that the reason why the economy is so strong is because of tax cuts shows how blinkered he is about the role of government in the economy.

      The biggest post WWII deficits as a percent of GDP were the first 5 years of the obama admin.

      Like

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