Mortgage rates ticking higher on less than expected damaged by Irma

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Published Date 9/11/2017

Irma has passed, North Korea did not launch another ICBM as was rumored. The dollar is improving and US and global rates increasing on the lessened drive to safety. US stock indexes in pre-opening trading were roaring, with the DJIA +150 from Friday’s close. There is no data to think about today, but Treasury will begin this week’s borrowing, with $24B of 3-yr. notes at 10:00 am EDT. The 10 Tuesday and the 30 on Wednesday; the total: $46B $10B, less than the last 3,10, and 30-yr. auctions.

MSCI All Country World Index, which tracks 2,400 stocks around the world, increased to new highs this morning on beliefs that damages from Irma won’t be as severe as expected and that North Korea didn’t conduct another rocket launch that was expected over the weekend. Risk back on this morning, investors back to buying equities and shedding safe haven trades in sovereign debt and gold. The dollar stronger, the best gains in the last 10 sessions for the buck.

It isn’t the first time in my life that I am surprised; the amount of gains in global and US stocks this morning was not something I expected. North Korea still rattling sabers, and the impact of Harvey and Irma is still an unknown. Some gains were a possibility, but the magnitude of the moves in US and global markets in equities, currencies and interest rates is unexpected. The UN scheduled to vote on additional sanctions against North Korea today; the little general warning of retaliation if the UN Security Council approves harsher sanctions over its recent nuclear tests, but markets seem to ignore it. Fear factors were high last week on NK, today it’s as if there is nothing to be concerned about. The yield on 10-year Treasuries gained five basis points to 2.11%, the highest in a week. Germany’s 10-year yield climbed three basis points to 0.34%. Britain’s 10-year yield increased five basis points to 1.04%, the highest in a week.

Not much in the way of economic data this week until Wednesday with PPI, and Thursday and Friday a number of key reports. (see calendar below).

Volatility increasing, the reactions to the less-than-expected damage caused by Irma have driven stocks to levels we didn’t expect. The 10-yr. note yield +5 bps; we have noted many times recently that it would take a lot of bearish outlooks to drive yields lower from the lows we had last week. The next support now for the 10 is its 20-day average at 2.15%. The next concerns for investors are the debt ceiling and the still uncertain tax cuts that many are expecting. Next week, the FOMC meeting and what the Fed is thinking. Inflation still not in the picture, but low and unexplained inflation is still not fully believed by central bankers and most economists.

This Week’s Calendar:

Monday
- 1:00 pm $24B 3 yr. note auction
Tuesday
- 6:00 am NFIB Small Business Optimism Index (104.5 from 105.2 in July)
- 10:00 am July JOLTS job openings (6.010M from 6.163M in June)
- 1:00 PM $20B 10-yr. note auction
Wednesday
- 7:00 am weekly MBA mortgage applications
- 8:30 am August PPI (+0.3%, ex food and energy +0.2%)
- 1:00 pm $12B 30-yr. bond auction
Thursday
- 8:30 am weekly jobless claims (+2K to 300K) August CPI (+0.3% yr./yr. +1.9%; core CPI +0.2% yr./yr. +1.6% down from +1.7% in July)
Friday
- 8:30 am August retail sales (+0.1%, ex autos +0.5%, ex autos ad gasoline +0.3%; control group +0.3%) Sept NY Fed Empire State manufacturing index (19.0 from 25,2 in August)
- 9:15 am August industrial production and factory use (production +0.1%, factory use 76.8% from 76.7% in July)
- 10:00 am July business inventories (+0.2% down from 0.5% in June) U. of Michigan consumer sentiment index (96.0 from 96.8 at the final in August)

Source: TBWS

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