Election results helping to push rates slightly lower

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Published Date 11/7/2018

The elections turned out just as expected. The House went to Democrats, and the Senate stayed Republican. The stock market has liked the results so far. The indexes at 9:30 am ET opened higher; the DJIA opened up +226, the NASDAQ added +61, and S&P increased +25. The 10-yr note is also improving a little. At 9:30 am it stood at 3.19%, losing -3 bps.

Weekly MBA mortgage applications declined once again; down 4.0% overall, down 5.0% for purchases and losing -3.0% for re-finances. The unadjusted purchase index at 0.2% is below its reading in the comparable week last year and at the lowest level since November 2016. The refinance share of mortgage of activity decreasing to 39.1%.

The FOMC meeting is just getting underway; as you know there won’t be anything today; the policy statement takes place tomorrow at the end of the meeting at 2:00 PM. No change in rates at this meeting; the statement should make it clear that the December meeting will see another 0.25% increase in the Federal Fund rate.

At 1:00 pm the Treasury will auction $19B of new 30s; yesterday’s 10-yr auction did meet with strong demand from foreign investors (indirects).

Later this afternoon at 3:00 pm September consumer credit is expected to add +$16.5B, down from $20.1B in August. The only thing in the report is the revolving credit category (credit card use).

Now that Democrats have won control of the U.S. House, they will be able to force administration officials to testify and provide documents. That will subject Trump’s decision-making -- as well as his finances and potential conflicts of interest -- to deeper public and private examination by key committees, as the national focus shifts to the 2020 presidential election. Trump’s Twitter response “If the Democrats think they are going to waste Taxpayer Money investigating us at the House level, then we will likewise be forced to consider investigating them for all of the leaks of Classified Information, and much else, at the Senate level. Two can play that game!”

The 10-yr note yesterday momentarily hit its September high at 3.23% before backing down to 3.22% — a double top on the yield charts and something we will focus on. A failure to break above 3.23% in the next few days will likely force some of the market short positions to exit the bearish trade. It is a momentary trading event, and it won’t change the bearish outlook for interest rates.

Source: TBWS

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