Markets start the week with volatility

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Published Date 3/5/2018

The mortgage market started better this morning along with the 10 yr note yield down 2 bps from Friday at 2.84%; it lasted all of three hours before the 10 yr jumped to 2.90% and drove MBS prices down 17 bps after +14 bps at 9:30 AM ET. Markets are as twisted as we have seen the last few weeks on trade worries and concerns of trade wars spreading around the world. The stock market started softly with the DJIA opening -150 points on those concerns and in an otherwise negative bias.

Stocks found buyers this afternoon leading to declines in MBS prices and increased 10 yr note rate. Data still important, but presently the only issue is about the geopolitical trade. This morning the Feb ISM services sector index was better than forecasts as have been most economic measurements this year. The index expected at 58.8 from 59.9 in January better at 59.5. New orders in ISM at 64.8 with new export orders also unusually strong at 59.5. These are moving into backlogs which keep building, to 56.0 which is unusually strong for this reading. Deliveries continue to lengthen and input prices, at 61.0, are clearly elevated. Hiring in the month but, at 55.0, the employment index is down sharply from January's 61.6 which does not point to rising strength for Friday's employment report. Overall it goes into the plus column and won’t be unnoticed by savvy traders and investors.

Stocks had another volatile trade today; the DJIA had a 500 point range. Many do not want the tariffs, but President Trump will likely put them into effect. The specifics are crucial and this afternoon investors settled down and bet on the trade worries will moderate and President Trump will lessen his rhetoric and stance. Some calling his unexpected announcement last Thursday as a negotiation ploy. Trade negotiators currently in Mexico for NAFTA talks. Trump said Canada and Mexico could avoid his proposed tariffs if they ceded ground on the present NAFTA treaty.

Tomorrow the only data; Jan factory orders expected -1.2%.

Feb employment report on Friday is this week’s most significant economic data.

Wish there was better news we could talk about, but. We have been bearish the bond and mortgage markets since early January, recently after a rapid increase the bond market has been consolidating, moving in back and forth trade but no significant change in the bearish outlook. Volatile in its range, the 10 between 2.80% and 2.95% averaging about 2.86% in February. No change in the outlook for the Fed to move the Federal Funds rate up 0.25% in two weeks and the most optimistic view is three rate increases this year.

This Week’s Calendar:

Today,

10:00 am Feb ISM Services sector index (expected 58.8, as reported 59.5)

Tuesday,

10:00 am January factory orders (-1.2%)

Wednesday,

7:00 am weekly MBA mortgage applications

8:15 am Feb ADP private jobs (+203K)

8:30 am Q4 productivity and unit labor costs (productivity -0.1%, nit labor costs +2.2%)

Jan US trade balance (-$55.0B)

3:00 pm Jan consumer credit (+$17.8B down from $18.4B in December)

Thursday,

8:30 am weekly jobless claims (220K +10K)

Friday,

8:30 am Fed employment data (unemployment 4.0% -0.1%; NFP jobs +205K, private jobs +195K; average hourly earnings +0.2%, yr/yr +2.9%; manufacturing jobs +17K; labor participation rate is unchanged at 62.7%.

10:00 am January wholesale inventories (+0.7%)

Source: TBWS

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