Are rates done moving higher?

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Published Date 11/16/2018

A little softer in the US stock market early this morning; the 10 yr note 3.09% -2 bp, MBS prices +3 bps from yesterday’s close. The dollar is weaker in early activity.

Sec of Commerce Wilbur Ross commenting that a trade deal with China is impossible by January. Trump and Xi will meet face-to-face at the end of the month at the G-20 meeting. The best Ross expects is a framework for more talks. When asked about a report that China this week had presented a list of possible concessions ahead of the talks, Ross said in an interview Thursday that everything leading up to the meeting is just “preparatory.” “We certainly won’t have a full formal deal by January. Impossible.”

At 9:15 am ET October industrial production and capacity utilization; production expected +0.2% increased 0.1%; Sept production initially reported +0.3% was revised to +0.2%. Manufacturing was up 0.% as was expected. Factory use spiked higher, October expected at 78.2% increased to 78.4% after Swept was revised higher, from 78.1% to a strong 78.5%.

At 9:30 the DJIA opened -77, NASDAQ -66, S&P -10. 10 yr note 3.09% -2 bp. Conventional 30 yr MBS price +11 bps from yesterday’s close and +7 bps from 9:30 yesterday.

Not much to focus on today but markets always find something to talk about. Late Wednesday Jerome Powell opened the door a crack with remarks the Fed may be tilting toward fewer rate increases next year than what markets had been expecting. Most analysts were thinking three to four increases in 2019, after Powell’s comments listed three possible challenges to growth in 2019: slowing demand abroad, fading fiscal stimulus at home and the lagged economic impact of the Fed’s past rate increases. The Fed is a sure thing to increase the Federal Funds rate on Dec 19th at the conclusion of the FOMC meeting. Also at the meeting, it's time for the Fed to release its forecasts for growth, employment, and inflation as it does every quarter. The last quarterly data didn’t indicate any significant increase in inflation and cut the GDP growth slightly from the June data. The data recently has conflicted with Fed speeches and Powell’s remarks. You have heard that the Fed wants the Federal Funds rate at a neutral level; what you and anyone else hasn’t heard is, what is neutral.

Looking ahead: next week is a holiday week, a week that more than others thins out markets. Thanksgiving, even more than Christmas, drains participants as many take Wednesday and Friday off. Of course, markets will be closed on Thursday, and the Bond market will close at 2:00 pm on Friday. The world does continue although we don’t see anything out there now that will motivate huge movements while the US is shopping.

Jim Cramer, CNBC, yesterday said company leaders across industries are telling Jim Cramer — off the record — that they're worried about a slowdown in the U.S. economy. "So many CEOs have told me about how quickly things have cooled," the "Mad Money" host said. "So many of them are baffled that we could find ourselves in this late-cycle dilemma that wasn't supposed to occur so soon."

No more data today, Chicago Fed Pres Evans at 11:30. The dollar is continuing to weaken this morning; still bullish but retracement happening now.

Source:TBWS

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