Mortgage applications for home purchases jump, and Fed dismisses negative rates

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Published Date 5/13/2020

Stock indexes started better this morning after the indexes rolled over yesterday afternoon to end the session down -457 on the DJIA and -190 for the NASDAQ. The 10 yr note at 8:00 am ET this morning at 0.66%, -3 bps. By 9:30 am ET, the indexes opened weaker. Investor sentiment was dampened by reports of a partial lockdown being implemented in China's Jilin City, as concerns began building about a second wave of coronavirus infections.

MBA reported weekly mortgage applications last week +0.3% for the composite, purchase apps +11.0% while refinance applications dropped 3.0%. On an unadjusted basis, the Index increased 1 percent compared with the previous week. On an unadjusted basis, the Index increased 1 percent compared with the previous week. The Refinance Index was 201 percent higher than the same week one year ago. The refinance share of mortgage activity decreased to 67.0 percent of total applications from 70.0 percent the previous week. The adjustable-rate mortgage (ARM) share of activity fell to 2.9 percent of total applications. The unadjusted Purchase Index was 10 percent lower than the same week one year ago. In the ten largest states in MBA's survey, New York - after a 9 percent gain two weeks ago - led the increases with a 14 percent jump. Illinois, Florida, Georgia, California and North Carolina also had double-digit increases last week," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting. "We expect this positive purchase trend to continue - at varying rates across the country - as states gradually loosen social distancing measures, and some of the pent-up demand for housing returns in what is typically the final weeks of the spring homebuying season."

The FHA share of total applications increased to 11.5 percent from 11.1 percent the week prior. The VA share of total applications increased to 13.7 percent from 13.3 percent the previous week. The USDA share of total applications increased to 0.6 percent from 0.5 percent the week prior.

April PPI expected at -0.5% fell 1.3%, yr/yr expected -0.2% dropped 1.2%. The core PPI forecast was -0.1%, as released -0.3%; yr/yr +0.6% on estimates of +1.0%. PPI less the core and trade services was thought to be -0.2% but fell 0.9%; yr/yr -0.3% frm +1.0% in March.

Fed's Powell is speaking now, saying his colleagues are staring down the possibility of mass bankruptcies and long-lasting unemployment unless there's a more concerted government effort to shield the US economy from the impact of the coronavirus pandemic. Some investors are looking for insights into how hard Powell's resolve is against cutting the Fed's benchmark interest rate beneath zero, something he has warned against doing in the past. President Trump, on Monday, called such a policy a "GIFT" for the economy. The Fed already cut their benchmark interest rate to nearly zero, engaged in open-ended bond-buying, and begun rolling out emergency lending programs as US unemployment has soared to levels not seen since the 1930s Great Depression. Powell has pushed for more fiscal spending to hold the economy together. In the trading of Fed funds, traders are already betting the Fed will go negative on the Federal Funds rate next year. A new report by JPMorgan Chase & Co. argues evidence in the euro area suggests a slightly negative rate could spur credit creation. Powell is saying the US economy stands on the cusp of its reopening, but the country could face an "extended period" of weak growth and stagnant incomes. The longer the health risks persist, Powell added, the more likely businesses will fail, and households will be strapped for income in a downturn.

At 9:30 am ET, the DJIA opened -185, NASDAQ -22, S&P -18. 10 yr at 9:30 am 0.67% -2 bps. FNMA 3.0 30 yr coupon at 9:30 am +3 bps from yesterday's close and +11 bps from 9:30 yesterday.

At 1:00 pm ET, Treasury will auction $22B of new 30s; over the last three weeks, the Treasury auctions have met with good demand, especially with foreign demand.

Source: TBWS

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