Rates flat as markets resume volatility

___

Published Date 4/2/2018

Another selling binge today; at one point the DJIA off 750 points, NASDAQ and S&P also hammered. The bond and mortgage markets unchanged on the day; the stock indexes improved in the final hour, the DJIA once down 750 recovered 300 points from the low.

The March IMS manufacturing index slipped a little from what was expected but remains very constructive as a measurement of strength. Shortages of skilled workers and rising capacity constraints, but growth in the manufacturing sector remains underpinned by strong domestic and global economies. Feb construction spending once again didn’t rise to forecasts, up 0.1% with a consensus of +0.5%; spending in January remained flat as was the original report.

Trump again on the warpath about Amazon using the post office to deliver their packages and still roiled over the lack of taxes paid by Amazon. According to Amazon, it pays state sales taxes in 45 states that ask for it and paid $418M in 2016 federal taxes. Amazon stock dropped $87 today.

Equity markets continue to worry over trade issues. Over the weekend China slapped trade tariffs on US grains and some meats but commented saying that Beijing’s response is designed to be limited and doesn’t seek to escalate tensions.

Tomorrow March auto and truck sales; overall estimates about unchanged from Feb. Feb sales totaled 17.1 mil, March expected at 17.0 mi; domestic sales in Feb were 13.2 mil, March thought to be 12.9 mil.

Not any new news; trade, over-bought stocks, the Fed poised to increase rates, all the recent key drivers for US and global equity markets. Interest rate markets holding quite well at the long end of the curve as short-term rates edge higher almost daily. Not just the Fed but the ECB and BofJ also sending stronger signals that stimulus is going to be withdrawn. Not many places to park investment funds now, mostly keep money in cash. In Early January we believed a major correction in US stocks would happen by March, we were off a few weeks, it all flipped in mid-Feb. There were no trade war fears at that time; now that has added to the pressures. The Fed and market analysts still expect economic growth to increase, and investors big and small also following along with that outlook. Now, the equity market is about to find a solid bottom, a buying opportunity that will launch another run higher; this time though it will happen with more volatility. Probably not tomorrow, but it is time to begin to plan for it but not act yet. Watch closely how consumers act and spend. Beside March employment on Friday, the Feb consumer credit data will be released.

The bellwether 10 yr declined 2 bps at one point to 2.72%, close to our 2.70% technical target. In the last 90 minutes of trading in stocks, the indexes recovered as day traders closed out, as the indexes climbed off their lows the 10 yr increased and the yield returned to unchanged from last Thursday. MBS prices at their best were up 9 bps on the session and 20 bps higher than at 9:30 am ET this morning, but by 4:00 unchanged on the session, up 11 bps from 9:30. Mortgage interest rates have been steady since early Feb although short-term rates have increased. Consumer rates for short-term borrowing (auto loans, appliances and other higher cost goods up more than 50 bps and credit card rates jumping as defaults and late payments increase).

Source: TBWS

All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.

http://nmlsconsumeraccess.org/

NMLS # 75605