Mortgage Applications Jump, Inflation Remains Low, And Trade War Looking Up

A big day today, the signing of the US/China phase one deal in Washington. Yesterday it became clear that the US will not remove the existing $320B of tariffs; it surprised the markets that there is nothing in the deal now that would lessen them. The US will, however, not impose the $150B additional tariffs that Pres. Trump had threatened. The agreement had been seen as a significant accomplishment, a bit less so now that details are coming out. It’s 86 pages, and in politics, 86 pages is like a memo. The US agreed to halve 15% duties on $120 billion of imports and delay others in return for Chinese promises to make structural reforms and purchase an additional $200 billion in American goods.

The House is sending the impeachment to the Senate, and Mitch McConnell is indicating the trial will begin next week. The unanswered question is who will be called to testify. Likely there will be witnesses, among Republicans there is a desire to allow witnesses but who? On impeachment, McConnell is saying the trial will probably go on past the February 3rd Iowa caucuses.

Dec PPI, another inflation read that was lighter than forecasts, the same we saw yesterday when the CPI was reported. PPI +0.1%, yr/yr +1.3%; ex-food and energy +0.1%, yr/yr +1.1%. Recent inflation data is softening and likely getting the attention of the Fed. The concern is that inflation may be declining and could be a harbinger that consumers are beginning to slow down purchases that would lead to a softening economic outlook.

Mortgage applications increased 30.2% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 10, 2020. On an unadjusted basis, the Index increased 67% compared with the previous week. The Refinance Index increased 43% from the previous week and was 109% higher than the same week one year ago. The seasonally adjusted Purchase Index increased 16% from one week earlier. The unadjusted Purchase Index increased by 51% compared with the previous week and was 8% higher than the same week one year ago.

At 9:30 am ET the DJIA opened -39, NASDAQ +9, S&P -1. 10 yr 1.79% -2 bps. MBS prices +2 bps from yesterday’s close and +7 bps from 9:30 yesterday.

On a lesser note, the Jan Empire State Manufacturing index increased to 4.8 from 3.5 in Dec and higher than 3.6 forecasts.

At 2:00 pm ET this afternoon, the Fed will release its Beige Book the details from the 12 Fed districts; it usually passes with no market reactions.

The 10 yr continues to slowly improve while mortgage rates remain essentially unchanged. Our tech models remain bullish for the 10 yr but recently, in terms of the MBS markets, the bullishness hasn’t transferred to mortgage rates.

Source: TBWS