Mortgage Refinance Applications Spike 79% As Rate Volatility Continues

The DJIA rallied 1167 point yesterday, in early futures trading this morning down 800 points. The 10 yr note yield yesterday jumped 22 bps to 0.79%, this morning starting at 0.70%. Goldman Sachs out today, saying that the 11-year run bull market is coming to an end. It appears likely for the rest of this year, jobs still strong and inflation low; once the virus settles, there will be a clearer outlook than where we are today. Lower crude-oil prices and interest rates are likely to erode earnings for energy and finance companies, and business activity will probably be weaker than previously anticipated in other sectors, Goldman wrote. “Both the real economy and the financial economy are exhibiting acute signs of stress,” Goldman Sachs said in the note.

The headline for the decline this morning is that the stimulus package President Trump proposes (removing payroll taxes for employees and employers) may be challenging to achieve. Got to have a reason, and every day there is another one. Yesterday the stimulus news sent stock indexes sky-rocketing, +1167 for the DJIA, this morning some concerns sending the index down 900 points at 8:45 am ET.

Johns Hopkins confirmed global infections reach 119,476 in 118 countries and regions; death toll more than 4,200. The US cases 1,000; South Korea: 242 new cases; bringing total to 7,755; Japan: 54 new infections; total rises to 568. Private health insurers agreed to extend coronavirus treatment coverage in all of their plans and waive co-payment fees for testing, Vice President Pence said yesterday. The Fed and other key central banks are facing issues they haven’t dealt with before; how to judge the potential impact on the economy in the absence of reliable data on how fast the flu-like illness is spreading across the United States. The economic impact “is largely going to depend on how many people are going to be infected by this…how many people will be able to go to work, and how many hours they will be able to put into production,” said Arizona State University’s Bart Hobijn, who was a Fed economist during the financial crisis.

Feb CPI +0.1% as expected, yr/yr +2.3% as expected; core CPI +0.2% as expected, yr/yr core +2.4% expected 2.4%. More old data in this current environment.

Weekly MBA mortgage apps last week continue to explode, putting additional pressure on the industry. The composite applications increased by 55.4%, following 15.1% the previous week. Purchase apps +6.0%. Refinance apps increased by 79% after rising 26.0% the previous week.

At 9:30 am ET, the DJIA opened -750, NASDAQ -216, S&P -83. 10 yr 0.70% -1 bps. MBS prices at 9:30 +17 bps from yesterday’s close and -29 bps from 9:30 am ET yesterday.

This afternoon Treasury will auction $24B of 10s re-opening the issue from Feb. Yesterday the 3 yr auction didn’t get much demand from foreign buyers. Also, this afternoon at 2:00 pm ET, the Feb Treasury budget is expected to show a deficit of $239B. The present outlook for fiscal 2020 is about $1 trillion deficit, but if Trump can cut payroll taxes as he is talking about, the 2020 deficit could jump to $1.5 trillion to as much as $2 trillion.

Look or another day of volatility in the equity markets and in turn in the rate markets as well.

Source: TBWS