The Market Today

TODAY’S CALENDAR

Mortgage Applications Edged Lower: Mortgage applications edged 0.2% lower for the week ended April 20 as refinance activity slowed 0.3% and purchase applications were flat after a healthy bounce the week before. The prior week’s report showed a 4.9% gain in overall activity driven by a 6.1% improvement in purchase activity and a smaller 3.5% gain for refinancings. Likely a factor in neutralizing activity, the same report from the Mortgage Bankers Association showed the average 30-year fixed rate rose from 4.66% to 4.73%, the highest since September 2013. That same week, a rally in commodities helped push the 10-year yield up to 2.96% which was, at the time, its highest mark since January 2014. As discussed in our quarterly economic webinar (beginning at the 38 minute mark here, and slides 24 and 25 here), we see higher mortgage rates as one of the bigger risk to slower housing activity.

 

With nothing else on Wednesday’s economic calendar, investors will remain fixated on the U.S. 10-year yield’s re-entry into the 3% yield range (more below in TRADING ACTIVITY).

 

TRADING ACTIVITY

Yesterday – 10-Year Treasury Yield Closed at 3.00%: A confluence of factors sent equities sliding Tuesday. At 8:48 a.m. CT, the 10-year Treasury yield printed a three-handle for the first time since early 2014. The key technical level has been in the market’s sight for the last several days but is expected to provide a significant amount of technical support. As a result, the quick recoil lower wasn’t surprising. Higher rates added to overall pressure on equities, which also responded negatively to some unkind guidance from a couple of major companies. Tech companies, industrials, and materials led the S&P 500 down 1.3%. After disappointing earnings guidance, the index’s biggest loser, Freeport-McMoRan, led losses for materials while 3M and Caterpillar weighed on industrials. The latter two companies were also two of the three biggest Dow losers, taking the index down for a fifth consecutive session for the first time since March 2017. And while the equity downturn pushed the 10-year back lower briefly, it recovered late in the afternoon to finish at a rounded 3.00%.

 

Overnight – Global Investors Remain Apprehensive as 10-year Treasury Holds Above 3.00%: Global equity sentiment has struggled Wednesday as sovereign rates have pushed higher and provided a potent distraction for investors already busy sifting through a flood of corporate earnings. Equities across Asia and Europe fell as antsy eyes remained focused on a 3.00% 10-year U.S. Treasury yield. The key benchmark security pushed above 3.00% yesterday for the first time since 2014 and had inched 2.6 bps higher to trade at 3.03% earlier this morning. The 2-year yield was trading at 2.50%, the highest since August 2008, and the 5-year note moved up to 2.85%, its highest yield since June 2009. The Dollar has firmed in response to higher yields, now having risen in six of the last seven sessions to its strongest level since early January. Those factors are likely to keep a lid on U.S. equities today despite an uplift from several positive pre-market earnings surprises. The tech-heavy Nasdaq is leading losses across U.S. equity futures.

 

NOTEWORTHY NEWS

Consumer Confidence Bounced Back to Third Highest Level Since 2000: Consumer confidence rebounded unexpectedly in April, reaching its third highest level since a string of impressive reports back in 2000. The assessments of both the present situation and future expectations rose from their March levels but remained below February’s more-than-17-year highs. Within the details, the gains in the present assessment were built upon moves towards the middle in underlying subcomponents. The number who said business conditions were “normal” grew from shrinking shares of those who see it as “good” or “bad”. More people saw jobs as “not so plentiful” and fewer saw them as “plentiful” or “hard to get”. Looking ahead, more expect better business conditions, more job gains, but more of the same for income growth. Nonetheless, rebounding confidence should add momentum to the belief that consumers will bounce back in 2Q after a slow start to the year. In fact, more consumers reported plans to buy an auto, a home, or a major appliance.

 

New Home Sales Surpassed Estimates in March, Included Strong Net Positive Revision to the Prior Two Months: Sales of new homes were surprisingly strong in March, rising at a monthly rate of 4.0% (expected +1.9%) to an annualized sales pace of 694k units (expected 630k), the second strongest pace since 2007. Similar to Monday’s existing sales report, activity was split across the various regions. Whereas existing sales were propped up by gains in the Northeast and Midwest, those two regions saw declines in new home sales activity. While slower activity in the South and West weighed on total existing home sales, those two regions saw improvement in new home activity. After the March report, activity in the first quarter looks stronger than expected but still represented a slower gain than in 4Q17.

 

Steady Uptrend for Home Prices Remains Intact: Two separate measures tracking trends in home prices showed another month of steady price appreciation in February. The FHFA’s house price index rose an as-expected 0.6% MoM which pulled the YoY rate down from 7.4% to 7.2%, the second fastest pace since 2013. In a separate release, the S&P CoreLogic Case-Shiller index reported home prices up 6.8% YoY across the major 20-city metros and 6.3% nationally; both represented the fastest pace since the first half of 2014. While there has been some unevenness in the home sales data recently, prices have remained in their steady uptrend.