The Market Today

NOTEWORTHY NEWS

Mortgage Applications Cool for a Second Week: After a solid four-week run that tracked mortgage rates March decline, mortgage applications have now cooled in the first two weeks of April. Total mortgage applications fell 3.5% last week after a 5.6% drop in the week before. However, the slower pace of activity has been exclusively driven by refinancing interest which cooled 8.2% last week and 11.4% the week prior. After falling for four consecutive weeks from 4.67% to 4.36%, the rate has moved back up modestly to 4.44%. As for new purchases, the weekly data’s implications were more positive and continued to point to stability in home sales activity. Purchase applications inched up 0.9% last week and have now risen in each of the last six weeks. The six-week run marks the longest consecutive stretch of improvement since at least 1990 and has pushed the index up 16.7% from where it started March.

 

Trade Balance Narrows Unexpectedly to Eight-Month Low: After narrowing much more than expected in January (-$51.1B versus -$57.0B), the trade balance narrowed even further in February. Economists expected the trade balance would widen to $53.4B but a second month of exports growth outpacing imports narrowed the deficit to $49.4B, an eight-month low. Exports rose 1.1% in total as stronger capital goods activity and another solid month for autos offset a recoil in food activity. As for imports, total imports inched up 0.2% as weakness in food and industrial supply offset a 2.8% increase in consumer goods. On a bilateral basis, the deficit has narrowed sharply with both China (17-month low) and the EU (9-month low) to start 2019. The continued strength in the trade deficit should result in additional positive revisions to 1Q GDP estimates.

 

Later Today: At 9 a.m. CT the Census Bureau will release wholesale trade and inventory data for February. Stronger inventory indications have been one factor behind positive upward revisions to the earliest 1Q GDP estimates. The rest of the day will be reserved for Fed news, with Philadelphia’s Harker speaking at 11:30 a.m. CT, San Francisco’s Bullard making remarks at 11:45 a.m. CT, and the Fed’s latest Beige Book scheduled for release at 1 p.m. CT.

 

TRADING ACTIVITY

Yesterday – Stocks Gave Up Most of Their Morning Gains, But Treasury Yields Held Higher: U.S. stocks closed up Tuesday but finished well off of their highs reached early in the session, after a spate of positive corporate earnings failed to hold investors’ optimism throughout the day. The Dow closed up 0.26% but had risen as much as 0.55%. Johnson & Johnson, the 12^th mostly heavily-weighted Dow component, jumped 3.1% after its earnings beat the average estimate, but edged down to end the day up 1.1%. UnitedHealth Group, the index’s second largest component, also beat expectations but it’s stock erased a 3.4% gain and replaced it with a nearly 4% loss by the close. Analysts pointed to continued concerns about a political push in Washington for universal insurance and Medicare-for-All as a driver of the drop. Health care companies were also the second largest drag on the S&P 500 which ended the essentially unchanged from Monday’s close. Financials gave the index an offsetting lift and led all sectors, helped out most by shares of U.S. insurance companies. Progressive Corporation rose nearly 7% after beating earnings expectations. While Bank of America also exceeded earnings estimates, its stock rose just 0.1% and closed as the worst performing financial company. Despite equities pulling back throughout the day, Treasury yields held their early morning rise. The 2-year yield gained 2.1 bps to 2.41% while the 10-year yield added 3.6 bps to 2.59%, both the highest since the Fed showed in March it expected no rate increases this year.

 

Overnight – More Positive Surprises in Chinese Data Lifts Global Bond Yields: Global bond yields were higher overnight after another round of surprisingly strong data pointed to stability in the world’s second largest economy. Treasury yields popped higher after China reported its economy grew 6.4% in the first quarter compared to the same period a year ago, equal to the fourth quarter’s pace and slightly stronger than the 6.3% economists expected. China reported in January its economy grew 6.6% in 2018, the weakest annual pace since 1990, adding to concerns that trade tensions were worsening a global economic slowdown. Alongside the better-than-expected GDP report, separate reports for March showed industrial production jumped 8.5%, topping estimates for a 5.9% increase, and retail sales rose 8.7%, slightly outpacing the 8.4% gain expected. Bond yields around the globe which were exclusively higher on Wednesday. Global equities, however, have been less responsive. Despite the positive update from China, its CSI 300 index close basically flat and the Stoxx Europe 600 was earlier trading around unchanged. Around 7 a.m. CT, the Treasury curve was up less than 1 bp and U.S. index futures were trading up between 0.2% and 0.4%.

 

NOTEWORTHY NEWS

Thursday’s Economic Data: Industrial production fell 0.1% in March, weaker than the 0.2% increase expected, and the second decline in the last three months. Manufacturing production was flat after two monthly declines and a modest uptick in utilities output offset a small decline in mining. While the first quarter’s 1.1% annualized drop in manufacturing production was the worst three-month stretch since September 2017, the ISM’s manufacturing PMI picked up modestly in the most recent report. As for housing, the NAHB’s Housing Market Index rose 1 point in April as expected with stronger foot traffic from interested buyers offsetting mixed sales expectations. After bottoming in December, the index has slowly recovered to a six-month high as mortgage rates have declined.