Morning Report: Senate resolution complicates trade negotiations

Vital Statistics:

 

Last Change
S&P futures 3111 -6.25
Oil (WTI) 55.69 -0.74
10 year government bond yield 1.74%
30 year fixed rate mortgage 3.96%

 

Stocks are lower this morning as tensions increase between China and the US over Hong Kong. Bonds and MBS are up.

 

The Senate passed a resolution last night supporting democracy for Hong Kong and urging China to not use violence to suppress the demonstrations. This will undoubtedly complicate trade negotiations, and will push the markets to more of a “risk-off” (stocks down, bonds up) posture. Bond yields are lower this morning, with the 10 year trading at 1.74%.

 

Mortgage Applications decreased by 2.2% last week on a seasonally adjusted basis as purchases rose 6.7% and refis fell 7.7%. Veteran’s Day influenced the numbers. “U.S. and China trade anxieties and protests in Hong Kong pulled U.S. Treasuries lower last week, and the 30-year fixed mortgage rate followed the same path, dipping below 4 percent,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “Despite lower rates, mortgage applications decreased 2.2 percent, driven by an 8 percent slide in refinance activity. Rates have stayed in the same narrow range of around 4 percent since July, so we may be starting to see the expected slowdown in refinancing as the pool of eligible homeowners shrinks.”

 

The retailers are announcing earnings and the markets are looking for indications of how this year’s holiday shopping season will shake out. Target and WalMart both announced strong earnings and took up their Q4 guidance. These two stocks are a bellwether for John Q Public’s spending habits.

 

The FOMC minutes will be out at 2:00 pm today. The minutes usually aren’t market-moving, but given the somewhat abrupt change in the Fed’s posture there is always the possibility that we could see some action. Just be aware when locking around that time.