November 2, 2018

Stocks are moving lower in the AM despite a stronger-than-expected Nonfarm Payrolls report for the month of October. About 80% of S&P500 companies have reported Q3 earnings, with the average beat coming in at 6.2%.  The S&P500 notched its worst month in seven years in October; so many traders are still trying to decide if this notion was a healthy pullback, or the start of a larger trend.  The S&P500 is currently trading at 2,733.26, 0.27% lower.

Treasuries are trending lower to begin Friday’s exchange as investors digest the latest US employment data.  Nonfarm Payrolls came in at a 250K increase for the month of October, versus analyst estimates of a 200K rise.  The unemployment rate met expectations at 3.7%, and both average hourly earnings MoM and YoY hit analyst expected values of a 0.2%, and a 3.1% increase respectively.  The US 10-YR Note is currently trading at 3.1760%, 0.0457 higher.

MBS Performance and Volumes

MBS eventually closed mostly ahead of Treasuries on Thursday after lagging for much of the session.  At the close, most 30-year Fannies outperformed their 10-year hedge ratios by 1-2 ticks, which GNIIs did slightly better relative to 10s; GNII 3s outpaced their hedge ratios by 3/32s, while 4s through 5s outperformed by a tick.  15-year Fannie performance was mixed, although most coupons lagged the 5-year note modestly.  Trading volumes declined from Wednesday’s busy session, with $190.6 billion in total trades reported, including $18 billion in specified pools.

TBA MBS’ are falling in the AM as investors re-assess their projections for monetary policy after a stronger-than-expected Nonfarm Payrolls report for the month of October.  Average hourly wages ticked up nicely, leading many analysts to believe that heightened inflation may be right around the corner.  Liquid coupons are currently trading 5 – 6 tics lower.

The USD is little changed to begin Friday’s exchange as many believe the FOMC will stick to their current policy projections after a robust Nonfarm Payrolls report.  The DXY is currently trading at 96.21, 0.09% lower.

Oil is continuing to slide in the AM after the US agreed to allow eight countries to keep buying Iranian oil despite pending sanctions.  WTI is currently hovering around a six-month low, and is trading at 63.46, 0.36% lower.