Stocks are giving back some of yesterday’s gains as a cautious hue spreads over Wall Street amidst domestic political turmoil and trade war concerns. All eyes will be on US President Donald Trump and Chinese President Xi Jinping, as the two super powers gear up to discuss the future of their trading relationship. Additionally, the Federal Reserve Minutes are slated to be released at 2PM EST pertaining to the November meeting. The S&P500 is currently trading at 2,735.79, 0.29% lower, after notching its largest gain in eight months in Wednesday’s exchange.
Treasuries are moving higher in the AM as investors digest a slew of economic data. Inflation looks to be hovering right around the FOMC’s target as PCE (core) for the month of October came in at a 1.8% YoY increase, versus estimates of a 1.9% rise. On top of this, personal income and spending increased more than expected in October, coming in at a 0.5%, and a 0.6% increase respectively. The US 10-YR Note is currently hovering around a 2-month low, flirting with the critical/psychological 3% level at 3.0170%, 0.0419 lower.
MBS Performance and Volumes
30-year MBS had a very strong session on Wednesday, after dovish comments from Fed Chairman Powell triggered a sharp steepening of the Treasury yield curve. Virtually all liquid 30-year Fannie coupons outperformed the 10-year note by 5/32s, while Ginnie IIs outpaced 10s by as much as six ticks. 15-years did not perform as well, in part due to the relative strength in intermediate Treasuries. Dwarf 3s through 4s closed roughly in line with their 5-year hedge ratios, while 2.5s and 4.5s outperformed the 5-year note by a tick. Trading volumes picked up a bit, with just over $170 billion in total activity including $8.7 billion in specified pool trades.
TBA MBS’ are moving higher to begin Thursday’s trading session as spillover from yesterday’s Powell-induced rally continues to permeate through capital markets. The Fed Chair stated that interest rates are “just below the broad range of estimates of the level that would be neutral for the economy,” and thus, sparked a rally in MBS. Pending home sales came in at a 2.6% MoM decrease for the month of October versus analyst estimates of a 0.5% increase. This marks the lowest level since 2014 for pending sales. Liquid coupons are currently trading 4+ tics higher.
The USD is little changed in the AM as investors avoid major shifts in allocations before the G-20 summit. The DXY is currently trading at 96.83, 0.05% higher.
Oil is trending higher to begin Thursday’s exchange after a report showed that Russia acknowledged the need for further production cuts. WTI is currently trading at 51.25, 1.91% higher.