November 7, 2018

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Stocks are off to a strong start on Wednesday as the removal of ambiguity stemming from the midterm elections bolsters investor optimism.  Democrats won of the House of Representatives, while the Senate remains under control of the Republicans.  The outcomes of Tuesday’s elections were highly anticipated by capital markets.  The S&P500 is currently trading at 2,780.94, 0.93% higher.

Treasuries are trending higher in the AM as the results from Tuesday’s elections help steer allocations.  It looks like Congress is set up for at least 2-years of standstill as political uncertainty increases.  All eyes will now shift to the FOMC policy announcement on Thursday.  The Fed is widely expected to leave rates unchanged, with current probabilities of a hike tomorrow pegged at 1%.  The US 10-YR Note is currently trading at 3.1911%, 0.0364 lower, and is about 2bps lower on the week.

MBA Mortgage Applications came in at a 4.0% drop for the week ended November 2nd, after a 2.5% decrease in the prior reading.  Purchases fell 5.0% after a 1.5% decrease in the week prior.  Refinances dropped 2.5%, and accounted for 39.1% of total applications.  The average contract interest rate for a 30-yr conforming fixed rate commitment increased 4bps to 5.15%.

TBA MBS’ are moving higher to begin Wednesday’s exchange as political uncertainty increases due to the Democratic Party regaining control of the House of Representatives.  It’s much more likely that proposed legislation will meet resistance in Congress now that Democrats have the majority of the House.  Liquid coupons are currently trading at 8 – 8+ tics higher.

The USD is falling in the AM after German Industrial data came in stronger-than-expected.  The DXY is currently trading at 95.85, 0.43% lower.

Oil is little changed in the early morning shuffle as investors digest the latest EIA report conveying a 5.78MM increase in inventories.  WTI is currently trading at 62.28, 0.11% higher.