Some minor improvement yesterday in the bond and mortgage markets; this morning the 10 yr yield at 7:00 am ET 2.96% +5 bps from yesterday’s 5 bp decline. US bonds following the German 10 yr bund that has increased 7 bps in yield today (0.455%).
Comments from euro officials that next week at the ECB meeting there may be a plan formulated that sets the ECB on the path of reducing its stimulus and increase its base lending rate. An assessment would have to be made on whether progress has been sufficient to warrant a gradual unwinding of asset purchases, ECB Chief Economist Peter Praet said this morning. The EU economy has been slowing, the Italian debt and concerns that the country may try to leave the EU, and the trade issues apparently aren’t going to keep the ECB from setting a schedule to phasing out its giant monetary stimulus later this year.
Early this morning the weekly MBA mortgage applications were up after five weeks of decline.Overall apps +4.1%, purchase apps +4.0%, refinance apps +4.0%. The unadjusted purchase index 9% above the level in the same week a year ago. The share of refinances at 35.6% was up 0.3% from last week.
Q1 revised productivity was expected +0.7% but increased just 0.4%, the weaker productivity leads to an increase in unit labor costs, labor costs increased 2.9% compared to 2.7% in the preliminary report last month. Higher labor costs are inflationary.
China/US trade talks: China has agreed to buy $70B of US farm, manufacturing and energy products if the Trump administration abandons threatened tariffs. China is also saying the offer would be withdrawn if the US plans to impose tariffs on $50B of China-made products. The White House has said it plans to move ahead with the tariffs shortly after June 15. Trade officials are saying the deal is likely a non-starter.
PresidentTrump said he would walk out of the summit if North Korea isn’t cooperative, but added if the meeting goes well he will invite Kim to the US for the next meeting.
We're still a hold a neutral technical bias for the very near term, but the longer technical outlook remains bearish. Fundamentals ahead next week are likely to keep rates from declining in any significant way.Source: TBWS
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