The stock market continued its gains today while the long end of the yield curve (10s, 20s, 30s and MBSs) also improved. The 10 finds technical support when it has moved up to 2.90% area and equally resistance when it has moved below 2.80%. Since April 2nd when the 10 rate fell to 2.72% its rate had moved to 2.88% and now backing off to 2.81% this afternoon. There isn’t much that has shaken the strength of long-term rates, trade wars, inflation beliefs spreading like dandelions in springtime, Fed officials uniformly talking about rate increases, the Fed forecasting strong economic growth, the IMF today chimed in with strong growth forecasts even in the face of trade tariffs. Recently China has threatened to stop buying US treasuries, although unlikely, not even that threat has roiled rate markets much. No matter how we explore it, this should not be occurring, rates should be moving higher….but they're not. Economic data is good in general, inflation is easing higher, and now Q1 1 earnings are starting with most economists and analysts believing earnings will remain strong. Strong earnings equal higher equity prices. Increased talk around also that companies are going to increase buying back their stocks; lots of cash with nowhere to use it. War threats are edging up, might be that has some support to the bond market. The idea of a world war however is almost impossible to believe. Putin, in a phone call to his Iranian counterpart, warned that the world will see 'chaos' if Syria is attacked again. Putin wants the UN Security Council involved…so he can veto anything he wants. U.S. homebuilding increased more than expected in March amid a rebound in the construction of multi-family housing units, but weakness in the single-family segment suggested the housing market was slowing. March housing starts and permits; starts at 1319K compared to 1264K consensus and Feb starts were revised higher from 1236K to 1295K. Permits also better, 1354K compared to 1315K expected, also Feb revised better to 1321K from 1298K. Percentage wise starts were up 1.9% from the revised Feb level, permits +2.4% from the revised Feb level. That is the positive news; the less positive; single-family units are soft with starts down 3.7% to an 867,000 rate and with permits down 5.5% to an 840,000 rate in a result offset by a large upward revision to February. Housing completions were down 5.1%; not good given the lack of supply. March existing home sales out next Monday and March new home sales next Tuesday. The same story, builders are not building as needed. Higher prices for products and a lack of developed land. Fed officials today: San Francisco Fed President Williams (FOMC voter and the incoming NY Fed Pres.) says he sees inflation getting to 2.0% this year and staying at, or above, 2.0% for another couple of years. Chicago Fed President Evans (non FOMC voter) says he is okay with raising rates patiently in the absence of inflation. Larry Kudlow, the new National Economic Adviser, says additional Russia sanctions are still under consideration. Some news floating that North and South Korea may announce the end of their war that began in 1950. ECB chief economist Praet says ample degree of policy stimulus is still necessary; the ECB is widely believed to be considering lessening its stimulus and low rate levels. Tomorrow MBA weekly mortgage applications at 7:00 am ET. At 2:00 tomorrow afternoon the Fed will release its Beige Book, detailed economic data from all 12 Fed districts.
Source: TBWS