Last week the 10 yr note yield declined 7 bps to 2.41%, MBS price s for the week +33 bps. Last week markets had very little significant news or data, this week the economic calendar has a number of key reports, Janet Yellen will testify to the Senate Banking Committee tomorrow and to the House Financial Services Committee on Wednesday. Fed officials making speeches; beside Yellen tomorrow three of them, two more on Wednesday and another on Friday. Doesn’t matter who, expect a lot more uncertainty and caution from the Fed now. The three increases are out the window as was previous thought based on the Dec FOMC meeting. Two at most, and that is still not anywhere certain. At 9:00 the 10 at 2.44% +3 bp and FNMA 3.5 30 yr coupon -19 bps from Friday’s close.
The dollar is stronger against the euro and yen but weaker against other currencies, 9:00 am the dollar index 100.88 -0.08. Trump has a plate full; he has been set down on the immigration ban by courts, his national security adviser Mike Flynn may not survive a month on the job over his contacts with Russian officials before President Donald Trump took office, North Korea’s in your face launch of a ballistic missile, his infrastructure plans unlikely this year, ACA re-do likely will take most all of the year, his tax cut announcement coming in two weeks, and the Dodd/Frank regulations that won’t be all that easy to scrap. Mr. Trump goes to Washington, not unlike Jimmy Stewart five decades ago.
The DJIA opened higher furthering the Trump trade; the DJIA +76, NASDAQ +20, S&P +6. 10 yr 2.44% +3 bps. FNMA 3.5 30 yr coupon -16 bps from Friday’s close and unchanged from 9:30 Friday morning.
Many data points this week but the headline is Janet Yellen’s testimony to Congress. Trump’s plans and goals for all the changes (taxes, de-regulation, fiscal spending and healthcare) are not going to have any immediate impact on the economy in 2017; Yellen realizes it. Markets beginning to see the light also; it is one thing to have these goals, another to work them through Congress quickly.
Keeping an eye on Europe; Greece close to defaulting on its debt. In France with their election coming, the European Commission warned in its winter economic forecasts this morning. Brussels noted that the French budget deficit is on course to hit 3.1% of gross domestic product in 2018, just exceeding the euro area’s agreed 3% limit. There is also a risk that the deficit could breach the limit this year. Although a long shot to win, Marine Le Pen has vowed to rip up EU spending rules, taking France out of the euro-zone and embarking on a huge deficit spending program. Don’t overlook the increasing turmoil in the EU; each year that passes the Union is unraveling. And Italy also in the mix with huge deficits amounting to a record 132% of GDP in 2016, and will increase again in 2017. Most of the outward focus from the media and investors currently centered on Trump, Yellen and the US; but Europe is increasingly worrisome.