Good morning. GDP, which measures the value of all goods and services produced within U.S. borders, showed that (surprise!) the U.S. economy barely grew during 2008. Previous figures were revised downward to be about a third the rate previously thought, mostly because attributed to plunging home values undermining consumer spending. For all of 2008 GDP was +.4% instead of +1.1% as previously reported. More germane to mortgage banking, spending on residential construction was down almost 23% in 2008. And consumer spending, which makes up about 65% of GDP, was down .2% for the year. In the 2nd quarter of 2009, the number was actually a little better than expected, falling at a 1% annual rate. (In the first quarter GDP was -6.4%.) Still, with the contraction in the second quarter, U.S. GDP has fallen for four straight quarters for the first time since government records started in 1947. Residential investment dropped at a 29.3 percent rate in the April-June period after plummeting by 38.2 percent in the first quarter.
Lastly for economic news on this summer Friday, and the last business day of July, the U.S. Employment Cost Index rose by a bigger-than-expected 0.4 percent in the second quarter. For the last 12 months, the ECI was the lowest on record going back 27 years. On the good news side, yesterday’s $28 billion 7-yr auction went better than expected, and we saw some nice price improvements in Treasury securities and in mortgage rates. And the government announced that they had purchased over $20 billion in MBS’s last week, bringing their total for the year to about $702 billion. Have a great weekend and enjoy the weather and SeaFair.
Friday, July 31, 2009
7/30/09
Good morning. Yesterday interest rates moved slightly higher which was caused by a poor 5-yr auction. As you probably know, the Treasury sells bills, notes, and bonds in order to finance their activities. The maturity of these instruments is spread out over time, depending on their expected needs. This week, when the 2-yr auction did not go well many believed that it might have been a “fluke”, and were hoping that the demand for the 5-yr note yesterday would be better. Unfortunately, they were disappointed, and given the overall size of the government sales this week, and in the future, analysts are becoming increasingly nervous. On top of that, yesterday’s auction had “indirect bids” of less than 37%, which means that foreign entities bought far less than hoped.
Suddenly, as if this had ever gone away, economists are reminding us that rates can indeed go up not only because of a strengthening economy but also because of overwhelming supply. And although the Fed has been buying securities backed by mortgages, all rates may slide higher. Along those lines, the Fed released their “Beige Book” yesterday discussing the economy in their various districts. Up popped phrases such as “consumer spending below year-ago levels”, “regions report stable or weaker lending”, “soft labor markets”, and “sluggish retail sales”.
Besides the 7-yr auction today, the only news out will be weekly Jobless Claims. So look for rates to move based on the auction results later this morning, along with movements in the equity markets. Currently mortgages are roughly unchanged.
Suddenly, as if this had ever gone away, economists are reminding us that rates can indeed go up not only because of a strengthening economy but also because of overwhelming supply. And although the Fed has been buying securities backed by mortgages, all rates may slide higher. Along those lines, the Fed released their “Beige Book” yesterday discussing the economy in their various districts. Up popped phrases such as “consumer spending below year-ago levels”, “regions report stable or weaker lending”, “soft labor markets”, and “sluggish retail sales”.
Besides the 7-yr auction today, the only news out will be weekly Jobless Claims. So look for rates to move based on the auction results later this morning, along with movements in the equity markets. Currently mortgages are roughly unchanged.
7/29/09
Yesterday, for the first time in three years, the S&P/Case-Shiller home-price index rose in May from the prior month (although it is down 17% from May of last year). On the flip side, however, the Conference Board report showed consumer confidence fell more than forecast. The housing price news was greeted as very good news, as more folks believe that things aren’t going to get any worse in the housing market.
Today for economic news we have Durable Goods Orders, normally pretty volatile and expected to fall, along with the release of the Fed’s Beige Book. Bond prices were up, thus rates are down, to start the day due to the biggest drop in Chinese stocks in eight months. As it turns out, Durable Goods had their biggest decline in 5 months and fell more sharply than expected in June. Oil inventories are up, which either means companies are refining more or people are using less – let’s hope it is the latter. We also have that small matter of selling $39 billion of 5-yr notes, and analysts are hoping that the auction is better received than the 2-yr sale was yesterday. Currently mortgage prices are slightly better than yesterday’s open. Let me know if you have any questions. Try to stay out of the heat today (unless you have aboat!!!)
Today for economic news we have Durable Goods Orders, normally pretty volatile and expected to fall, along with the release of the Fed’s Beige Book. Bond prices were up, thus rates are down, to start the day due to the biggest drop in Chinese stocks in eight months. As it turns out, Durable Goods had their biggest decline in 5 months and fell more sharply than expected in June. Oil inventories are up, which either means companies are refining more or people are using less – let’s hope it is the latter. We also have that small matter of selling $39 billion of 5-yr notes, and analysts are hoping that the auction is better received than the 2-yr sale was yesterday. Currently mortgage prices are slightly better than yesterday’s open. Let me know if you have any questions. Try to stay out of the heat today (unless you have aboat!!!)
7/28/09
Good morning. The New Home Sales number was up yesterday: by 11%, the biggest jump in eight years. This is good news despite the the fact that the median price decreased 12% in the last year. Nationwide, it would take 8.8 months to sell all homes at the current sales pace, the lowest level since October 2007. We got through the 20-yr TIPS auction yesterday, but today have $42 billion of 2-yr notes to sell later today. Obviously this supply pressure is not helping mortgage rates & prices, and yesterday things got a little worse.
For news today we’ll see Consumer Confidence and the Case/Shiller Home Price Index, and of course the auction. From what I have heard, no one expects rates to move up too much or down too much, so aside from a little intra-week volatility, perhaps mortgage rates will be at these levels for quite some time. Currently mortgage security prices are a tad better.
For news today we’ll see Consumer Confidence and the Case/Shiller Home Price Index, and of course the auction. From what I have heard, no one expects rates to move up too much or down too much, so aside from a little intra-week volatility, perhaps mortgage rates will be at these levels for quite some time. Currently mortgage security prices are a tad better.
Monday, July 27, 2009
Mortgage Market Review - 7/27/09
This Morning…Monday, July 27, 2009:
This week's Treasury borrowing needs is hitting the bond and mortgage markets as the week starts. June new home sales at 10:00 were expected to be +2.3%; jumped a whopping 11.0%. The supply based on present sales has fallen to 8.8 months from 10.2 in May. The jump is sales is the largest month to month increase since Dec 2000. The median sales price $206,200.00. The initial reaction was rather muted in both the stock and bond markets. At 1:00 this afternoon Treasury will start the supply train with $6B of 20 yr inflation indexed bonds. Kind of an orphan auction but still will get attention. It should go well, while inflation isn't an issue now most believe it will be in the next year or so.
There is news today that mortgage servicers are meeting in Washington DC to discuss how it is possible for them to carry out the directives on modifying mortgages that have been advanced by the Obama Administration. They’d better do something, as the delinquency numbers at Fannie and Freddie are frightening. According to a report from Barclay’s, two million loans are already delinquent, and 75,000 per month are falling behind. As it turns out, the agencies have the option of repurchasing the delinquent loans. This is highly doubtful, but nonetheless if they decide to do that, large blocks of mortgages will pre-pay, and any investor will see their mortgage holdings drop. Remember, investors pay a premium hoping to keep the mortgage on their books for some time. But with 5% of all Fannie loans, and 3.6% of Freddie loans, delinquent, it is a real problem. This could become a serious issue in the near future.
Last Week:
As we noted a couple of weeks ago, market volatility in both financial bourses (stocks and bonds) would be high. Thin markets this time of year added to the increasing view that the economy is turning better are making price movements from day to day rather extreme, especially in the bond and mortgage markets. Last week was the kind of market that can whip-saw even the best. Early last week (Monday, Tuesday) mortgage rates fell, pushed up by the decline in yield on the 10 yr note. By Wednesday it was over, mortgages closed a little lower (price); on Thursday prices fell hard, Friday ended about unchanged. The bottom line; on the week there was almost no change in interest rates.
During the week, the DOW eclipsed the 9000 mark. Ben Bernanke spoke of a "jobless recovery", a situation where employers use productivity to increase production without additional labor. This would basically be an environment where the unemployment rate remains high long after the economy is in recovery. There wasn’t much data but the existing home sales data did come in higher than expected and weekly jobless claims increased but that was expected as well.
This Week:
There is a lot going on this week. We have New Homes Sales today, Consumer Confidence and the Case/Shiller Home Price Index tomorrow, Durable Goods (always a volatile number) and the Beige Book on Wednesday, Jobless Claims on Thursday, and Gross Domestic Product & the Chicago PMI on Friday. And in-between, the Treasury is selling over $100 billion of 2-yr, 5-yr, and 7-yr notes. On the flip side, the Fed has been in buying mortgage-backed securities, roughly $4 billion per day for a year-to-date total of about $682 billion. In addition, banks have been buying MBS’s which is very nice to see!
EconomicIndicator
New Home Sales
Monday, July 27,10:00 am, et
355K
Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.
Consumer Confidence
Tuesday, July 28,10:00 am, et
48.7
Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
Durable Goods Orders
Wednesday, July 29, 8:30 am, et
Down 0.5%
Important. An indication of the demand for "big ticket" items. Weakness may lead to lower rates.
Fed "Beige Book"
Wednesday, July 29, 2:00 pm, et
None
Important. This report details current economic conditions across the US. Weakness may lead to lower rates.
Q2 Advance GDP
Friday, July 31,8:30 am, et
Down 1.5%
Very important. The aggregate measure of US economic production. Weakness may lead to lower rates.
PCE Core Inflation
Friday, July 31,8:30 am, et
Up 2.4%
Important. A measure of price increases for all domestic personal consumption. Weaker figure may help rates improve.
Q2 Employment Cost Index
Friday, July 31,8:30 am, et
Up 0.3%
Very important. A measure of wage inflation. Weakness may lead to lower rates.
Market Forecast:
With Treasury supply pushing against bond and mortgage prices, if the preponderance of economic releases continues to fuel the stock market, interest rates will increase. Always looking for an opportunity to profit from price improvements, yet only when we believe the odds are well in our favor; this week will be one where we won't want to take on much risk.
The employment cost index on Friday is a quarterly report issued by the Department of Labor. The report measures the growth of wages, salaries, and benefits costs over a certain period of time. It is important to note that no single economic indicator can consistently predict the future of the economy. However, the employment cost index is a closely watched release. Most of the recent Fed releases and speeches indicate inflation is a concern and market participants remain cautious. It is a good time to take advantage of mortgage interest rates at their current levels to avoid exposure to future market volatility.
Some Humor:
An elderly couple had dinner at another couple's house, and after eating, the wives left the table and went into the kitchen. The two gentlemen were talking, and one said, “Last night we went out to a new restaurant and it was really great. I would recommend it very highly.”
The other man said, “What is the name of the restaurant?”
The first man thought and thought and finally said, “What is the name of that flower you give to someone you love? You know, the one that's red and has thorns.”
“Do you mean a rose?”
“Yes, that's the one,” replied the man. He then turned towards the kitchen and yelled, “Rose, what's the name of that restaurant we went to last night?”
This week's Treasury borrowing needs is hitting the bond and mortgage markets as the week starts. June new home sales at 10:00 were expected to be +2.3%; jumped a whopping 11.0%. The supply based on present sales has fallen to 8.8 months from 10.2 in May. The jump is sales is the largest month to month increase since Dec 2000. The median sales price $206,200.00. The initial reaction was rather muted in both the stock and bond markets. At 1:00 this afternoon Treasury will start the supply train with $6B of 20 yr inflation indexed bonds. Kind of an orphan auction but still will get attention. It should go well, while inflation isn't an issue now most believe it will be in the next year or so.
There is news today that mortgage servicers are meeting in Washington DC to discuss how it is possible for them to carry out the directives on modifying mortgages that have been advanced by the Obama Administration. They’d better do something, as the delinquency numbers at Fannie and Freddie are frightening. According to a report from Barclay’s, two million loans are already delinquent, and 75,000 per month are falling behind. As it turns out, the agencies have the option of repurchasing the delinquent loans. This is highly doubtful, but nonetheless if they decide to do that, large blocks of mortgages will pre-pay, and any investor will see their mortgage holdings drop. Remember, investors pay a premium hoping to keep the mortgage on their books for some time. But with 5% of all Fannie loans, and 3.6% of Freddie loans, delinquent, it is a real problem. This could become a serious issue in the near future.
Last Week:
As we noted a couple of weeks ago, market volatility in both financial bourses (stocks and bonds) would be high. Thin markets this time of year added to the increasing view that the economy is turning better are making price movements from day to day rather extreme, especially in the bond and mortgage markets. Last week was the kind of market that can whip-saw even the best. Early last week (Monday, Tuesday) mortgage rates fell, pushed up by the decline in yield on the 10 yr note. By Wednesday it was over, mortgages closed a little lower (price); on Thursday prices fell hard, Friday ended about unchanged. The bottom line; on the week there was almost no change in interest rates.
During the week, the DOW eclipsed the 9000 mark. Ben Bernanke spoke of a "jobless recovery", a situation where employers use productivity to increase production without additional labor. This would basically be an environment where the unemployment rate remains high long after the economy is in recovery. There wasn’t much data but the existing home sales data did come in higher than expected and weekly jobless claims increased but that was expected as well.
This Week:
There is a lot going on this week. We have New Homes Sales today, Consumer Confidence and the Case/Shiller Home Price Index tomorrow, Durable Goods (always a volatile number) and the Beige Book on Wednesday, Jobless Claims on Thursday, and Gross Domestic Product & the Chicago PMI on Friday. And in-between, the Treasury is selling over $100 billion of 2-yr, 5-yr, and 7-yr notes. On the flip side, the Fed has been in buying mortgage-backed securities, roughly $4 billion per day for a year-to-date total of about $682 billion. In addition, banks have been buying MBS’s which is very nice to see!
EconomicIndicator
New Home Sales
Monday, July 27,10:00 am, et
355K
Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.
Consumer Confidence
Tuesday, July 28,10:00 am, et
48.7
Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
Durable Goods Orders
Wednesday, July 29, 8:30 am, et
Down 0.5%
Important. An indication of the demand for "big ticket" items. Weakness may lead to lower rates.
Fed "Beige Book"
Wednesday, July 29, 2:00 pm, et
None
Important. This report details current economic conditions across the US. Weakness may lead to lower rates.
Q2 Advance GDP
Friday, July 31,8:30 am, et
Down 1.5%
Very important. The aggregate measure of US economic production. Weakness may lead to lower rates.
PCE Core Inflation
Friday, July 31,8:30 am, et
Up 2.4%
Important. A measure of price increases for all domestic personal consumption. Weaker figure may help rates improve.
Q2 Employment Cost Index
Friday, July 31,8:30 am, et
Up 0.3%
Very important. A measure of wage inflation. Weakness may lead to lower rates.
Market Forecast:
With Treasury supply pushing against bond and mortgage prices, if the preponderance of economic releases continues to fuel the stock market, interest rates will increase. Always looking for an opportunity to profit from price improvements, yet only when we believe the odds are well in our favor; this week will be one where we won't want to take on much risk.
The employment cost index on Friday is a quarterly report issued by the Department of Labor. The report measures the growth of wages, salaries, and benefits costs over a certain period of time. It is important to note that no single economic indicator can consistently predict the future of the economy. However, the employment cost index is a closely watched release. Most of the recent Fed releases and speeches indicate inflation is a concern and market participants remain cautious. It is a good time to take advantage of mortgage interest rates at their current levels to avoid exposure to future market volatility.
Some Humor:
An elderly couple had dinner at another couple's house, and after eating, the wives left the table and went into the kitchen. The two gentlemen were talking, and one said, “Last night we went out to a new restaurant and it was really great. I would recommend it very highly.”
The other man said, “What is the name of the restaurant?”
The first man thought and thought and finally said, “What is the name of that flower you give to someone you love? You know, the one that's red and has thorns.”
“Do you mean a rose?”
“Yes, that's the one,” replied the man. He then turned towards the kitchen and yelled, “Rose, what's the name of that restaurant we went to last night?”
Friday, July 24, 2009
7/24/09
Treasuries started unchanged this morning, but mortgage prices were slightly weaker at 9:00. Today both Bernanke and Geithner will be testifying on financial reforms and regs. Congress is bent on tightening rules to regulate financial markets after the collapse in 2007. Bernanke wants to have control over consumer protection but so far Congress is moving toward a super regulator that will oversee consumer protection as well as overall regs on banks, non-banks, derivatives and mortgage markets. We are once again locking the door after the burglars have left the building totally empty.
Yesterday, first-time homebuyers and the sales of distressed properties helped drive the pace of Existing Home Sales up for the third consecutive month in June. Sales advanced 3.6% in the month, in line with estimates, to an annual rate of 4.89 million units. “The increase in existing-home sales occurred in all major regions of the country,” said Lawrence Yun, chief economist at the National Association of Realtors, who compiles the data. He said sales should continue upwards “due to tax credit incentives and historically high affordability conditions.”
Yesterday, first-time homebuyers and the sales of distressed properties helped drive the pace of Existing Home Sales up for the third consecutive month in June. Sales advanced 3.6% in the month, in line with estimates, to an annual rate of 4.89 million units. “The increase in existing-home sales occurred in all major regions of the country,” said Lawrence Yun, chief economist at the National Association of Realtors, who compiles the data. He said sales should continue upwards “due to tax credit incentives and historically high affordability conditions.”
Key Data:
- Single-family home sales rose 2.4% to a pace of 4.32 million in June. That's 0.2% below June 2008 levels.
- The national average for a 30-year mortgage rose to 5.42% in June from 4.86% in May. In June 2008 the 30-year rate was 6.32%.
- Total housing inventory June fell 0.7% in June to 3.82 million homes for sale ― a 9.4-month supply at the current sales pace.
- The median price for a home was $181,800 in June ― 15.4% down from June 2008.
- First-time home buyers made up 29% of the sales.
- Foreclosure-related sales accounted for 31% of sales in June.
7/23/09
Things have improved somewhat in the bond market, however, with Bernanke’s comments that rates will remain low for quite some time. That, of course, doesn’t mean jumbo rates will be at 5% soon, but at least they may not be going any higher. Today we have already had Jobless Claims (+30,000 to 554,000, as expected) and we will see Existing Home Sales at 10AM EST. And later today our treasured Treasury Department will announce the amounts for next week’s sale of 2-yr, 5-yr, and 7-yr notes, along with sneaking in a 20-yr TIPS sale. After the numbers we find mortgage security prices better by a smidge.
7/22/09
Nothing left today on the data board. Earnings reports continue to dribble out for Q2; Morgan Stanley's data this morning was worse than expected. At 10:00 Ben Bernanke returned to Congress for the second day of his semi-annual required testimony on monetary policy and the economy, at the Senate. Yesterday Gentle Ben outlined the Fed;s plans to cut off inflation at the knees when the economy actually starts to grow. Markets wanted to hear how the Fed plans to retreat from all of the stimulus it has affected in the quantative easing over the last two years. Bernanke's plans were welcomed and interest rates declined in a strong move. He also said the Fed sees little economic recovery for at least a year and that the Fed had no intentions of any tightening for quite awhile.
Today Bernanke at the Senate will likely get more definitive and interesting questions from Senators; not the constant posturing we see at House appearances. Senators don't have to run for office everyday like House members and usually dig a little deeper into issues. The House most times spends more time posturing than with substance. That said, most of it today is likely to be a re-hash of yesterday. With nothing else on the calendar most market focus will be on Bernanke today.
Rates have been improving and in best case scenarios are back at 5% with 1 point. This is great news. Let me know if you have any questions.
Today Bernanke at the Senate will likely get more definitive and interesting questions from Senators; not the constant posturing we see at House appearances. Senators don't have to run for office everyday like House members and usually dig a little deeper into issues. The House most times spends more time posturing than with substance. That said, most of it today is likely to be a re-hash of yesterday. With nothing else on the calendar most market focus will be on Bernanke today.
Rates have been improving and in best case scenarios are back at 5% with 1 point. This is great news. Let me know if you have any questions.
7/21/09
Let’s talk about the economy. (There doesn't seem to be much in the way of investor news anyway.) Yesterday we had more mixed news, with Leading Economic Indicators for June shooting up .7%, which is the third month in a row that they’ve been positive. This was stronger than expected. Seven of the 10 indicators were positive while three indicators were negative. As for today, there is no news, aside from Bernanke’s semi-annual Monetary Policy Report to Congress (and wraps up tomorrow). This could provide some movement to the market – we’ll see. And to help matters, we had a nice improvement Monday afternoon ahead of today’s testimony and with lower locks and originations mortgage prices rallied. This morning we find the mortgage prices slightly better. Let me know if you have any questions.
Monday, July 20, 2009
Mortgage Market Review - 7/20/09
Good morning. As many of you know I was out of town last week and was unable to email daily updates. Everything will continue normally now as I am back in the office. Please let me know if you have any questions.
Fred
This Morning…Monday, July 20, 2009:
Treasuries and mortgages are weaker this morning after last week's rate increases. This morning the dollar is being hit hard, taking crude and gold higher. Earnings season continues this week with 30% of the S&P 500 reporting. One of the drivers for the stock market last week was the better than expected reports from Goldman-Sachs and other banks, as well as 2/3rds of all those that reported last week. Over the weekend CIT, the 101-year-old commercial finance company, was saved from possible bankruptcy with a cash infusion of $3B from a group of bond holders for short-term financing. While it's unclear that this will provide a long-term solution, it should give some comfort to investors who have bonds coming due in the immediate future.
At 10:00 this morning June leading economic indicators, a measure that is supposed to indicate the economic outlook six months out, was expected at +0.5% after an increase in May of 1.3%. It was up 0.7%. The 4th month in a row the index has improved. The reaction sent stock indexes higher, but no noticeable reaction in the bond and mortgage markets on the knee jerk.
Last Week:
Mortgage bond prices fell pushing rates higher following stronger than expected inflation data last week. The producer price index and consumer price index both came in higher than expected fanning inflation fears. Inflation fears generally cause bond prices to fall and interest rates to rise, which we saw last week. Stronger than expected retail sales, and industrial production data piled on to help equities rally at the expense of mortgage bonds.
At the end of last week, we had quite a bit of economic news: Housing Starts rose 3.6% in June, as did Building Permits., and this was the fourth consecutive increase in single family starts. But on the flip side the Philadelphia Fed Survey continued to show weakness, the FOMC minutes showed that the Fed doesn’t think that we are out of the woods, as there were 1.9 million foreclosure filings in the first half of 2009! This is a 9% increase in total properties from the previous six months and a nearly 15% increase in total properties from the first six months of 2008. The report also shows that 1.19% of all U.S. housing units received at least one foreclosure filing in the first half of the year. The mixed news continues.
This Week:
We’re certainly not getting much economic news, or supply, this week to guide us, although earnings news continues to come out. Today we have Leading Economic Indicators for June, Thursday we have Jobless Claims and Existing Home Sales, and then on Friday Michigan’s Consumer Sentiment survey. That is it – and no auctions! Unfortunately oil prices are back on the rise, but it appears that CIT might be moving away from bankruptcy after their board of directors approved a $3 billion deal with bondholders (which include PIMCO). The money could strengthen CIT's finances and allow more time for the 101-year-old lender to small- and mid-sized businesses to restructure its debt.
The rubber meets the road for bond markets on Thursday when Treasury will release the amounts for the following week's 2 yr, 5 yr and 7 yr note auctions. Last month Treasury auctioned a total of $104B in the three offerings and saw extremely strong demand. Selling in equities, if it occurs early this week may bounce mortgage prices but won't change the not-so-favorable near term outlook as long as optimism continues on recession ending soon.
The leading economic indicators data will set the tone for trading this week. With so few data releases expect oil and stocks to factor into trading.
EconomicIndicator
Leading Economic Indicators
Monday, July 20,10:00 am, et
Up 0.5%
Important. An indication of future economic activity. A smaller increase may lead to lower rates.
Weekly Jobless Claims
Thursday, July 23,8:30 am, et
540k
Moderately important. A measure of employment. A larger increase in claims may bring lower rates.
Existing Home Sales
Thursday, July 23,10:00 am, et
Up 0.6%
Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates.
Revised U of Michigan Consumer Sentiment
Friday, July 24,10:00 am, et
64.6
Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
Market Forecast:
The focus this week will be on Bernanke's semi-annual required testimony to both Houses of Congress. If he can successfully outline a Fed plan to keep inflation from increasing, that may provide some support for long term rates, alleviating investor fears at the long end of the yield curve.
The rate markets have a strong bearish bias now. The stock market is the driver early this week, not to underestimate Bernanke's key two day testimonies at Congress. Stock market volume was thin all week as no real new strong buying occurred. That could change this week if indexes continue to increase, it will drive new buying and continue to push interest rates higher in treasuries and mortgages. We are not yet ready to cast off the negative economic outlook however, to keep the stock market moving higher into new highs for this year, we need to see some confirmation from the economy and so far we haven't seen it. That said, at the present moment the stock market has the momentum, as long as it has it the bond and mortgage markets stand little chance of improving.
Some Humor:
A woman went up to the bar in a quiet rural pub. She gestured alluringly to the bartender who approached her immediately. She seductively signaled that he should bring his face closer to hers. As he did, she gently caressed his full beard. "Are you the manager?" she asked, softly stroking his face with both hands. "Actually, no," he replied. "Can you get him for me? I need to speak to him," she said, running her hands beyond his beard and into his hair. "I'm afraid I can't," breathed the bartender. "Is there anything I can do?" "Yes. I need you to give him a message," she continued, running her forefinger across the bartender's lips. "What should I tell him?" the bartender managed to say. "Tell him," she whispered, "There's no toilet paper, hand soap, or paper towels in the ladies room."
Fred
This Morning…Monday, July 20, 2009:
Treasuries and mortgages are weaker this morning after last week's rate increases. This morning the dollar is being hit hard, taking crude and gold higher. Earnings season continues this week with 30% of the S&P 500 reporting. One of the drivers for the stock market last week was the better than expected reports from Goldman-Sachs and other banks, as well as 2/3rds of all those that reported last week. Over the weekend CIT, the 101-year-old commercial finance company, was saved from possible bankruptcy with a cash infusion of $3B from a group of bond holders for short-term financing. While it's unclear that this will provide a long-term solution, it should give some comfort to investors who have bonds coming due in the immediate future.
At 10:00 this morning June leading economic indicators, a measure that is supposed to indicate the economic outlook six months out, was expected at +0.5% after an increase in May of 1.3%. It was up 0.7%. The 4th month in a row the index has improved. The reaction sent stock indexes higher, but no noticeable reaction in the bond and mortgage markets on the knee jerk.
Last Week:
Mortgage bond prices fell pushing rates higher following stronger than expected inflation data last week. The producer price index and consumer price index both came in higher than expected fanning inflation fears. Inflation fears generally cause bond prices to fall and interest rates to rise, which we saw last week. Stronger than expected retail sales, and industrial production data piled on to help equities rally at the expense of mortgage bonds.
At the end of last week, we had quite a bit of economic news: Housing Starts rose 3.6% in June, as did Building Permits., and this was the fourth consecutive increase in single family starts. But on the flip side the Philadelphia Fed Survey continued to show weakness, the FOMC minutes showed that the Fed doesn’t think that we are out of the woods, as there were 1.9 million foreclosure filings in the first half of 2009! This is a 9% increase in total properties from the previous six months and a nearly 15% increase in total properties from the first six months of 2008. The report also shows that 1.19% of all U.S. housing units received at least one foreclosure filing in the first half of the year. The mixed news continues.
This Week:
We’re certainly not getting much economic news, or supply, this week to guide us, although earnings news continues to come out. Today we have Leading Economic Indicators for June, Thursday we have Jobless Claims and Existing Home Sales, and then on Friday Michigan’s Consumer Sentiment survey. That is it – and no auctions! Unfortunately oil prices are back on the rise, but it appears that CIT might be moving away from bankruptcy after their board of directors approved a $3 billion deal with bondholders (which include PIMCO). The money could strengthen CIT's finances and allow more time for the 101-year-old lender to small- and mid-sized businesses to restructure its debt.
The rubber meets the road for bond markets on Thursday when Treasury will release the amounts for the following week's 2 yr, 5 yr and 7 yr note auctions. Last month Treasury auctioned a total of $104B in the three offerings and saw extremely strong demand. Selling in equities, if it occurs early this week may bounce mortgage prices but won't change the not-so-favorable near term outlook as long as optimism continues on recession ending soon.
The leading economic indicators data will set the tone for trading this week. With so few data releases expect oil and stocks to factor into trading.
EconomicIndicator
Leading Economic Indicators
Monday, July 20,10:00 am, et
Up 0.5%
Important. An indication of future economic activity. A smaller increase may lead to lower rates.
Weekly Jobless Claims
Thursday, July 23,8:30 am, et
540k
Moderately important. A measure of employment. A larger increase in claims may bring lower rates.
Existing Home Sales
Thursday, July 23,10:00 am, et
Up 0.6%
Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates.
Revised U of Michigan Consumer Sentiment
Friday, July 24,10:00 am, et
64.6
Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
Market Forecast:
The focus this week will be on Bernanke's semi-annual required testimony to both Houses of Congress. If he can successfully outline a Fed plan to keep inflation from increasing, that may provide some support for long term rates, alleviating investor fears at the long end of the yield curve.
The rate markets have a strong bearish bias now. The stock market is the driver early this week, not to underestimate Bernanke's key two day testimonies at Congress. Stock market volume was thin all week as no real new strong buying occurred. That could change this week if indexes continue to increase, it will drive new buying and continue to push interest rates higher in treasuries and mortgages. We are not yet ready to cast off the negative economic outlook however, to keep the stock market moving higher into new highs for this year, we need to see some confirmation from the economy and so far we haven't seen it. That said, at the present moment the stock market has the momentum, as long as it has it the bond and mortgage markets stand little chance of improving.
Some Humor:
A woman went up to the bar in a quiet rural pub. She gestured alluringly to the bartender who approached her immediately. She seductively signaled that he should bring his face closer to hers. As he did, she gently caressed his full beard. "Are you the manager?" she asked, softly stroking his face with both hands. "Actually, no," he replied. "Can you get him for me? I need to speak to him," she said, running her hands beyond his beard and into his hair. "I'm afraid I can't," breathed the bartender. "Is there anything I can do?" "Yes. I need you to give him a message," she continued, running her forefinger across the bartender's lips. "What should I tell him?" the bartender managed to say. "Tell him," she whispered, "There's no toilet paper, hand soap, or paper towels in the ladies room."
Friday, July 10, 2009
7/10/09
Good morning. The Fed purchased $17.05bn net in agency MBS over the past week, bringing its total net purchase to $638.6bn. Over ½ of their allocated funds have now been used. This, no doubt accounted for the strong performance recently of mortgage securities, relative to Treasury prices. Wall Street traders say that buyers from Asia, money managers, and the Fed have all been in buying MBS’s – even the higher coupon mortgage product.
Yesterday was another light news day, with initial Jobless Claims being much lower than expected, but continuing Jobless Claims were much higher than expected. No supply worries for at least another 10 days before markets stare down another round of Treasury borrowing with 2, 5s and 7 yr note on 7/28, 29, and 30. In the meantime after this week with little economic measurements, next week's calendar has a lot to digest that will have impact on equities and the bond and mortgage markets.
GM will emerge from bankruptcy today, a speedy move that many were very skeptical about the time it would take. The best assets of GM will be put in a new company owned by you and me. Shifting assets to the new company allows GM to shed half its U.S. brands, cut more than 6,000 U.S. salaried jobs and idle or close 16 factories. Chief Executive Officer Fritz Henderson has said he will shrink top management by more than a third and speed up decision making. Good Luck to the new GM.
Trade volume is low as we move deeper into summer and with nothing to work from other than moving back and forth with how the equity market performs. It is the same story; stocks rally, rate markets swoon, stocks decline rate markets find support. Being Friday activity is likely to be quiet unless traders make a heavy move to dump equities, and that does not appear likely today. Next week economic data re-emerges with no treasury supply pressures. Let me know if you have any questions and have a great weekend.
Yesterday was another light news day, with initial Jobless Claims being much lower than expected, but continuing Jobless Claims were much higher than expected. No supply worries for at least another 10 days before markets stare down another round of Treasury borrowing with 2, 5s and 7 yr note on 7/28, 29, and 30. In the meantime after this week with little economic measurements, next week's calendar has a lot to digest that will have impact on equities and the bond and mortgage markets.
GM will emerge from bankruptcy today, a speedy move that many were very skeptical about the time it would take. The best assets of GM will be put in a new company owned by you and me. Shifting assets to the new company allows GM to shed half its U.S. brands, cut more than 6,000 U.S. salaried jobs and idle or close 16 factories. Chief Executive Officer Fritz Henderson has said he will shrink top management by more than a third and speed up decision making. Good Luck to the new GM.
Trade volume is low as we move deeper into summer and with nothing to work from other than moving back and forth with how the equity market performs. It is the same story; stocks rally, rate markets swoon, stocks decline rate markets find support. Being Friday activity is likely to be quiet unless traders make a heavy move to dump equities, and that does not appear likely today. Next week economic data re-emerges with no treasury supply pressures. Let me know if you have any questions and have a great weekend.
7/9/09
Good morning. Not only did the 3-yr auction go well on Tuesday, but yesterday’s 10-yr auction exceeded all expectations. The “bid to cover” ratio, which is a measure of demand, was 3.28, basically meaning that for every note purchased there were over 3 bids. And the “indirect” bid, typically from foreign entities and non-primary dealers, was 44%: a very high level. Mortgages tagged along for the ride and we saw some improvement yesterday. For an interesting side note, consumers appear to be saving money: personal income is up slightly, personal consumption is down. What are folks doing with their money? Keeping it in the bank. And what are the banks doing with the cash? Uh, how about investing it in safe Treasury securities?
Weekly jobless claims was the trigger this morning as new claims plunged by 52K (expectations were for a 4K decline). Continuing claims however continued to increase to a new high. While we put more emphasis on continuing claims in measuring the health of the employment sector, markets like to focus on headlines and not so much on the larger picture when trading day to day. It appears the markets are now convinced the worst is behind us but the future remains clouded.
At 1:00 this afternoon Treasury will complete the 3 leg auctions this week. As I mentioned, so far the Treasury borrowings over the past month have seen strong demand. Today's 30 yr is somewhat of a maverick with most long term global bonds in the 10 yr range so hard to judge reaction. Stay tuned.
Weekly jobless claims was the trigger this morning as new claims plunged by 52K (expectations were for a 4K decline). Continuing claims however continued to increase to a new high. While we put more emphasis on continuing claims in measuring the health of the employment sector, markets like to focus on headlines and not so much on the larger picture when trading day to day. It appears the markets are now convinced the worst is behind us but the future remains clouded.
At 1:00 this afternoon Treasury will complete the 3 leg auctions this week. As I mentioned, so far the Treasury borrowings over the past month have seen strong demand. Today's 30 yr is somewhat of a maverick with most long term global bonds in the 10 yr range so hard to judge reaction. Stay tuned.
Wednesday, July 8, 2009
7/8/09
Good morning. Treasuries and mortgages opened better this morning following the technical break of key resistance levels yesterday. Yesterday the stock indexes took a big hit supporting the bond and mortgage markets. More evidence is accumulating that the economy isn't on the road to recovery. While not falling as rapidly as earlier this year, job losses are continuing and with the exception of the two ISM reports (manufacturing and services---both still bearish) the various reports are not improving. As long as the consumer is suffering with declining home prices, job losses---many of which are not likely to return, and fears of further job uncertainty, the economy has little chance of recovery in the short run. Add in now that there is increasing talk of the need for another stimulus package and now we have this administration questioning its own policy initiatives. The present $787B stimulus package passed earlier this year has been an abject failure, wasted money that politicians used for pork and other non-job creation programs. Even the French are criticizing the Obama stimulus as being too little and way too slow. Talk of more stimulus is likely, so far the administration is cool on the idea; but just the talk is sending negative vibes.
At 1:00 this afternoon Treasury will auction 10 yr notes, a true test of demand at the long end of the curve that will have an impact on mortgage prices and rates based on demand. Not much other data to think about this week but at 3:00 this afternoon May consumer credit will be released; expectations are for another decline after a big fall off in April. There you go. If you have any questions, please give me a call.
At 1:00 this afternoon Treasury will auction 10 yr notes, a true test of demand at the long end of the curve that will have an impact on mortgage prices and rates based on demand. Not much other data to think about this week but at 3:00 this afternoon May consumer credit will be released; expectations are for another decline after a big fall off in April. There you go. If you have any questions, please give me a call.
7/7/09
Things are pretty quiet in the markets out there. Perhaps we are in the summer doldrums, with many folks on vacation. Yesterday stocks and bonds ended the day without much change, and today might follow a similar pattern – in fact there is little news until Thursday’s Jobless Claims. Today, however, is a $35 billion 3-year note auction, followed by tomorrow’s $19 billion 10-year note auction, and Thursday’s $11 billion 30-year bond auction. As I said yesterday, don’t look for much change in mortgage rates until or unless there is more substantial news about the economic outlook. Currently mortgage prices are a shade worse than Monday afternoon.
Monday, July 6, 2009
Mortgage Market Review - 7/9/09
This Morning…Monday, July 6, 2009:
Treasuries and mortgages started a little better this morning with the early trade in the stock indexes pointed to a lower open. There is not much in the way of economic data this week; the equity markets are still absorbing that the economy may not be on the recovery path that had been mapped recently. Today Treasury will sell $8B of 10 yr inflation indexed notes; through the rest of the week Treasury will add another $65B of borrowing.
Last Week:
Once again it was volatile through the week but by the end of trade last Thursday there ultimately was not much change overall in the bond and mortgage markets. The stock market didn't fare well last week, driven lower by the jump in non-farm job losses. Non-farm job losses were over 100K more than expectations rattling the equity markets with the DJIA taking a 223 point hit, NASDAQ -49 and S&P -26. The June employment report saw more jobs lost than expected, 467K against 360K expected; the unemployment rate at 9.5% was +0.1% but slightly less than 9.6% expected. This report sent many analysts back to the drawing boards to re-assess their more rosy outlooks. June consumer confidence was weaker than in May, another negative for the economic outlook. Over the previous two months consumer confidence and consumer sentiment had been improving. June construction spending was weaker than forecasts.. Most publications out this weekend were saying the same; that the economy isn't at the edge of the woods as had been widely believed. Although equities fell the rate markets didn't find the kind of traction we might have expected. The only bright spot last week came with the ISM manufacturing report, the overall index improved as did the interior components; rebuilding of inventories likely the reason for the slight increase
This Week:
This week will be dominated with Treasury supply with only a smattering of economic data on the slate. Treasury will hold auctions everyday through Thursday. With the federal budget shooting up like a skyrocket on the 4th of July and the Fed running the printing presses 24/7 The US will have to borrow more than ever before to deal with this year’s $2T budget deficit. Three reports will deserve a good look; the ISM services sector index on Monday, Consumer credit for May and on Thursday weekly jobless claims. Optimists have recently been enthused that initial unemployment claims are "only" at 600K a week.
Trade in the bond and mortgage markets this week will be heavily influenced by how the equity market performs and Treasury auctions. As long as stocks are moving higher it plays against any real opportunity for interest rates to improve much. Rate markets fear any increase in economic activity, believing the Fed will begin raising rates, fear of inflation with all the money printing by the Fed and always on the back burner, how foreign central banks will face buying the massive debt the US is creating.
EconomicIndicator
Analysis
3-year Treasury Note Auction
Tuesday, July 7,1:30 pm, et
None
Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
10-year Treasury Note Auction
Wednesday, July 8,1:30 pm, et
None
Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
Consumer Credit
Wednesday, July 8,3:00 pm, et
Down $7.5 billion
Low importance. A significantly large increase may lead to lower mortgage interest rates.
30-year Treasury Bond Auction
Thursday, July 9,1:30 pm, et
None
Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates.
Trade Data
Friday, July 10,8:30 am, et
$30 billion deficit
Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
U of Michigan Consumer Sentiment
Friday, July 10,10:00 am, et
71.0
Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
Market Forecast:
After chewing on last week’s employment data the markets are re-assessing the economic outlook. Whether a change in sentiment will occur remain the question for interest rates as well as the equity markets. Even the most outrageously bullish stock traders are now looking for a correction and a decline in equities, but so far every dip in the key indexes lasts a few hours before buying overwhelms sellers. This morning stocks are being hit hard so far but trading volume is thin and will likely continue through the rest of the day with most jumping out for the long weekend. Thin trading increases volatility.
Our thinking now is for another move lower in the rate markets, including mortgage rates. There are two hurdles; the stock market and Treasury borrowing. We continue to expect stocks to make a significant correction, the longer it takes the bigger the fall in equities. We fully admit however, we have been way too early in our expectations for stock indexes to roll over so we have less confidence on when the next round of interest rate declines will occur. The other hurdle; Treasury has to borrow $170+B a month in 2 yr through 30 yr notes and bonds, that amount acts as a drag on treasuries therefore on mortgage rates. Recent demand for Treasury auctions has been solid but there will always be market concerns that rates may have to stay at these or higher levels to attract those indirect bidders (foreign investors and foreign central banks).
Of the greatest importance this week, since data is limited, are the Treasury auctions, which begin tomorrow. (We also have an $8B 10-year TIPS auction.) Tomorrow is a $35 billion 3-year note auction, Wednesday’s $19B 10-year note auction, and Thursday’s $11B 30-year bond auction. Don’t look for much change in mortgage rates until or unless there is more substantial news about the economic outlook.
Some Humor:
Why men don't write advice columns:
Dear Walter:
I hope you can help me here. The other day I set off for work leaving my husband in the house watching the TV as usual. I hadn't gone more than a mile down the road when my engine conked out and the car shuddered to a halt. I walked back home to get my husband's help. When I got home I couldn't believe my eyes. He was in the bedroom with a neighbor lady making mad passionate love to her.
I am 32, my husband is 34 and we have been married for twelve years. When I confronted him, he broke down and admitted that he'd been having an affair for the past six months. I told him to stop or I would leave him. He was let go from his job six months ago and he says he has been feeling increasingly depressed and worthless. I love him very much, but ever since I gave him the ultimatum he has become increasingly distant. I don't feel I can get through to him anymore.
Can you please help?
Sincerely, Puzzled in Poughkeepsie
Dear Puzzled:
A car stalling after being driven a short distance can be caused by a variety of faults with the engine. Start by checking that there is no debris in the fuel line. If it is clear, check the jubilee clips holding the vacuum hoses onto the intake manifold. If none of these approaches solves the problem, it could be that the fuel pump itself is faulty, causing low fuel delivery pressure to the carburetor float chamber or fuel injection system.
I hope this helps.
Walter
Treasuries and mortgages started a little better this morning with the early trade in the stock indexes pointed to a lower open. There is not much in the way of economic data this week; the equity markets are still absorbing that the economy may not be on the recovery path that had been mapped recently. Today Treasury will sell $8B of 10 yr inflation indexed notes; through the rest of the week Treasury will add another $65B of borrowing.
Last Week:
Once again it was volatile through the week but by the end of trade last Thursday there ultimately was not much change overall in the bond and mortgage markets. The stock market didn't fare well last week, driven lower by the jump in non-farm job losses. Non-farm job losses were over 100K more than expectations rattling the equity markets with the DJIA taking a 223 point hit, NASDAQ -49 and S&P -26. The June employment report saw more jobs lost than expected, 467K against 360K expected; the unemployment rate at 9.5% was +0.1% but slightly less than 9.6% expected. This report sent many analysts back to the drawing boards to re-assess their more rosy outlooks. June consumer confidence was weaker than in May, another negative for the economic outlook. Over the previous two months consumer confidence and consumer sentiment had been improving. June construction spending was weaker than forecasts.. Most publications out this weekend were saying the same; that the economy isn't at the edge of the woods as had been widely believed. Although equities fell the rate markets didn't find the kind of traction we might have expected. The only bright spot last week came with the ISM manufacturing report, the overall index improved as did the interior components; rebuilding of inventories likely the reason for the slight increase
This Week:
This week will be dominated with Treasury supply with only a smattering of economic data on the slate. Treasury will hold auctions everyday through Thursday. With the federal budget shooting up like a skyrocket on the 4th of July and the Fed running the printing presses 24/7 The US will have to borrow more than ever before to deal with this year’s $2T budget deficit. Three reports will deserve a good look; the ISM services sector index on Monday, Consumer credit for May and on Thursday weekly jobless claims. Optimists have recently been enthused that initial unemployment claims are "only" at 600K a week.
Trade in the bond and mortgage markets this week will be heavily influenced by how the equity market performs and Treasury auctions. As long as stocks are moving higher it plays against any real opportunity for interest rates to improve much. Rate markets fear any increase in economic activity, believing the Fed will begin raising rates, fear of inflation with all the money printing by the Fed and always on the back burner, how foreign central banks will face buying the massive debt the US is creating.
EconomicIndicator
Analysis
3-year Treasury Note Auction
Tuesday, July 7,1:30 pm, et
None
Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
10-year Treasury Note Auction
Wednesday, July 8,1:30 pm, et
None
Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
Consumer Credit
Wednesday, July 8,3:00 pm, et
Down $7.5 billion
Low importance. A significantly large increase may lead to lower mortgage interest rates.
30-year Treasury Bond Auction
Thursday, July 9,1:30 pm, et
None
Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates.
Trade Data
Friday, July 10,8:30 am, et
$30 billion deficit
Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
U of Michigan Consumer Sentiment
Friday, July 10,10:00 am, et
71.0
Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
Market Forecast:
After chewing on last week’s employment data the markets are re-assessing the economic outlook. Whether a change in sentiment will occur remain the question for interest rates as well as the equity markets. Even the most outrageously bullish stock traders are now looking for a correction and a decline in equities, but so far every dip in the key indexes lasts a few hours before buying overwhelms sellers. This morning stocks are being hit hard so far but trading volume is thin and will likely continue through the rest of the day with most jumping out for the long weekend. Thin trading increases volatility.
Our thinking now is for another move lower in the rate markets, including mortgage rates. There are two hurdles; the stock market and Treasury borrowing. We continue to expect stocks to make a significant correction, the longer it takes the bigger the fall in equities. We fully admit however, we have been way too early in our expectations for stock indexes to roll over so we have less confidence on when the next round of interest rate declines will occur. The other hurdle; Treasury has to borrow $170+B a month in 2 yr through 30 yr notes and bonds, that amount acts as a drag on treasuries therefore on mortgage rates. Recent demand for Treasury auctions has been solid but there will always be market concerns that rates may have to stay at these or higher levels to attract those indirect bidders (foreign investors and foreign central banks).
Of the greatest importance this week, since data is limited, are the Treasury auctions, which begin tomorrow. (We also have an $8B 10-year TIPS auction.) Tomorrow is a $35 billion 3-year note auction, Wednesday’s $19B 10-year note auction, and Thursday’s $11B 30-year bond auction. Don’t look for much change in mortgage rates until or unless there is more substantial news about the economic outlook.
Some Humor:
Why men don't write advice columns:
Dear Walter:
I hope you can help me here. The other day I set off for work leaving my husband in the house watching the TV as usual. I hadn't gone more than a mile down the road when my engine conked out and the car shuddered to a halt. I walked back home to get my husband's help. When I got home I couldn't believe my eyes. He was in the bedroom with a neighbor lady making mad passionate love to her.
I am 32, my husband is 34 and we have been married for twelve years. When I confronted him, he broke down and admitted that he'd been having an affair for the past six months. I told him to stop or I would leave him. He was let go from his job six months ago and he says he has been feeling increasingly depressed and worthless. I love him very much, but ever since I gave him the ultimatum he has become increasingly distant. I don't feel I can get through to him anymore.
Can you please help?
Sincerely, Puzzled in Poughkeepsie
Dear Puzzled:
A car stalling after being driven a short distance can be caused by a variety of faults with the engine. Start by checking that there is no debris in the fuel line. If it is clear, check the jubilee clips holding the vacuum hoses onto the intake manifold. If none of these approaches solves the problem, it could be that the fuel pump itself is faulty, causing low fuel delivery pressure to the carburetor float chamber or fuel injection system.
I hope this helps.
Walter
Thursday, July 2, 2009
7/2/09
Good morning. Yesterday we had yet another bag of mixed economic news. The ADP jobs report, which leaves off government jobs, was worse than expected, but Pending Home Sales increased. Construction Spending dropped .9% in May to its lowest level in 5 years, worse than expected, but the Institute of Supply Management Index rose. On top of all of that, Federal Reserve Bank of San Francisco President Janet Yellen said that overnight rates could remain at .25% or lower for a few years.
June unemployment rate hit at 9.5% against the estimates at 9.6%. Non-farm payrolls were expected at -363K but were down 467K. The chatter on the unemployment rate given it is increasing at a slower pace than earlier this year is that the rate of unemployment is slowing---a good thing. Not in my reasoning though. Job losses at 450K+ a month is hard to argue that it is a good thing; the increase in the unemployment rate is increasing every month, not good. Bottom line, this data this morning can't be legitimately twisted as a good report because unemployment only increased by 0.1%. 15 mil people are out of work, 47% for over 6 months.
After chewing on the employment data this morning markets should be re-assessing the economic outlook. Whether a change in sentiment will occur remain the question for interest rates as well as the equity markets. Even the most outrageously bullish stock traders are now looking for a correction and a decline in equities, but so far every dip in the key indexes lasts a few hours before buying overwhelms sellers. This morning stocks are being hit hard so far but trading volume is thin and will likely continue through the rest of the day with most jumping out for the long weekend. Thin trading increases volatility.
Our thinking now is for another move lower in the rate markets, including mortgage rates. There are two hurdles; the stock market and Treasury borrowing. We continue to expect stocks to make a significant correction, the longer it takes the bigger the fall in equities. We fully admit however, we have been way too early in our expectations for stock indexes to roll over so we have less confidence on when the next round of interest rate declines will occur. The other hurdle; Treasury has to borrow $170+B a month in 2 yr through 30 yr notes and bonds, that amount acts as a drag on treasuries therefore on mortgage rates. Recent demand for Treasury auctions has been solid but there will always be market concerns that rates may have to stay at these or higher levels to attract those indirect bidders (foreign investors and foreign central banks).
There is a lot of day left for the stock market but the bond and mortgage markets will close at 2:00 this afternoon. With the long weekend we may not have the momentum or temperament in the bond markets to break the resistance levels. Traders rightfully are suspicious of the current stock market decline, in past attempts to pressure indexes lower they have all failed so far.
There will be no market reports tomorrow. Have a GREAT weekend, enjoy the weather, be safe.
June unemployment rate hit at 9.5% against the estimates at 9.6%. Non-farm payrolls were expected at -363K but were down 467K. The chatter on the unemployment rate given it is increasing at a slower pace than earlier this year is that the rate of unemployment is slowing---a good thing. Not in my reasoning though. Job losses at 450K+ a month is hard to argue that it is a good thing; the increase in the unemployment rate is increasing every month, not good. Bottom line, this data this morning can't be legitimately twisted as a good report because unemployment only increased by 0.1%. 15 mil people are out of work, 47% for over 6 months.
After chewing on the employment data this morning markets should be re-assessing the economic outlook. Whether a change in sentiment will occur remain the question for interest rates as well as the equity markets. Even the most outrageously bullish stock traders are now looking for a correction and a decline in equities, but so far every dip in the key indexes lasts a few hours before buying overwhelms sellers. This morning stocks are being hit hard so far but trading volume is thin and will likely continue through the rest of the day with most jumping out for the long weekend. Thin trading increases volatility.
Our thinking now is for another move lower in the rate markets, including mortgage rates. There are two hurdles; the stock market and Treasury borrowing. We continue to expect stocks to make a significant correction, the longer it takes the bigger the fall in equities. We fully admit however, we have been way too early in our expectations for stock indexes to roll over so we have less confidence on when the next round of interest rate declines will occur. The other hurdle; Treasury has to borrow $170+B a month in 2 yr through 30 yr notes and bonds, that amount acts as a drag on treasuries therefore on mortgage rates. Recent demand for Treasury auctions has been solid but there will always be market concerns that rates may have to stay at these or higher levels to attract those indirect bidders (foreign investors and foreign central banks).
There is a lot of day left for the stock market but the bond and mortgage markets will close at 2:00 this afternoon. With the long weekend we may not have the momentum or temperament in the bond markets to break the resistance levels. Traders rightfully are suspicious of the current stock market decline, in past attempts to pressure indexes lower they have all failed so far.
There will be no market reports tomorrow. Have a GREAT weekend, enjoy the weather, be safe.
Wednesday, July 1, 2009
7/1/09
Yesterday the Conference Board announced that Consumer Confidence dropped in June. Based on that alone, you would believe that the economy is not out of the woods yet – which is probably true. The S&P/Case-Shiller Home Price Index of 20 U.S. Cities decreased in April from a year earlier following an 18.7 percent drop in March. But the measure was down 0.6 percent in April from the prior month, the best performance since June 2008. Eight of the 20 cities showed an increase in prices from March. In the last 12 months the worst performers were Phoenix (-35%), Las Vegas (-32%) and San Francisco (-28%).
Tomorrow we have the Employment report, which is predicted to show Non-farm Payrolls down, with the unemployment rate hitting 9.6%, already at the highest level in more than 25 years. Today we have Construction Spending and Institute of Supply Manager's Survey. With the employment report tomorrow and very thin trading ahead of the holiday on Friday we do not want to accept much risk here. Stay tuned and let me know if you have any questions.
Tomorrow we have the Employment report, which is predicted to show Non-farm Payrolls down, with the unemployment rate hitting 9.6%, already at the highest level in more than 25 years. Today we have Construction Spending and Institute of Supply Manager's Survey. With the employment report tomorrow and very thin trading ahead of the holiday on Friday we do not want to accept much risk here. Stay tuned and let me know if you have any questions.
6/30/09
Mortgage prices started weaker this morning. The Johnson Redbook chain store sales were down last month. Consumers remain mostly sidelined on job losses and the fear of future jobs being lost.
The Case/Shiller Home Price Index was down in April after declining 18.70% in March. Foreclosures continue to depress prices. The home-price index figures aren’t adjusted for seasonal effects so economists prefer to focus on year-over-year changes instead of month-to-month.
The Fed is scheduled to buy more treasuries today on the $300B announced bond purchase program announced in March. Treasuries and mortgage prices continue to fall this morning. Trade is thin and selling today is more technical than substantive so far.
The Case/Shiller Home Price Index was down in April after declining 18.70% in March. Foreclosures continue to depress prices. The home-price index figures aren’t adjusted for seasonal effects so economists prefer to focus on year-over-year changes instead of month-to-month.
The Fed is scheduled to buy more treasuries today on the $300B announced bond purchase program announced in March. Treasuries and mortgage prices continue to fall this morning. Trade is thin and selling today is more technical than substantive so far.
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