Archive → March, 2011
Thursday Trivia
Yesterday the US Federal District Court denied the request for an injunction and restriaining order on the implementation on the Loan Offcier Compensation rule. This is not just a mortgage industry issue as who is to say another industry will not be targeted in the future and our government will take a stab at legislating that industry out of business? Housing led us into the economic crisis and housing will be the catalyst for a true recovery. All of our governments “well intentioned” actions have done nothing but to further bog down the mortgage industry, increase costs, confuse the consumer, and slow down a very slow moving recovery. Thank you Washington DC. To read the courts opinion you can follow this LINK.
Treasuries and mortgages doing better early this morning. At 8:30 weekly jobless claims saw a decline of 6K filings from last week, however last week’s claims were revised from 282K to 394K. Continuing claims were down 51K to 3.714 mil but as with the claims continuing claims were revised from 3.721 mil last week to 4.22 mil in the revision. The 4 wk average also increased to 394,250 frm 391.000 based on the revisions. The claims report today is data collected after the BLS gathered the data for tomorrow’s monthly employment report.
Next up this morning, the March Chicago purchasing managers index, expected at 70.0 frm 71.2 in Feb, was 70.6. The new orders component at 74.5 frm 75.9, the employment index at 65.6 frm 59.8 the highest read since Dec 1983 and the prices pd for materials at 83.4 frm 81.2, the highest since July 2008. Employment and prices are more evidence that the economy is improving along with inflation concerns. However, there was little reaction to the report, treasuries and mortgages held steady with small price gains and the stock market unchanged.
Finally today, Feb factory orders were expected to be up 0.4%, were down 0.1% and Jan revised to +3.3% frm 3.1%.
In Europe inflation data was stronger than expected; in the 17-nation euro region inflation increased to 2.6% in March from 2.4% in February, European Union estimates showed today. That’s the fastest pace since October 2008, and exceeds the ECB’s 2.0% limit for a fourth month. Economists had forecast inflation to hold steady. Next week the ECB will meet to discuss increasing its base lending rate, the inflation data today further increases the chance ECB will increase rates. Following moves in China, Brazil, Russia and India base lending rates are moving higher. In the US so far, the Fed still holds that inflation is not an immediate problem and plans to continue the easing move of buying $600B of treasuries. Whether or not inflation is about to click in, the bond market will face a huge hill to climb keeping long term rates including mortgages at or below the present levels. Fed officials are increasingly more divided on ending QE 2 sooner and less buying than originally intended; Bernanke however appears to be holding with completing the entire $600B buying that will conclude at the end of June.
After all the data this morning the rate markets holding better than we would have thought given the strong Chicago PM index and inflation increase out of Europe. The stock market holding unchanged. Technically the 10 yr held 3.50% on Tuesday giving traders a little opportunity but overall the bond market still holds a bearish outlook for rates. The rest of the session will be setting up for tomorrow’s employment report with estimates still for an increase of 200K jobs and the unemployment rate unchanged at 8.9%. If floating stay close today; normally we do not like having a market position into employment as it is too volatile.
What’s On Tap For Wednesday
Mortgage markets starting better this morning after price declines again yesterday; the 10 yr note at 9:00 was up slightly (2/32) while mtg prices were +4/32 (.12 bp). At 8:15 the March ADP non-farm private jobs report came in at +201K; small businesses +102K, medium businesses +82K and large businesses +17K. ADP reported the service sector jobs increased 164K the 15th consecutive increase in service producing sector; goods producing up 37K the 5th consecutive increase and manufacturing increased 37K the 6th consecutive increase. According to ADP the US private sector has averaged 175K jobs a month for the past six months. Projections of the 34 economists polled by Bloomberg ranged from gains of 171,000 to 295,000.
According to Chicago-based Challenger, Gray & Christmas Inc., another employment data point this morning, employers announced fewer job cuts in March than the same month last year, even as government payroll cutbacks climbed to the highest level in a year. Public employees accounted for almost half of all job cuts as states continue to cut fat with most state budgets in some kind of deficit.
Earlier this morning at 7:00 am the MBA released its weekly mortgage applications; they decreased 7.5% from one week earlier. The Refinance Index decreased 10.1% from the previous week. The seasonally adjusted Purchase Index decreased 1.7% from one week earlier. The unadjusted Purchase Index was 21.9% lower than the same week one year ago. The four week moving average for the seasonally adjusted Market Index is up 2.0%. The four week moving average is up 2.1% for the seasonally adjusted Purchase Index, while this average is up 2.0% for the Refinance Index. The refinance share of mortgage activity decreased to 64.3% of total applications from 66.4% the previous week. This is the second lowest refinance share reported since May 2010. The adjustable-rate mortgage (ARM) share of activity decreased to 5.7% from 5.9% of total applications from the previous week. The average contract interest rate for 30-year fixed-rate mortgages increased to 4.92% from 4.80%, with points decreasing to 0.83 from 0.96 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages increased to 4.16% from 4.02%, with points increasing to 0.99 from 0.90 (including the origination fee) for 80% loans.
Later today, at 1:00 pm Treasury will auction $29B of 7 yr notes. So far the 2 yr and 5 yr auctions were marginal at best. Today’s auction closer to the long end of the curve will be closely watched by traders, another soft auction will likely add conviction that interest rates are on the way higher.
At 9:30 the DJIA opened +46, the 10 yr note traded +1/32, mortgage prices +4/32 (.12 bp) frm yesterday’s close. Although the ADP report and the open in the equity markets would pressure to rate markets, interest rate markets have been in a slow free-fall for the past eight sessions and are now momentarily technically oversold. The potential for some improvement is high but in the wider perspective any rebound in rates will be seen as a selling opportunity by traders. The ECB about to increase rates along with many of the economies of the world, inflation concerns increasing albeit slowly, and as the calendar ticks off we get closer to the end of all of the Fed’s easing moves with QE 2 ending in June. Markets will not wait to the end and will have to consider how markets will absorb the shortfall when the Fed stops buying treasuries.
Should be quiet the rest of the morning until the 7 yr note auction is completed at 1:00. Oversold momentum oscillators likely to keep traders still until another shoe drops (i.e., a poor 7 yr auction or stronger economic data when the official employment report for March hits Friday morning). Although some rebound can’t be ignored, the rate markets will not likely loose their bearish outlook.
Monday Mania!
More selling in the rate markets this morning; as we have noted recently interest rates are headed higher after all the safety moves triggered by Japan’s problems. The stock market took a heavy hit on panic selling over Japan but is now trading better than prior to the earthquakes and tsunami. Interest rates also higher than prior to the issues. In Japan over the weekend, a lot of contaminated water surrounding the reactors and calls for the head of the power company to resign as the inability to provide accurate information or know what is happening has finally pushed the normally placid Japanese government to push for a change in leadership.
This morning at 8:30 Feb personal income and spending were reported; income was expected to have increased 0.3% it was on target, spending expected up 0.5% increased 0.7%. Personal savings was up 5.8% for the month but down from +6.1% in Jan. The PCE price index increased 0.6% and yr/yr +2.1%; the highest monthly increase on the PCE since June 2009 and the highest yr/yr since May 2010. ON the release interest rate prices already lower were knocked a little lower.
The DJIA opened a little better (+11), not much but still starting higher after last week’s strong rally increasing 362, NASDAQ +99 last week and S&P +35. All indexes now above levels prior to Japan.
At 10:00 Jan pending home sales, sales with contracts signed but not yet closed, was expected up 0.3% after falling 2.8% in Jan. increased 2.1% but yr/yr still down 8.2%. No initial reaction to the report.
This afternoon at 1:00 pm Treasury begins its monthly 2, 5, and 7 yr auctions with $35B of 2 yr notes. Should go well given the recent increase in rates, its a 2 yr and generally does get decent demand.
This Week’s Economic Calendar:
Tuesday;
9:00 am Jan Case/Shiller 20 city home price index (-3.3%)
10:00 am Mar consumer confidence index (65.0 frm 70.4)
1:00 pm $35B 5 yr note auction
Wednesday;
7:00 am weekly MBA mortgage applications
8:15 am ADP non-farm private jobs estimate for March (210K)
1:00 pm $29B 7 yr note auction
Thursday;
8:30 am weekly jobless claims (383K -1K; continuing claims 3.70 mil frm 3.721 mil)
9:45 am Mar Chicago purchasing mgrs index (69.5 frm 71.2 in Feb)
10:00 am Feb factory orders (+0.4%)
Friday:
8:30 am March employment data (non-farm jobs +185K, non-farm private jobs +203K, unemployment rate unch at 8.9%)
10:00 am March Nat’l ISM manufacturing index (61.4 unch frm Feb)
Feb construction spending (-0.7%)
3:00 pm March auto and truck sales (N/A)
Last week St Louis Fed Bullard suggested the Fed should review whether to curtail plans to buy $600B in Treasuries (QE 2) because of strong economic data. His remarks added additional reason for selling the bond and mortgage markets. While we don’t think the Fed will actually cut the intended $600B of purchases scheduled to end at the end of June, we do not believe there will be anymore quantative easing from the Fed. Although there are 90 days left for Fed purchases markets won’t sit tight until the end comes. Traders already moving to discount the end and concerns about who will pick up the slack in private markets once the Fed finishes; $10B a month by the Fed needs that much more demand. That is unlikely at the present interest rate levels. We have note for a week that rates would increase, although they did last week we are not expecting an explosion in rates. Looking for the 10 yr note and mortgage rtes for 30 yr fixed to be up about 50 basis points from present levels by the end of the year.
The Week Ahead
This Week unlike last week there are events and data points everyday for the bond and mortgage markets to consider. This is employment week with the March employment data on Friday, early expectations are for non-farm jobs to increase 185K with non-farm private jobs up 203K, the unemployment rate is expected unchanged at 8.9%. In the meantime Feb personal income and spending out on Monday, Mar consumer confidence on Tuesday, Thursday has weekly jobless claims, the Chicago purchasing mgrs index, Friday the ISM national manufacturing index.
Recent better than expected earnings reports and relaxing of concerns from Japan has boosted equity markets and interest rate markets are taking on a more negative technical pattern. We remain bearish for the outlook on rates, however we are not looking for rates to move substantially higher. The prime and only reason the bond and mortgage markets rallied recently was over safety moves on the Japanese nuclear problems.
Not only economic data this week, but Treasury borrowing. Tuesday $35B of 2 yr notes, Wednesday $35B of 5 yr notes and Thursday $29B of 7 yr notes. Recent auctions still seeing OK demand but not quite as strong as auctions last year. Debt problems in Europe (Portugal, Spain, Greece and Ireland get coverage in the media but are not having any noticeable impact on US bond markets.
Important Information On Fed Comp Rule
Please take the 6 minutes necessary to watch this video and then please forward it along. This is government at its’ best in America!!
Wednesday Update
Treasuries and mortgages opened better this morning after a quiet day yesterday. The stock indexes early on were pointing to a slightly weaker open the reason for a little better trade in the bond and mortgage markets.
In Japan officials said city tap water may be unsafe for infants while Japan’s government sought to assure people that radiation levels detected in the food chain following a nuclear accident don’t pose a health threat. The Health Ministry earlier today advised against eating leafy vegetables, broccoli and cauliflower produced near the stricken Dai-Ichi power plant, located 220 kilometers (135 miles) from Tokyo. Radioactive iodine levels taken yesterday at a treatment facility in Katsushika ward were double the recommended limit for babies, a city official said in a televised briefing today. Some progress in containing one of the reactors but still no end to the concerns. The maximum reading reported so far at the site is 500 millisieverts per hour, meaning a worker in the vicinity would receive the maximum recommended lifetime dose in 30 minutes.
Investors are making moves in Japan; Monday Warren Buffett said he is making investments in Japan, today PIMCO is reported to be purchasing Toyota Motor Credit debt. Increasingly the outlook for the global economy is improving after the panic that ensued after the earthquakes and nuclear reactor problems in Japan were thought to bring the world economies down.
In Europe estimates for growth in Britain were lowered. U.K. government bonds stayed higher after Chancellor of the Exchequer George Osborne said growth this year will be 1.7%, lower than a previous forecast for a 2.1% expansion.
Earlier this morning the weekly MBA mortgage applications increased 2.7% from one week earlier. The Refinance Index increased 2.7% from the previous week. The seasonally adjusted Purchase Index increased 2.7% from one week earlier and was 15.3% lower than the same week one year ago. The four week moving average for the seasonally adjusted Market Index is up 2.5%. The four week moving average is up 1.0% for the seasonally adjusted Purchase Index, while this average is up 3.3% for the Refinance Index. The refinance share of mortgage activity remained constant at 66.4% of total applications. The adjustable-rate mortgage (ARM) share of activity increased to 5.9% from 5.6% of total applications. The average contract interest rate for 30-year fixed-rate mortgages increased to 4.80% from 4.79%, with points decreasing to 0.96 from 1.07 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.02% from 4.03%, with points increasing to 0.90 from 0.85 (including the origination fee) for 80% loans.
So far this morning markets are quiet with not much trading. After two weeks of very high market volatility time to sit back and evaluate what is actually occurring and the impact near and longer term.
The only data today; Feb new home sales at 10:00 were expected up 1.0%, another shocking number, down 16.9% to 250K units annualized. The median sales price $202,100.00 down 8.9% frm Feb last year; at the present sales pace there is a an 8.9 month supply. The decline to 250K annualized is the lowest since 1962 and the median sales price the lowest since Dec 2003. The initial reaction boosted mortgage prices as the 10 yr price gained, the equity markets were already lower but fell more on the very weak sales report On Monday Feb existing home sales fell 9.6%; both reports were way below what analysts had expected.
We have been talking about the outlook for US interest rates in the last couple of days; that in our view rates will begin to increase soon. As we noted it is a moving target based primarily on the economic outlook, kind of rattles that outlook a little when we see sales of homes, both existing and new, in Feb plunge much more deeply than what had been thought. The weakness in housing is nothing new but the magnitude of the Feb declines is worrisome to say the least. It might have been somewhat weather related as Feb was not good for most of the country, nevertheless the declines are shocking.
Tuesday Trivia
The rate markets opened weaker today following selling yesterday. At 9:00 mortgage prices off 7/32 (.22 bp) frm the close yesterday, the 10 yr note -8/32 at 3.35% +2 bp. Not much new in the news from Libya and Japan; the coalition forces have bombed and missiled key cities in Libya trying to weaken Qaddafi forces (or is it Gadhafi, Gaddafi, Kaddafi, or Kaddafy). One US F 15 went down but not by fire, both pilots are safe. Aerial strikes enabled rebel forces to push out from their eastern stronghold of Benghazi. The countries involved in the attacks, Britain, France and the US are now debating who should lead the remainder of the intervention.
In Japan the reactors are still a problem but haven’t worsened. The debate in markets has now shifted to how Japan will recover; there is an increasing but fragile view growing in markets that Japan is a buy in terms of equities. Japan will rebuild and recover according to huge investor Warren Buffett. Analysts from The Street are falling in line that the global economic impact won’t be as serious as was thought at the onset of the earthquakes and tsunami. It isn’t a slam dunk but with Buffett saying he is investing in the country the rest of the lemmings may fall in line and march to the same tune. Still very much a moving target however. The biggest hurdle we can see is electric power, Japan has lost a huge amount of power supply that won’t be replaced quickly. Prime Minister Naoto Kan yesterday said there’s “light at the end of the tunnel” in the nation’s battle to avert a nuclear meltdown at a crippled power plant, which threatened a deeper shock to the nation’s consumers.
European Central Bank officials indicated the economic uncertainty caused by Japan’s earthquake may not deter them from raising interest rates next month. ECB President Jean-Claude Trichet told the European Parliament he has “nothing to add” to his March 3 remarks, when he said policy makers may raise the benchmark rate from a record low of 1.0% at their next meeting in April.
The stock market opened relatively unchanged ahead of 10:00 data on housing prices and regional manufacturing from the Richmond Fed.
At 10:00 FHFA reported Jan housing prices fell 0.3% frm Dec; Dec was revised from -0.3% to -1.0%. Yr/yr housing prices declined 3.9%.
Also at 10:00 the Richmond Fed manufacturing index; the index fell to 20 frm 25, the reaction cut the losses in treasuries in half and pushed stock indexes down.
Although so far today market volatility is subdued or a change, market volatility will continue to remain high. Not the kind of market environment that is conducive to taking risks unless one has a huge deep pocket. Sentiment changes rapidly on any news headline. We are most outwardly concerned about Japan and Libya but there is a lot to be concerned with especially in the overall Mideast region. Protests are increasing in many of the countries in the area; Syria, Yemen, Bahrain, Egypt, Tunisia, Turkey, and the list is growing. So far nothing serious is building but it is being closely monitored.
The outlook for US interest rates has not changed with Japan and Libya in the picture; interest rates in the US are going to head higher. Rates in China increasing, in India increasing, in Europe increasing; the Fed is close to being done with QE 2 buying $600B of treasuries, inflation fears are on the rise in most of the world while here it hasn’t yet spread out of food and energy components it is only a matter of time before all prices begin to edge up. Not much inflation but with the 10 yr note at 3.35% and historically low there will be no hesitancy by investors dumping long term fixed income investments. It may be next month or six months but rates will increase.
Monday Minutia – I’M Back!
I have been awol for quite awhile but here is an update on the market’s and what to expect today and this week!
Treasuries and mortgages opened a little better this morning with the key stock indexes lower. The world still focused on Japan’s earthquakes and Tsunami. There are now three nuke plants in jeopardy of a meltdown and the Tokyo stock market was hammered hard last night, the largest loss in 2 yrs, down 6.0%. Crude oil continues its decline on continued belief demand will decline in Japan. There are no economic reports scheduled today, the calendar has data points mid-week however. This week is marked by tomorrow’s FOMC meeting with the short policy statement out at 2:15 Tuesday afternoon.
This Week’s Economic calendar:
Tuesday;
8:30 am Empire State manufacturing index (17.0 frm 15.43 in Feb)
Feb import and export prices (N/A)
10:00 am NAHB housing market index (17 frm 16)
2:15 pm FOMC policy statement
Wednesday;
7:00 am weekly MBA mortgage applications
8:30 am Feb housing starts and permits (starts -4.4%, permits +2.0%)
Feb PPI (+0.6%; core +0.2%)
Q4 current account balance (-$110.0B)
Thursday;
8:30 am weekly jobless claims -10K to 387K; con’t claims 3.750 mil frm 3.771 mil)
Feb CPI (+0.4%; core +0.1%)
9:15 am Feb industrial production (+0.6%)
Feb capacity utilization (76.5% frm 76.1%)
10:00 am Feb leading economic indicators (+0.9%)
Mar Philadelphia Fed business index (28.0 frm 35.9 in Feb)
The DJIA opened down 65 at 9:30, the 10 yr note +10/32 at 3.36% -3 bp and holding below 3.40% since last Thursday. Technically the l0 yr note and mortgage markets are breaking some resistance levels.
Japan crude lower on the belief demand in Japan will decline, emerging market equity markets rallying on re-building boom that will be huge in Japan. Most all attention now is on Japan’s problems but the Mideast is still out there with continued protests in a number of states in the region while Qaddafi is waging war with protesters in the oil region and ports. In Europe a week ago comments from the ECB that it would be considering increasing interest rates next month to head off increasing inflation; now that looks less likely, England didn’t increase rates and there are voices calling for the ECB to hold rates low to keep recovery moving forward and less concern over inflation increasing. ‘s woes are filtering around the world;
The rest of the day today for the bond and mortgage markets will be dependent on how equity markets trade; so far the key indexes are weaker but not much. Tomorrow’s FOMC meeting should keep investors and traders from major moves. The Fed will keep interest rates at their present levels, talk about concerns over inflation, still worry over the strength of the US recovery with slow improvement in employment and no signs of recovery in the housing sector.