Category → FOMC Minutes
Wednesday Market Update
A little weaker this morning in the rate markets; not really unexpected after the recent improvement in rates and ahead of an historic day with the chairman of the Fed holding a press conference for the first time ever. The FOMC meeting will conclude at 12:30 with its usual short policy statement, then at 2:15 Bernanke will hold a 45 minute press conference to answer questions. It is huge step for the Fed to open the chairman to the media, it also could be just another event that fails to meet expectations. If Bernanke doesn’t allow follow up questions then he can waltz through the press conference without breaking a sweat and continue to let markets swing in the wind.
At 9:00 this morning the 10 yr note -12/32 at 3.35% after closing at 3.31% yesterday; mortgage prices off 6/32 (.18 bb), the stock indexes continue to improve as Q1 earnings generally beat estimates. At 9:30 the DJIA opened +11 then immediately retreated to unchanged, the 10 yr at 9:30 -12/32 and mortgages -6/32 (.18 bp).
At 8:30 March durable goods orders expected up 2.0% increased 2.5%, when the volatile transportation orders are ignored durables were up in line with estimates 1.3%; no reaction to the report as everything this morning is completely dependent on the FOMC policy statement and Bernanke’s press conference.
Mortgage applications decreased 5.6% from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending April 22. There was no adjustment made for Good Friday. The Market Composite Index, a measure of mortgage loan application volume, decreased 5.6% on a seasonally adjusted basis from one week earlier. The Refinance Index decreased 0.6% from the previous week. The seasonally adjusted Purchase Index decreased 13.6% to its lowest level since February 25, 2011, driven by a 26.6% decrease in government purchase applications. The four week moving average for the seasonally adjusted Market Index is down 2.4%. The four week moving average is down 0.8% for the seasonally adjusted Purchase Index, while this average is down 3.2% for the Refinance Index. The refinance share of mortgage activity increased to 61.6% of total applications from 58.5% the previous week. This is the highest refinance share of the month. The adjustable-rate mortgage (ARM) share of activity remained unchanged from the previous week at 6.5% of total applications. The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.80% from 4.83%, with points decreasing to 1.01 from 1.06 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.03% from 4.07%, with points decreasing to 0.96 from 1.02 (including the origination fee) for 80% loans.
At 11:30 this morning Treasury will auction $35B of 5 yr notes; normally at 1:00 but with the FOMC policy statement at 12:30 Treasury moved the auction to 11:30. Yesterday the 2 yr note auction wasn’t as good as we would have liked but until the press conference is done this afternoon nothing is likely to move traders and investors. Another soft auction will be dealt with after the press conference is debated. As noted above, if no follow up questions are allowed the conference will be seen as just another sound bite.
Tuesday Trivia
US rate markets slightly better this morning but not much; the early trade in stock indexes were pointing to a better open on UBS earnings. The Fed begins its FOMC meeting today concluding tomorrow with the short policy statement at 12:30 then Bernanke’s awaited press conference at 2:15.
At 9:00 the Case/Shiller Feb home price index; on the 20 city measurement prices fell 3.3% yr/yr and on the 10 city metro prices fell 2.6% yr/yr. No reaction to the data as usual, there isn’t any improvement in the housing markets with prices continuing to fall and consumers seeing little compelling reason to buy or sell. Housing was the prime driver for the US economy since WW II until four years ago, now there seems to be little interest from Washington to directly address the issue.
At 9:30 the DJIA opened +16, the 10 yr note +4/32 and mortgage prices at 9:30 +.12 bp.
At 10:00 April consumer confidence from the Conference Board, expected at 64.4 frm 63.4 in March, was better at 65.4 frm March revision up to 63.8 frm 63.4. The present situation measurement at 39.6 frm 37.5 the highest since Nov 2008; 12 month expectations 82.6 frm 81.3 and the 1 yr inflation outlook index to 6.3 frm 6.7. Overall a better consumer outlook boosted equity indexes a little but the bond market had little initial reaction.
The only significant focus point now is on tomorrow’s FOMC statement and what Bernanke will say at his press conference in answering what we hope will be the tough questions. The general conclusion now is that the Fed will complete its QE 2 $600B treasury purchases by the end of June. What comes next is what markets are seeking; most bond market participants and stock market enthusiasts are expecting Bernanke will keep interest rates low for at least the rest of the year and possibly longer. Bernanke and some other Fed officials have repeatedly defined the economy as in “modest recovery” and still fragile. As long as the Fed (Bernanke) see it that way the Fed will do whatever is necessary to keep rates low. As long as that outlook holds stock markets will continue to improve, low rates don’t have much positive impact on consumers (maybe lower car loans), mortgage rates are low but that isn’t motivating anyone. All about driving the dollar lower and pushing investments into equity markets.
Thursday the first look at Q1 GDP is expected at 1.5% to 2.3% growth; a lot weaker than was thought just six weeks ago. Increasing numbers of analysts are currently lowering growth expectations for Q2. The Fed isn’t about to yank its support with the economic outlook not as rosy as most were expecting a short time ago. Two weeks ago markets were all a buzz fearing inflation as commodity prices increase, today focus has changed to how much more help the Fed will provide. Unlikely we will have another QE 3 but the Fed has other ways to pump money into the bond markets; it may decide to reinvest the interest and principal payments from its bond holdings in treasuries.
The bond market isn’t expecting US rates will increase when the Fed ends QE 2 at the end of June. Since last Nov the Fed has purchased about $550B of treasuries while Treasury has issued $825B of notes and bonds, when the Fed ends its QE as is generally expected traders apparently believe markets will step up and fill the short-fall.
Treasury auction $35B of 2 yr notes at 1:00 this afternoon, expectations are for good bidding.
Technically the bond and mortgage markets remain bullish; that said we will continue to stand down from buying treasuries at least until we hear from Bernanke tomorrow
Monday Minutia
Well it is another start to the week and the early AM read is putting some upward pressure on interest rates. On tap for the economic calendar this week is:
| August 16 | NY Empire State Manufacturing Index | ||
| August 16 | Net Long-term TIC Flows | ||
| August 16 | Total Net TIC Flows | ||
| August 16 | NAHB Housing Market Index | ||
| August 17 | Building Permits (MoM) | ||
| August 17 | Housing Starts (YoY) | ||
| August 17 | Producer Price Index (MoM) | ||
| August 17 | Producer Price Index (YoY) | ||
| August 17 | Producer Price Index ex Food & Energy (MoM) | ||
| August 17 | Producer Price Index ex Food & Energy (YoY) | ||
| August 17 | Capacity Utilization | ||
| August 17 | Industrial Production (MoM) | ||
| August 17 | ABC/Washington Post Consumer Confidence | ||
| August 18 | MBA Mortgage Applications | ||
| August 18 | EIA Crude Oil Stocks change | ||
| August 19 | Continuing Jobless Claims | ||
| August 19 | Initial Jobless Claims | ||
| August 19 | Leading Indicators (MoM) | ||
| August 19 | Philadelphia Fed Manufacturing Survey | ||
There is some dissent to the recent Fed Policy statement as one of the Fed President’s have broken ranks and is sharply critical of the continued lax monetary policy. I am not sure what he is smoking but Kansas City Fed President Thomas Hoenig feels the time to raise rates is now. While I do not claim to be an economic scholar but this recovery kind of feels like a car stuck in the mud. The tires are spinning but we aren’t getting anywhere. For more on Hoenig’s opinion follow this LINK for the full article.
Text of the Release Notes from the Federal Reserve
Federal Open Market Committee Policy Statement
(Italics/highlight indicate material changes in wording from last statement)
Release Date: April 28, 2010
For immediate release
Information received since the Federal Open Market Committee met in March suggests that economic activity has continued to strengthen and that the labor market is beginning to improve. Growth in household spending has picked up recently but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly; however, investment in nonresidential structures is declining, and employers remain reluctant to add to payrolls. Housing starts have edged up but remain at a depressed level. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability.
With substantial resource slack continuing to restrain cost pressures and with longer-term inflation expectations stable, inflation is likely to be subdued for some time.
The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.
In light of improved functioning of financial markets, the Federal Reserve has closed all but one of the special liquidity facilities that it created to support markets during the crisis. The only remaining such program, the Term Asset-Backed Securities Loan Facility, is scheduled to close on June 30 for loans backed by new-issue commercial mortgage-backed securities and March 31 for loans backed by all other types of collateral.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S Rosengren; Daniel K. Tarullo; Kevin M. Warsh. Voting against the policy action was Thomas M Hoenig, who believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to the buildup of financial imbalances and increase risks to longer-run macroeconomic and financial stability, while limiting the Committee’s flexibility to begin raising rates modestly.
The March Fed Minutes Explains Why Home Sales Weren’t Worse This Winter
Mortgage markets improved yesterday after the Federal Reserve released its March 16, 2010 meeting minutes. It’s good news for home buyers and rate shoppers — rates could have just as easily gone the other way.
The Fed Minutes is a detailed recap of the debate and discussion that shapes the nation’s monetary policy. The notes are dense; it takes 3 weeks to compile them for publication.
As compared to the more well-known, post-meeting press release, the Fed Minutes are extremely lengthy. For example:
- March 16 press release : 451 words
- March 16 meeting minutes : 6,152 words
If the press release is the executive summary, the Fed Minutes are the novel.
The extra words matter.The minutes recount what the Fed did, how the Fed did it, and what the Fed plans to do next. And, in the minutes, Wall Street looks for clues.
This is why the report is important to every rate shopper in the country.
When the Federal Reserve publishes the minutes from its meetings, it leave clues about the groups next policy-making steps. For example, in March’s Fed Minutes, it’s clear that the Fed’s concern about inflation is hugely diminished and that’s a major plus for the mortgage bond market.
Inflation causes mortgage rates to rise. The absence of inflation, therefore, helps them to fall. This improves home affordability, among other things.
Similarly, the Fed Minutes note that real estate sales may have been worse throughout the winter months if not for low mortgage rates and the sense among Americans that home prices were troughing. We may infer, therefore, that rising rates may suppress home sales later this year.
Markets are always looking for clues from inside the Fed and the last meeting’s minute signal that the economy is on its way up. If you’re looking for a bargain in the housing market, your window to act may be closing.