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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.
Monday Mania – Go Packers!
Well it is the Monday following the Super Bowl and we are all stuck dragging ourselves out of bed and trudging off to work. Based on some of the holidays that we celebrate, I am totally in support of turning this weekend into a 3 day affair and declaring post Super Bowl Monday as a national holiday!
Friday’s employment report caused quite the ripple on the mortgage rate markets and we saw more negative price movement on bonds and continued upward pressure on interest rates. The base rate (0 point price option) for a 30 year fixed conforming is now pushing the 5.000% mark for the first time in quite a while. The economic calendar does not indicate much rate relief this week so we expect rates to remain in the current range before we hopefully settle back down to the sub 5.000% range. On the calendar for this week is:
This Week’s Economic Calendar:
Today;
3:00 pm Dec consumer credit (+$2.5B)
Tuesday;
1:00 pm $32B 3 yr note auction
Wednesday;
7:00 am Weekly MBA mortgage applications
1:00 PM $24B 10 yr note auction
Thursday;
8:30 am weekly jobless claims (-2K to 413K)
10:00 am Dec wholesale inventories (+0.7%)
1:00 pm $16B 30 yr bond auction
2:00 pm Jan Treasury budget (-$50.0B)
Friday;
8:30 am Dec trade balance (-$40.7B)
9:55 am U. of Michigan consumer sentiment mid-month index (75.5 frm 74.2)
Overall the unemployment rate dropped from 9.4% to 9.0% however the 36,000 jobs added was far below the expected number and contiues to highlight the weakness in the job sector.
The sell of continues this morning with continued upward pressure on rates. If you are contemplaying a purchase or refinance then it is clearly time to jump off that fence and secure a rate lock before they are out of reach and/or you are priced out of the market.
Have a great week and let’s see if the unseasonal great California weather sticks around for a bit longer!
Tuesday Trivia
Let’s take a look at recent developments:
First, you may have noticed that retail purchases improved in October. Consumer spending was up 0.4%, following a 0.3% rise in September. What we’ve long known is that we need a better employment situation and more retail sales to help develop more confidence among American consumers. Without those ingredients, the real estate market is very unlikely to improve. With them, added confidence inspires people to begin contemplating the purchase of a home, among other goods and services.
But there is a serious problem here. If consumers are suddenly spending more of their money, rather than paying down their indebtedness and rebuilding their savings, then they are meandering into a vulnerable position again. On the one hand, they are providing a short-term boost to the economy with their added purchases; on the other, they are denying themselves the long-term advantage of stronger personal financial profiles, which would support sustainable economic growth in the future.
The really good news, though, was that personal income grew in October by 0.5% (after a flat September), and the income growth was derived primarily from improvements to wages and salaries. In other words, consumer spending rose because consumers genuinely had more money to spend, and it looks like the increase in their income has the whiff of possible permanence to it. This even allowed the savings rate to rise from 5.6% to 5.7% in October.
Further, at the end of last week, we saw the number of new claims for unemployment insurance take a genuine dive, falling from 439,000 to 407,000 in the week ending November 20. This is usually pretty volatile data, so don’t count on it turning into a strong trend. This could also be seasonally influenced by temporary jobs obtained through the holiday season. Still, the news is good. And at the least, it can provide a bit of comfort in the face of the weak sales data for existing homes and new homes.
Meanwhile, the headlines in the financial press have been full of Ireland’s debt woes and the rather shocking state of the nation’s banks, which treated the real estate boom as a party they just couldn’t say no to and made loans they never would have contemplated only a year earlier.
Looking at the growing worries about Ireland—and Greece, Portugal, Spain and, face it, the euro itself—Brian Yelvington, the fixed-income strategist at Knight Capital, opined (in The Wall Street Journal), “I think that’s the market realization: that these are systemic problems that are going to need a systemic solution. This is not a one-off problem with an individual country.”
The truth in this statement is underscored by a careful look at Ireland’s woes. Banks built up huge debts that can no longer be serviced; the government agreed to nationalize those debts, so they are now the nation’s debts. Sound familiar?
The truth, it seems, is that this is no way to run an airline—or an economy. It’s “moral hazard be damned,” and it eats into the nation’s (and, over time, the world’s) ability to pull itself out of its debt dilemmas and into sustainable economic growth.
It is a political/economic system that didn’t work and that we are now trying to resolve by propping up the sources of the problem, sending in the foxes to repair the henhouses, rather than changing the system itself. This may be the most serious problem facing us today. Does our economy support all the people who are diligently participating in it, or are the people supposed to support the economy (and the few who still make billions from it) at the cost of their quality of life?
Overall, with all the uncertainty and anxiety in the world, we must all remember that tis the season to be jolly! Deal with it during the day and then when you get home, put it all behind you, give your significant other a hug and kiss, check in on the kids, and pat the dog (or cat) on the head! Remember, the people in our lives are what is important and the thing that we tend to take the most for granted. Happy holidays!
Monday Minutia – 11/29
Well if you are reading this then you survived Thanksgiving and the following day known affectionately as “Black Friday”! Someone will need to eductae me as to the merits of eating, drinking, and being meery at Thanksgiving and then carting your ass down to the local shopping center to stand in line and get into your favotie store at midnight for some bargains?!? I heard a number of stories in regards to experiences and it is a wonder that there are not stories of riots due to some of the shopping tactics employed by the veteran Black Friday shoppers!
After hitting the lows of the year on rates about 3 weeks ago, the Federal Reserve launched the vaunted QE II (Quantitative Easing II) and the world and domestic markets met the launch with anthing but enthusiasm! Rates spiked dramatically up (.375% to .625% in rate) and have since seemed to stabilize but have not as yet begun any substantive settling down. What is influencing the market right now?
- High unemployment and the weak housing market continues to hold back economic growth.
- Uncertainty on the housing market brought on by the foreclosure mess and the “robo signing” scandal continues to hold down any chance at a housing recovery.
- Unemployment is still high at 9.6%. When factoring in discouraged workers and those that have “settled” for part time work we are looking at a number more like 17.1% nationwide!
- Inflation is not a factor at a 1.1% year over year rate.
- QE II is designed to create inflation so those of us that are operating on less income can pay more for the ggods and services we need to survive!?!? (you figure that one out)
On the economic calendar for this week is:
- 9:00 am Case/Shiller 20 city home price index (+1.0%)
- 9:45 am Chicago purchasing mgrs index (59.8 frm 60.6 in Oct)
- 7:00 am Weekly MBA mortgage applications
- 8:15 am ADP employment data (+58K new private job growth)
- 8:30 am Q3 productivity (+2.4% frm +1.9%)
- Q3 unit labor costs (-0.4% frm -0.1%)
- 10:00 am Nov ISM manufacturing index (56.4 frm 56.9 in Oct)
- 2:00 pm Nov auto and truck sales (autos 3.71 mil, trucks 5.35 mil)
- Fed’s Beige Book (detailed report on the economy)
- 8:30 am weekly jobless claims (+16K to 423K: con’t claims 4.20 mil frm 4.182 mil)
- 10:00 am Oct pending home sales (unch frm Sept)
- 8:30 am Nov employment data (non-farm jobs +130K, non-farm private sector jobs +140K; unemployment unchanged at 9.6%)
- 10:00 am ISM Services sector index (Nov 55.0 frm 54.3 in Oct)
- Oct factory orders (-0.8%)
Expect more volatility on the rate markets as we work through the reports and the holiday season. Thanks and have a great day!
Tying Friday’s Jobs Report To Rising Mortgage Rates
Conforming and FHA mortgage rates have improved over the last 10 days, but that could all change this Friday with the release of February’s Non-Farm Payrolls report.
Non-Farm Payrolls is the official name of the government’s monthly jobs report and, given the fragile state of the U.S. economy, Wall Street will be watching it closely.
Mortgage rates could spike come Friday morning.
Jobs are an important part of the nation’s recovery. Among other concerns, unemployed Americans don’t spend as much money on goods and services, and are more likely to default on a mortgage. This retards economic growth and increases the potential for foreclosures.
When jobs numbers worsen, therefore, it follows that economic projections worsen, too.
Poor employment figures draw money away from the stock markets and into less-risky bond markets, including mortgage-backed bonds. Mortgage rates improve as a result. Conversely, when jobs numbers improve, stock markets gain and bond markets worsen.
Analysts expect that a net 30,000 jobs were lost in February.
The Bureau of Labor Statistics press release hits at 8:30 A.M. ET, roughly an hour before Friday’s mortgage pricing will be available to consumers. If you’re worried about rates rising on the heels of a strong jobs report, therefore, be sure to get your rate lock in today instead. Once Friday gets here, it may be too late.