Category → Mortgage Guidelines
The Week to Come
Treasuries have been bid from the get go in Asia as continued problems in the euro zone peripheries have sparked a flight to safety bid. On Saturday, S&P downgraded Italy’s credit outlook to negative. Spanish citizens went to the polls over the weekend and dealt a devastating blow to Prime Minister Jose Luis Rodriguez’s Socialist party as it witnessed its worst defeat in more than 30 years amid its plan for austerity. Manufacturing readings from China and the euro zone showed manufacturing slowed from previous readings. All of these developments have been grounds for a move into the safety of US Treasuries as maturities across the complex are seeing modest gains.
The Chicago Fed national index, which draws on 85 economic indicators, was -0.45 in April versus +0.32 in March. A reading below zero indicates below-trend-growth in the national economy and a sign of easing pressures on future inflation. The index decline follows last week’s Philadelphia Fed index which also fell substantially.
US interest rates this morning are falling, following rate declines in Germany and France. Greece’s debt, Spain’s elections and new reports from Asian countries that their economies may not be as strong as what was widely believed. The US stock market is opening very soft this morning and bonds and mortgages benefiting from continuing safe haven moves out of more risky investments to US treasuries.
Crude oil this morning down over $3.00, the dollar stronger against the euro and other currencies. The dollar index is seeing strong gains on the heels of continued problems in euro zone peripheries. The index touched a session high of 76.37, its best level since mid-March. EUR/USD dipped below 1.40 for the first time since late-March, bogged down by S&P lowering Italy’s credit outlook to negative, the Spanish election results, and slowing manufacturing numbers in the euro zone, France and Germany.
At 9:30 the bellwether 10 yr note is again at its lowest yield since last Dec; the DJIA opened -145, the 10 yr note at 3.10% -5 bp (lowest rate since last Dec); mortgage prices +8/32 (.25 bp) frm Friday’s close.
This Week’s Economic Calendar:
Tuesday;
10:00 am April new home sales (unchanged at 300K annualized units)
1:00 pm $35B 2 yr note auction
Wednesday;
7:00 am weekly MBA mortgage applications
8:30 am Apr durable goods orders (-2.0% frm +4.1% in March; ex transportation +0.6% frm +2.3% in March)
10:00 am FHFA housing price index (N/A)
1:00 pm $35B 5 yr note auction
Thursday;
8:30 am Q1 prelim GDP (+2.0%, up frm +1.8% in the advance report last month)
weekly jobless claims (-9K to 400K; con’t claims 3.70 mil frm 3.711 mil)
1:00 pm $29B 7 yr note auction
Friday;
8:30 am April personal income and spending (income +0.4%, spending +0.5%)
9:55 am U. of Michigan consumer sentiment index (72.4 unchanged)
10:00 am Mar pending home sales (-1.8%)
With all the bearish news over the weekend from China to Germany to France to the BRICs to Greece to Spain and here in the US with the Chicago Fed economic index reading negative; the safety moves to US bonds will keep mortgage rates lower. At 10:00 the 10 yr note is trading at its lowest yield seen in this run and the lowest since last Dec (3.10%). This week will likely be more volatile in the bond and mortgage markets with rates at these very low levels.
Tuesday Trivia
A better start this morning after a generally unchanged session yesterday. Markets working on the after impact (if any) frm the news Osama is dead. Yesterday the equity markets made an attempt to rally on relief but ended the session slightly weaker, the bond and mortgage markets saw no safe haven moves based on the view that Islamic terrorists would take revenge in the US with attacks. Crude oil ended lower as did gold; it appears that killing Bin Laden has had little impact. Had we gotten him seven yrs ago it may have had a different impact. After 10 yrs markets and the economy have moved on. High kudos to the Seals and intel agencies, and the President but markets are non-plused.
This morning crude oil started down $1.50 after falling $0.80 yesterday; gold yesterday down about $11.00 early this morning down another $13.00. Stock indexes early pointed to a weaker open. The 10 yr note at 9:00 was hitting open its key resistance at 3.25%.
Markets, whether interest rates, equities, oil or gold working on two issues. On one hand the economic outlook in the US is being ratcheted lower from early estimates this year, on the other concerns that terrorists will launch retaliatory attacks on the US Bin Laden had always encouraged hitting oil targets to cripple Europe and the US. So far there has been nothing coming from any terrorist cell and Bin Laden’s family is advocating no retaliatory moves.
The Johnson Redbook retail sales report released this morning showed sales were up 5.5% from this week last year. The Goldman Sachs retail sales were up just 2.8% yr/yr. Easter buying is distorting both reports with Easter much later this yr than last.
At 9:30 the DJIA opened -8, the 10 yr note +5/32 at 3.26% -2 bp and mortgage prices up 3/32 (.09 bp).
At 10:00 March factory orders, expected up 1.9%, jumped 3.0% and Feb revised from -0.1% to +0.7%; ex transportation orders up 2.6%. Mar durable goods orders were revised to +2.9% frm +2.5%. Treasuries and mortgages slipped a couple of 32nds on the news.
So far markets have not been unusually disturbed one way or the other over the Bin Laden news. Unless there is an unexpected event attention will turn back to domestic issues; Friday is employment with non-farm private jobs expected to have increased by 200K with unemployment unchanged at 8.8%. Tim Geithner said yesterday he can keep the government from shutting down until August 2nd using what treasury always has in the past, accounting moves. With more time can Congress and the Administration find common ground on cutting spending and likely increase the debt ceiling?
No noticeable moves into treasuries on safety concerns after “The Killing”; no reaction in the equity markets either. In commodities gold is falling back but so far it isn’t anything more than what could be expected after the recent spike; crude oil backing off on weaker economic forecasts and no outward fear of any additional disruptions in supply. Over $4.00 demand will decline for gasoline.
The 10 yr note, driver for mortgages is at its resistance at 3.25%, with employment on Friday rate markets may hold here or back up a little. Rates have fallen substantially over the past month, to expect that to continue employment will have to be weaker and equity markets suffer further selling.
Fantastic Friday!!
Treasuries and mortgages opened a little better this morning; 10 yr +4/32 at 8;00 and mortgages +3/32 (.09 bp). At 8:30 two data points; March personal income +0.5% and spending +0.6%, both in line with estimates The price index in March yr/yr +1.8% up frm +1.6% yr/yr in Feb; the core +0.9% yr/yr unchanged from Feb yr/yr. Q1 employment cost index also on target, +0.6%, up frm 0.4% in Q4 2010 and +2.0% yr/yr. Both reports were in line with forecasts and there was no noticeable reaction to either.
At 9:30 the DJIA opened -15, the 10 yr note that was up 3/32 at 9:00 under pressure down 4/32 and mortgages down 1/32 (.03 bp). Prior to the remainder of the economic data this morning the equity and rate markets showed some volatility, by 9:40 after opening lower the DJIA turned and was up 25 points. (see below for 10:10 level)
More data at 9:45; the April Chicago regional manufacturing index expected at 68 frm 70.6 hit at 67.6. New orders index 66.3 frm 74.5, prices pd for materials 81.8 frm 83.4, and employment component at 63.7 frm 65.6. Slightly weaker but largely ignored in the markets. Any index read over 50 is considered expansion, the overall index is the lowest this year so far but still strongly above 50.
At 9:55 the U. of Michigan consumer sentiment index, expected at 69.6, unchanged from the last read, was 69.8 and down from final March 67.5. Current conditions index at 82.5 unch, expectations index at 61.6 frm 57.9 and the 1 yr out inflation index 4.6 unchanged. Like all the other data this morning it was in line with forecasts.
The dollar weaker this morning but recovering slightly from the lowest levels early. The Fed is targeting the dollar wanting it to fall in an effort to increase exports and keep the economic recovery going. IN the meantime gold and commodities will continue to increase as long as the buck falls.
More rate increases; Russia’s central bank unexpectedly increased its benchmark interest rate for the second time this year to cap inflation in the world’s biggest energy supplier.The bank increased the overnight deposit rate a quarter point to 3.25% and the overnight auction-based repurchase rate by the same amount to 5.5%. The inflation rate has been above the central bank’s target of between 6 percent and 7 percent for this year since October, driven by rising food and fuel prices. The European Central Bank lifted interest rates this month for the first time in almost three years, while regulators in Brazil, India and China raised borrowing costs at least four times in the past year.
Monday Update
Treasuries and mortgage markets opened better this morning in light trading ahead of this week’s Treasury auctions and the FOMC meeting on Wednesday. Equity market pre-open trade were up a little, about unchanged from fair value pointing to a flat open. Crude oil continues to increase, up $1.00 at $113.30 at 9:00 am, gold also higher again today (+$10.00 at 9:00 am).
At 9:30 the DJIA opened -17, 10 yr note +2/32 and mortgage prices +4/32 (.12 bp).
At 10:00 the only data point today, March new home sales expected up 10.7%, increased 11.1% to 300K annualized and up from 270K in Feb frm 250K originally reported. Better but not much; the median sales price $213,800.00% down 4.9% frm Mar 2010, based on sales there is a 7.3 month supply down from 8.2 months in Feb.
The major focus this week is the FOMC meeting on Wednesday. Always a key focus for the financial markets, this week even more so as for the first time in history the Fed chief will hold a 45 minute press conference after the meeting. Normally the FOMC releases a short policy statement after the meeting at 2:15 pm; this meeting will conclude with the statement at 12:30 then at 2:15 Bernanke will hold his news conference allowing reporters to ask questions. The Fed is trying to increase certainty and add stability in markets removing much of the speculation about what the Fed really means. Unlikely that his press conference will add more clarity, but at least he will try.
Treasury will auction $99B of 2′s, 5′s and 7 yr notes Tuesday through Thursday, selling the 5 yr note sandwiched between the Fed’s policy statement at 12:30 and Bernanke’s press conference at 2:15 on Wednesday. Economic data has new home sales today (see above), weekly claims on Thursday along with the first look at Q1 GDP also on Thursday. This week also has a huge number of Q1 earnings reports that will set the tone for the equity markets. So far earnings overall have generally beaten Street estimates. Technically the bond and mortgage markets are looking good as inflation worries fade and the dollar declining. We don’t expect much change in mortgage prices until Wednesday’s FOMC meeting.
This Week’s Economic Calendar:
Tuesday;
9:00 am Case/Shiller Feb home price index (-3.2% 20 city)
10:00 am April consumer confidence index (64.4 frm 63.4 in March)
1:00 pm $35b 2 yr note auction
Wednesday;
7:00 am weekly MBA mortgage applications
8:30 AM March durable goods orders (+1.8%, ex transportation +1.2%)
12:30 pm FOMC policy statement
1:00 pm $35B 5 yr note auction
2:15 pm Bernanke press conference
Thursday;
8:30 am Q1 advance GDP report (+1.7%)
weekly jobless claims (-13K to 390K, continuing claims 3.69 mil frm 3.695 mil)
10:00 am NAR pending home sales for Mar (+1.7%)
1:00 pm $29B 7 yr note auction
Friday;
8:30 am March personal income and spending (income +0.4%, spending +0.5%)
Q1 employment cost index (+0.5%, Q4 +0.4%)
9:45 am Apr Chicago purchasing mgrs index (68.0 frm 70.6 in Mar)
9:55 am U. of Michigan consumer sentiment index (69.6 unch frm mid-month)
Much of the world markets are closed today, likely will influence trade in US markets today. The bond and mortgage markets sitting relatively unchanged so far this morning. Technically the bond and mortgage markets slightly bullish but any selling could change the technicals quickly. Debate continues about the value of treasuries and the present rates. Recent comments from Bill Gross at PIMCO that returns at present rates are not worth investing, while most dealers continue to prime the pump that bonds are a good investment. Generally we do not expect the bellwether 10 yr note to move above 4.00% this year, which is the general consensus. Gross’s criticism of present low rates, and his comment recently that PIMCO was at one point short US rate markets upset many that said it was anti-American. “I could join the dealers and say the 10-year’s not going to go to 4 percent, so what am I left with?” Gross said…….“I’m left with an under-yielding, less-than-inflation security. I have better choices. As a firm we’re not going to put up with it.”
Is Our Government Stupid?
Really, this is not a rhetorical question! Watch and think about it!
Click to view video!
The question we have to face is what is going to stop all of the well meaning/ill conceived regulations from continuing to snowball and threatening to destroy the Real Estate industry and our economy?
Monday Mania!
This Week; is Holy Week. Trade likely will be quiet with the religious holiday. Most all of the data points this week are centered on the housing sector; starts and permits for Mar, new and existing home sales, the NAHB housing market index Monday and the FHFA housing price index on Thursday. The only other releases are weekly claims on Thursday and the and the April Philadelphia Fed business index also on Friday. That’s it for the week. Markets closed on Friday.
Until a week ago the overwhelming consensus in the markets was that the US economy would have a strong Q1 and optimism for the rest of the year was being touted as continued improvement. Over the past week investors were beginning to re-think the economic outlook and lowering expectations. It started with the IMF saying it is revising lower GDP Q1 growth from 2.0% to 1.5%; markets had accepted growth in Q1 at +3.0%. The Fed’s Beige Book out last week, while remaining optimistic, showed indications that growth isn’t as powerful as markets were thinking. The National Federation of Independent Business overall index fell in April, taking the optimism that had improved since last Oct totally away. Small businesses account for the majority of jobs. This is also earnings season with companies reporting Q1; so far earnings have been a little disappointing.
Consumer spending declining, until recently, have been ignored by investors. Even with gasoline and food prices increasing markets generally didn’t pay much attention—-until last week. $4.00+ gasoline and rapidly increasing food prices will, as we have continued to mention, slow consumer spending. Bernanke out there saying the increase in energy and commodity prices are “transitory” may not be; markets beginning to understand that. With consumer spending less than expected and the housing markets still showing no signs of stabilizing, let alone improving, investors are getting a little nervous.
And as of this AM:
Treasuries and mortgage markets opened better this morning on weaker stock indexes pointing to a weak open at 9:30. Trading this week will be on low volume with Passover and Holy Week. Already this morning there has been an increase in volatility; the 10 yr note traded +10/32 at 9:00 then fell to -5/32 and immediately bounced back to unchanged; mortgage prices at 8:59 this morning +5/32, at 9:07 -1/32, at 9:15 -4/32 (.12 bp). This week will likely be somewhat volatile but by the end of the week not much changed; many investors and traders will be leaving by mid-week.
S&P roiled markets early this morning; saying it has downgraded US debt to negative. The DJIA opened -170 points at 9:30, the bond and mortgage markets were quite volatile as investors were somewhat shocked on the announcement. Treasuries erased an earlier advance, the dollar pared gains versus the euro and gold rallied. S&P affirmed reduced the long-term U.S. debt rating to negative from stable, while affirming its AAA long-term and A-1+ short-term sovereign credit ratings. S&P said that more than two years after the beginning of the recent crisis, U.S. policymakers have not agreed on a strategy to reverse recent fiscal deterioration or address longer-term fiscal pressures. While a shock, it shouldn’t have been with our politicians in Washington twinking around with budget cuts that were nothing; they patted themselves on their collective backs and announced a $38B cut in spending, but the actual real cut amounted to just $318 mil. All of the cuts were just not funding what had been approved previously. As long as our “leaders” are unwilling to make serious steps to cut spending and increase revenues (taxes) the US debt rating will continue to be down-graded, and US interest rates will increase.
Listening and watching the reaction from guests on CNBC one would think markets were slapped in the face with the down-grade and are taking offense. We and others have warned for over two years that US debt ratings were going to be lowered. Somehow most in the US believe the US is immune to debt ratings declines; time to wake up folks, the US if corporate accounting were to be applied, is bankrupt. 50% of all Americans pay no federal income tax while politicians don’t have the stones to do what everyone knows has to be done. We do not have leaders, we have politicians that above all want to keep their jobs.
This week has little data except for the housing sector; March starts and permits, March existing home sales as well as this morning’s NAHB housing market index and Thursday’s FHFA housing price index. The only non-housing data comes on Thursday with weekly jobless claims and the April Philadelphia Fed business index. The markets will close early on Thursday and be closed Friday for Good Friday.
This Week’s Economic Calendar:
Today;
10:00 am April NAHB housing market index (17 was expected, as reported 16)
Tuesday;
8:30 am March housing starts and permits (starts +7.8%; permits +3.9%)
Wednesday;
7:00 am MBA weekly mortgage applications
10:00 am March existing home sales (+2.5%)
Thursday;
8:30 am weekly jobless claims (-22K back to 390K; con’t claims 3.650 mil frm 3.680 mil)
10:00 am April Philadelphia Fed business index (32.9 frm 43.4 in March)
Mar leading economic indicators (+0.2%)
FHFA Feb housing price index (N/A)
Friday;
Markets closed
Fed speak; at 12:30 Dallas Fed’s Fisher speaking on the economic outlook. Likely he will continue the Fed’s outlook, moderate growth with no inflation concerns but that the Fed will continue to monitor events closely. The Fed will complete the $600B QE 2 by the end of June. His comments won’t likely present anything new.
Wednesday’s Wash
Treasuries and mortgage markets rallied yesterday on weaker equity markets and Japan raising the disaster index to 7 on the nuke problems. This morning stock indexes, as they seem to do on any declines, are better pushing rate markets higher in yield. Yesterday the 10 yr note rallied nicely taking its yield down 8 bp to 3.50% where we noted resistance would occur, mortgage rates fell about 5 bp. Yesterday gold decline and crude oil fell $4.00, this morning in early trading gold up recovering all of the decline yesterday, crude up about $1.00 at 9:00. At 9:00 the DJIA +84 in pre-market trading after declining 117 points yesterday.
At 8:30 this morning March retail sales were generally in line with forecasts; up 0.4% overall and ex auto sales +0.8%. March sales were the weakest since June 2010; Feb sales revised to +1.1% from +0.7% ex auto sales. Excluding gasoline sales in March sales were up just 0.1%, in Feb ex gas up 1.1%. The rapid increase in gasoline prices as we have noted will cause a decline in consumer spending on discretionary items.
At 9:30 the DJIA opened +64, the 10 yr -11/32 at 3.54% +4 bp and mortgage prices -.18 bp frm yesterday’s close.
At 10:00 Feb business inventories, expected +0.8%, increased 0.5%; sales were +0.2% the lowest since June 2010, the inventory to sales ratio 1.24 months unchanged from Jan.
Earlier this morning at 7:00 am the weekly MBA mortgage applications for last week. Mortgage applications decreased 6.7% from one week earlier, weekly mortgage applications survey for the week ending April 8, 2011. The Refinance Index decreased 7.7% to its lowest level since February 11, 2011. The seasonally adjusted Purchase Index decreased 4.7% from one week earlier. The Purchase Index decreased 4.1% compared with the previous week and was 11.4% lower than the same week one year ago.
The four week moving average for the seasonally adjusted Market Index is down 3.3%. The four week moving average is up 0.7% for the seasonally adjusted Purchase Index, while this average is down 5.3% for the Refinance Index. The refinance share of mortgage activity decreased to 60.3% of total applications from 61.2% the previous week. This is the lowest refinance share since May 7, 2010. The adjustable-rate mortgage (ARM) share of activity decreased to 5.9% from 6.1% of total applications from the previous week. The average contract interest rate for 30-year fixed-rate mortgages increased for the fourth consecutive week to 4.98% from 4.93%, with points increasing to 0.93 from 0.69 (including the origination fee) for 80% loans. This is the highest average contract rate reported since February 18, 2011. The average contract interest rate for 15-year fixed-rate mortgages increased to 4.17% from 4.14%, with points increasing to 1.22 from 1.09 (including the origination fee) for 80% loans. The effective rate also increased from last week.
At 1:00 this afternoon Treasury will auction $21B of 10 yr notes; yesterday’s $32B of 3 yr notes went OK, like the Three Bears—not to hot, not too cool, just right. Today’s 10 yr should be decently bid but recent Treasury borrowing over the past few months has been a mixed bag, some auctions well-bid while others not so strong.
At 1:30 the President is going to lay out his sketchy ideas for cutting the budget deficit. Likely he will not want to cut entitlements, the path for Democrats to regain power. The budget battles are going to be contentious between Republicans and Democrats and will carry on through most of the summer. Regardless of how the cuts come and whether tax revenue increases occur, the end of it all will be another serious political miss. Our politicians are all about themselves and being re-elected; we do not expect a budget that will be meaningful until we have another election when our elected officials get the temperatures of the country—-again.
The Progressive Change Campaign Committee is calling for a “donor strike” by 2008 supporters of Obama if he puts Medicare and Medicare “on the table for potential cuts.” Obama is expected to discuss those programs during his speech this afternoon on ways to reduce the federal debt. Conservative Republicans, meanwhile, are already criticizing Obama’s planned speech for proposals to eliminate tax loopholes, and end George W. Bush-era tax cuts for wealthy Americans. It is going to be a real Cluster…
And finally today; at 2:00 the Fed will release its Beige Book on the economy from the 12 Fed districts.
With the Pres speaking at 1:30 and the Fed’s Beige Book at 2:00 the financial markets will likely not move much this morning. The bond and mortgage markets are technically bearish but as we have noted we are not expecting a spike higher in rates, rates will increase through the rest of the year as long as the economic outlook continues to be positive. That said, the IMF lowered their estimates for growth in the US from 2.0% to 1.5% this year, and lowered growth rates for Europe and Asian economies. The lowered forecasts have opened the door for those that are not so optimistic. A change in the outlook would of course support the rate markets as investors exit equities, that however, at least at this time, isn’t the consensus.
Tuesday Trivia
Treasuries rallying this morning on lower equity market trade and another slight run to safety on news that Japan has elevated the condition level on its nuke sites from a 5 to a 7, the same level as Chernobyl in 1986. Officials however are saying the level of radiation leaks is much lower than Chernobyl, still an increase to the highest level for nuke accidents. Also supporting rate markets; in the UK inflation levels slipped a little as is also the case on recent data from Mexico. In Germany investor confidence slid on ECB rate increase last week; German inflation unexpectedly accelerated to 2.3% last month after oil prices surged to more than $110 a barrel. (crude has declined $7.00 in the last 24 hours)
More not so good news for the economic outlook this morning. The National Federation of Independent Business index fell. “It looks like everyone became more pessimistic in March, consumers (The university of Michigan Confidence Index took a dive, tenth largest monthly decline in survey history) and business owners. The Index of Small Business Optimism gave up 2.6 points in March, falling to 91.9, definitely a recession-level reading if history is any guide.”…. ”The bad news for the Fed (although not for the business owners who need to improve their bottom lines after the recession laid waste to their profits) is that price pressures continue to mount. The decline in the Index was driven by weaker expectations for real sales gains and business conditions and a marked deterioration in profit trends. Job creation plans weakened but remained in positive territory and plans to make capital outlays posted another gain (although reports of actual outlays over the past 6 months were unchanged). Basically, the Index and its components are at recession levels from an historical perspective.”
The Feb international trade deficit was about in line; -$45.76B. March import prices increased 2.7%, higher than 2.2% expected; export prices +1.5% higher than +0.8% expected. Food prices up 4.2% the largest increase since July 1994; yr/yr import prices up 9.7%. Yr/yr on export price +9.7%.
The DJIA opened -88, at 9:30 the 10 yr +19/32 at 3.52% -6 bp and mortgages +12/32 (.27 bp). Equity markets were not happy over the Alcoa earnings reported at 4:00 yesterday, the beginning of earnings season. Cisco also not helping equities with news of the company about to cut jobs.
The reactions to weaker earnings, a decline in small business confidence, Japan increasing the nuke emergency level from 5 to the highest 7 level, a sizeable decline in oil prices in the last 24 hours (about $7.00), and lower inflation stats from the UK have momentarily shaken markets. Not a big deal in the larger perspective but enough to pressure stocks for the moment and push interest rates slightly lower this morning.
At 1:00 Treasury will auction $32B of 3 yr notes. At 2:00 this afternoon Treasury will report the March balance, expected a deficit of $189B.
A nice start to the day but we are not swayed, the bond and mortgage markets if we look at it from the technicals are both near term oversold as we noted yesterday; the equity markets equally overbought. Both markets overdue for consolidation. The larger picture remains optimistic fore economic recovery, inflation concerns haven’t evaporated as most countries are on a path of rate hikes. Then the much wider perspective; the US budget deficit that will play a huge role in the markets starting again tomorrow after Obama’s speech. None of the driving issues justify optimism in the bond markets.
Monday Minutia
Last week there wasn’t much direct news for the bond and mortgage markets. Interest rates increasing around the globe, no economic reports of consequence and politicians working on a budget to fund deficits through the end of 2011 fiscal year (Sept). The rate markets last week saw the 10 yr yield increase 12 bp, mortgages up 6 bp.
At the 11th hour (literally) the Congress and the Administration agreed on a budget, avoiding a government shutdown. The media made a huge deal out of the inability of Republicans and Democrats to agree, markets however were generally convinced the shut-down would be avoided.
Treasuries and mortgages started the day about unchanged from Friday, a couple of ticks weaker; in pre-market trading the stock indexes were higher and at 9:30 the DJIA opened better (+20) Mortgage prices were down 2/32 (.06 bp) prior to 9:30 but improved a little to +2/32 (.06 bp) . Last week the DJIA up 3 pts, NASDAQ -9, and the S&P -4. Today there are no economic releases for markets; through the week however we will get more data than last week.
Starting tomorrow afternoon Treasury will auction $66B of notes and bonds, recent borrowing demand from investors has been a little soft so demand will be closely watched. Wednesday Pres Obama will speak and release the administrations 2012 budget; politicians had a difficult time over the past few weeks agreeing on a budget for the rest of this year. The 2012 budget battle will make the recent budget battle look like children’s play. Cuts in entitlements will be difficult to get agreement but it is necessary to cut them; Medicare and Medicaid and likely talks of revenue increases. Recall Obama extended the Bush tax cuts this year, that isn’t likely to happen next year so taxes for many will increase just on that alone.
This Week’s Economic Calendar:
Tuesday;
8:30 am Feb trade balance (-$45.7B)
Mar import and export price (N/A)
1:00 pm $32B 3 yr note auction
2:00 Mar treasury budget balance (-$189.0B)
Wednesday;
7:00 am Weekly mortgage applications
8:30 am Mar retail sales (+0.5%; ex auto sales +0.8%)
10:00 am Feb business inventories (+0.8%)
1:00 pm $21B 10 yr note auction
2:00 pm Fed’s Beige Book (report on the economy)
Thursday;
8:30 am weekly jobless claims (+3K to 385K; con’t claims 3.70 mil frm 3.723 mil)
Mar producer price index (+1.0%, ex food and energy +0.2%)
1:00 pm $13B 30 yr bond auction
Friday;
8:30 am Mar consumer price index (+0.5%; ex food and energy +0.2%)
Apr NY Empire State manufacturing index (15.0 frm 17.5 in Mar)
9:15 am Mar industrial production (+0.6% frm unch in Feb)
Mar capacity utilization (77.4% frm 77.0% in Feb)
9:55 am U. of Michigan mid-month consumer sentiment index (66.0 frm 67.5)
Technically the bond and mortgage markets are a little oversold on a near term measurement, a little improvement is likely but the trend won’t change—its negative. The 10 yr managed a successful test of longer term support at 3.60% on Friday and fell back to close at 3.58%. We suggest using any improvements to lock loans about to close. The best we can forecast is the 10 may fall back to 3.50% at best. Treasury auctions should keep rates from declining much in the early part of the week.
This Week; the bond market has Treasury auctions to think about, $66B of notes and bonds beginning Tuesday. The Pres will speak on Wednesday to outline his 2012 budget after finally coming to agreements to increase the debt limit through the remainder of this fiscal year. Politicians debating the stop-gap measure last week could barely get it done, the 2012 budget battle will be much more of an issue with Medicare and Medicaid cuts that most believe will have to be happen. Besides spending cuts to improve the outlook for US debt there must also be revenue enhancements (taxes).
Economic data this week has a little more focus with March retail sales, PPI, CPI and a couple of reports on the manufacturing sector. Inflation concerns continue to increase everywhere except at the Fed with Bernanke believing the recent increase in raw prices and most all commodities as a transitory event and his concern that the US economy is still fragile. While that is the case, investors and the markets are moving out of fixed rate investments and into commodities especially gold as a hedge against what private markets increasingly believe, that inflation will get traction by the end of the year. The current consensus is that the Fed will not begin tightening until late this year or into next; there are however increasing numbers of analysts that are beginning to adjust to rate hikes sooner. By the time the Fed actually tightens markets will have mostly discounted higher rates. The bond and mortgage markets remain bearish, look for continued increases in rates over the next six months.