Posts Tagged → Fed 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.
Thrusday Trivia
A little better start today in the rate markets while the stock indexes early were pointing to another better open at 9:30. More earnings reports late yesterday coming better than expected. At 8:30 weekly jobless claims were widely expected to have declined 22K after increasing 27K the prior week; claims were down 13K to 403K, continuing claims declined to 3.695 mil frm 3.702 mil the week before. The 4 wk average on claims at 399K frm 396.7K. Claims remain elevated showing little progress recently after falling in Feb and Jan. A week ago the NFIB reported small business optimism, after improving since last Oct, fell to the level prior to last Oct; small businesses are the engine for employment, without hiring in that sector unemployment is unlikely to decline much.
Most Q1 earnings reports are hitting better than expected, driving the equity markets higher but having little if any impact in the employment sector. No job growth, no improvement in the housing sector, $4.00+ gas prices, food prices increasing—-it doesn’t matter as long as investors large and small see their net worth increase. The US approaching bankruptcy with the political outlook less than favorable that a serious budget reduction plan will emerge—-who cares? S&P lowering US debt to negative from stable has generally been pushed to the background and dismissed; the consensus among traders, investors, politicians, analysts and economists is still denial, the US will never lose its AAA credit rating. After all this is the strongest economy and nation in the world—–or is it? Republicans don’t want to increase taxes, Democrats don’t want to cut spending; if both parties don’t get close to being on the same page soon we will wake on day with interest rates much higher, the dollar (already falling hard) will not be the reserve currency of the world and the US will be a follower and not a leader. Hard to imagine, but we are closer than most think and many won’t admit outwardly.
At 9:30 the DJIA opened +16, 10 yr note +3/32 and mortgage prices +2/32 (.06 bp).
At 10:00 April Philly Fed business index, expected to have declined to 32.9 frm 43.4, as reported the index plunged to 18.5; the new orders component 18.8 frm 40.3, employment 12.3 frm 18.2 and prices pd for materials at 57.1 frm 63.8. The decline in the index took the stock market down initially and boosted prices in the rate markets. The decline in the overall index supports the growing concern that the economy isn’t as strong as had been thought as recently as two weeks ago. (any index read over zeros is considered expansion)
March leading economic indicators at 10:00 expected +0.2% jumped 0.4%.
The FHFA housing price index for Feb declined 1.6%, no surprise there.
This is the end of the week with market closed tomorrow. Next week Treasury will auction an estimated $99B of notes and the FOMC meeting on Wednesday. For the first time the Fed will release its policy statement at 12:30 then at 2:15 Fed chief will hold a news conference allowing questions and opening more details about the meeting and the intent of the generally short policy statement. Given recent events and debates and posturing over the coming budget battle the Fed will have the opportunity to say its piece in a manner unlike we haven’t had prior to this meeting. The auctions and the FOMC meeting may keep markets steady at present levels.
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.
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.
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!