Posts Tagged → mortgage news
Quit Being Politically Correct By Calling it a “G” Fee, Say “Hello!” to Our New National Mortgage Tax!
The New Year has dawned and we can all rest peacefully during the months of January and February with the knowledge that HR 3765 is in firmly in place! For those of you that may be unaware, HR 3765 is the all important legislation that was passed to extend the payroll tax cut for 2 months. During these 2 months, our esteemed legislators will figure out a way to extend and finance the extension through the end of the year. Based on past experiences with this type of tactic (read budget deficit reduction) we can only imagine how entertaining the next 2 months will be!! But first, let’s take a look at how they financed the 2 month extension ……………
To make it clear and simple before the longer winded explanation, let me start by saying that our legislators slipped one by you during the holiday season! In essence, they have now implemented a National Mortgage Tax that will be in place in perpetuity as a means to pay for the 2 month extension. That’s right, they slipped one to you and you slept right through it!
This so called National Mortgage Tax (I’ll use NMT going forward) is disguised under the name of Guarantee Fee. You see, the bill mandates that all loans backed by Fannie Mae or Freddie Mac (87% of the conventional loan market in the US) are to be levied a guarantee fee of 10 basis points (.10) and that this fee will be a pass through from Fannie and Freddie to the US Treasury Department. What it means as far as your next mortgage is concerned is an increase of .125% in rate or and increase in .50% in point cost for the same rate you would have received for less. In other words, the before and after looks something like this:
Before the “G” Fee
4.000% @ 0.000 points
After the “G” Fee
4.000% @ 0.5000 points OR
4.125% @ 0.000 points
Either way, from this point forward and forever, the government will be collecting a TAX (they don’t call it that) in the form of this guarantee fee on any person that obtains a purchase or refinance mortgage that is backed by Fannie Mae or Freddie Mac. As I mentioned earlier, this currently represents 87% of all conventional mortgages funded in the US.
The fee is designed to be in place for 10 years (again to finance 2 months!) but rest assured that the check book is now open and this fee is never going away. The fee is already being priced into the market and while we have seen a strong rally on the MBS market it has not translated into lower rates as a result of this new fee. In dollars and sense, for a $400,000 mortgage you can either choose an additional $2,000 in cost or a monthly payment increase of $28.94 compared to the “pre” “g” fee world. That monthly payment difference equates to $10,418.40 out of pocket on a 30 year loan!
The speculation with all of this is that now that the portal for financing government costs or “tax cuts” is open with Fannie and Freddie, we will see more of this type of structure going forward. So a 2 month tax cut is really a permanent tax hike that is disguised by a different name! Lastly, the rumor mill also has it that the monthly MI factor on FHA loans will increase by the same 10 bps so consumers are not incented to choose FHA over conforming and upset the current balance of power between the 2 loan types.
So here is to 2012 and HR 3765! I can’t wait to see what they come up with as a way to finance the payroll tax cut for the remainder of the year!
January 2012 Economic Calendar
| Date | (GMT) | Event | Actual | Cons. | Previous |
| Jan 01 | 00:00 | New Year’s Day | |||
| Jan 03 | 15:00 | Construction Spending (MoM) | 1.2% | 0.5% | -0.2% |
| Jan 03 | 15:00 | ISM Manufacturing | 53.9 | 53.2 | 52.7 |
| Jan 03 | 15:00 | ISM Prices Paid | 47.5 | 47.9 | 45.0 |
| Jan 03 | 19:00 | FOMC Minutes | |||
| Jan 04 | 12:00 | MBA Mortgage Applications | -4.1% | 0.3% | |
| Jan 04 | 15:00 | Factory Orders (MoM) | 1.8% | 2.0% | -0.2% |
| Jan 04 | 21:00 | Total Vehicle Sales | 13.60M | 13.50M | 13.63M |
| Jan 05 | 13:15 | ADP Employment Change | 165K | 206K | |
| Jan 05 | 13:30 | Continuing Jobless Claims | 3.522M | 3.601M | |
| Jan 05 | 13:30 | Initial Jobless Claims | 375K | 381K | |
| Jan 05 | 15:00 | ISM Non-Manufacturing | 53 | 52 | |
| Jan 05 | 16:00 | EIA Crude Oil Stocks change | 3.899M | ||
| Jan 06 | 13:30 | Average Hourly Earnings (MoM) | 0.2% | -0.1% | |
| Jan 06 | 13:30 | Average Hourly Earnings (YoY) | 2.1% | 1.8% | |
| Jan 06 | 13:30 | Average Weekly Hours | 34.3 | 34.3 | |
| Jan 06 | 13:30 | Nonfarm Payrolls | 150K | 120K | |
| Jan 06 | 13:30 | Unemployment Rate | 8.7% | 8.6% | |
| Jan 09 | 20:00 | Consumer Credit Change | $7.65B | ||
| Jan 10 | 15:00 | IBD/TIPP Economic Optimism (MoM) | 42.8 | ||
| Jan 10 | 15:00 | Wholesale Inventories | 1.6% | ||
| Jan 11 | 12:00 | MBA Mortgage Applications | -4.1% | ||
| Jan 12 | 13:30 | Continuing Jobless Claims | |||
| Jan 12 | 13:30 | Initial Jobless Claims | 381K | ||
| Jan 12 | 13:30 | Retail Sales (MoM) | 0.2% | ||
| Jan 12 | 13:30 | Retail Sales ex Autos (MoM) | 0.2% | ||
| Jan 12 | 15:00 | Business Inventories | 0.8% | ||
| Jan 12 | 15:30 | EIA Crude Oil Stocks change | |||
| Jan 13 | 13:30 | Trade Balance | -$43.47B | ||
| Jan 14 | 13:55 | Reuters/Michigan Consumer Sentiment Index | 69.9 | ||
| Jan 16 | 00:00 | Martin L. King’s Birthday | |||
| Jan 17 | 13:30 | NY Empire State Manufacturing Index | 9.53 | ||
| Jan 18 | 12:00 | MBA Mortgage Applications | |||
| Jan 19 | 13:30 | Continuing Jobless Claims | |||
| Jan 19 | 15:30 | EIA Crude Oil Stocks change | |||
| Jan 25 | 12:00 | MBA Mortgage Applications | |||
| Jan 25 | 19:00 | FOMC Minutes | |||
| Jan 25 | 19:15 | Fed Interest Rate Decision | 0.25% | ||
| Jan 26 | 13:30 | Continuing Jobless Claims | |||
| Jan 26 | 15:30 | EIA Crude Oil Stocks change | |||
| Jan 31 | 14:00 | S&P/Case-Shiller Home Price Indices (YoY) | -3.4% |
Monday Minutia
This Week: economic releases beginning Monday and through Thursday will set the tone for financial markets. Recently there has been a renewed view the US economy is better than thought just a few weeks ago, the DJIA has now recovered all losses for the year. Interest rate markets are taking the hit on better outlooks and the belief that Europe’s debt mess will be contained—-hope is what we live with these days.
The first of the data out at 8:30 this morning, Oct NY Empire State manufacturing index, expected at -4.0 frm -8.82, as reported -8.48 indicating continued contraction. No initial reaction to the weak data.
Europe will continue to draw attention this week, it may not be obvious but under the radar and other driving events Europe is still unsettled. Last week markets were enthused on comments that the EU has com up with a plan that includes banks taking huge hits. Over the weekend the has been some push-back from Europe’s banks. Opposition from banks may hamper efforts by German Chancellor Angela Merkel and French President Nicolas Sarkozy to present a breakthrough at an Oct. 23 summit of euro leaders in combating the crisis, which has driven Greece toward default, roiled global markets and dented confidence in the survival of the 17- nation currency. In the end the situation is still unresolved and is unlikely to be resolved by Oct 23, the so-called date to have it all worked out. The significance is that as long as there is no actual resolution the US interest rate markets and the US equity markets will continue with their volatility.
Treasuries and MBS markets opened flat early this morning but got some support at 9:00 as stock indexes softened a little. Helping the bond market some this morning, the Oct NY Empire State manufacturing index expected -4.4 frm -8.82% in Sept was -8.48; the sub components were a little better but still very weak. At 9:15 Sept industrial production reported +0.2% right on the forecasts. Sept capacity utilization also in line, at 77.4% frm 77.3% in August. No initial reaction to the reports.
Europe will continue to draw attention this week, it may not be obvious but under the radar and other driving events Europe is still unsettled. Last week markets were enthused on comments that the EU has com up with a plan that includes banks taking huge hits. Over the weekend the has been some push-back from Europe’s banks. Opposition from banks may hamper efforts by German Chancellor Angela Merkel and French President Nicolas Sarkozy to present a breakthrough at an Oct. 23 summit of euro leaders in combating the crisis, which has driven Greece toward default, roiled global markets and dented confidence in the survival of the 17- nation currency. In the end the situation is still unresolved and is unlikely to be resolved by Oct 23, the so-called date to have it all worked out. The significance is that as long as there is no actual resolution the US interest rate markets and the US equity markets will continue with their volatility.
At 9:30 the DJIA opened -50, the 10 yr +9/32 at 2.22% -3 bps; mortgage prices at 9:30 +4/32 (.12 bp).
This Week’s Economic Calendar:
Today;
8:30 am NY Empire State index -8.48 frm -8.82
9:15 am Sept Capacity Utilization 77.4% frm 77.3%
Sept industrial production +0.2%
Tuesday;
8:30 am Sept PPI (+0.2%, ex food and energy +0.1%)
10:00 am Oct NAHB housing mkt index (14, unchanged from Sept)
Wednesday;
7:00 am weekly MBA mortgage applications
8:30 am Sept CPI (+0.3%, ex food and energy +0.2%)
Sept housing starts and permits( starts +4.0%, permits -1.5%)
2:00 pm Fed’s Beige Book
Thursday;
8:30 am weekly jobless claims (unch at 404K)
10:00 am Sept existing home sales (-1.8%)
Oct Philly Feed business index (-9.6 frm -17.5)
Sept leading economic indicators (+0.3%)
Treasury 10-year notes better, pushing yields down from the highest level in seven weeks, as concern Europe may take longer to contain sovereign debt turmoil boosted demand for the safest assets. We still believe the 10 yr note yield won’t increase past 2.30%; the high in the recent increase has been 2.27%. With continued concerns over how, or if, Europe can solve its debt issues US markets will continue to trade in swings on each comment out of the region. Germany said European Union leaders won’t provide the complete fix to the euro-area debt crisis that global policy makers are pushing for at an Oct. 23 summit.
Although there is no way Europe can meet the Oct 23rd target that had been thought, markets still believe some kind of resolution, foreign investors in US bond markets are selling on that belief. The Federal Reserve reported its holdings of U.S. government debt on behalf of central bankers and institutional investors outside America has plunged $76.5B in the last seven weeks, the most since August 2007. At the same time, bond mutual funds are adding Treasuries, banks have increased their holdings 45% in the past five years and the Fed has added $656B to its balance sheet this year.
Technically the 10 yr note and MBSs are bearish at the moment.
Monday Update – Debt Crisis Averted, Lower Rates on the Horizon?
Headlines this morning, a debt ceiling deal was cobbled together over the weekend. The plan calls for cuts of $2.2T in spending and the debt ceiling increased $2.1T, enough to get past the 2012 elections. Leaders expect the bill will be passed by both the full House and Senate. The bond market so far isn’t too excited about the compromise, early this morning treasuries and mortgages have been hanging around unchanged from the strong rally Friday, the stock indexes in the futures markets prior to the 9:30 open were stronger on the reaction to the debt ceiling increase.
“The leaders of both parties in both chambers have reached an agreement that will reduce the deficit and avoid default,” Obama said in an appearance in the White House briefing room last night as. “This compromise does make a serious down payment on the deficit-reduction we need. Most importantly, it will allow us to avoid default.” The House is expected to vote on the bill sometime today, markets will focus on how the rank and file members accept the compromise with the tea party freshmen in the House key to getting it passed. After it passes the House the Senate will likely vote later today or this evening. Both sides of the prolonged wrangling are finding fault with what was worked.
What will the rating agencies do with the compromise once it has passed the Congress? Questions remain whether rating agencies will cut US ratings. The rating agencies will not lower the US credit rating in our opinion; they were completely out to lunch on the sub prime mortgage crisis; lets hope they don’t mess up again. German bond yields were near the lowest in over two weeks amid concern a compromise deal on the U.S. debt ceiling won’t prevent a credit-rating downgrade of the world’s largest economy.
At 9:30 the DJIA opened +125, the 10 yr note -6/32 2.81% +1.5%; mortgage prices unchanged from Friday.
Data at 10:00; the July ISM manufacturing index, expected at 54.0 frm 55.3 in June, it took a huge dive to 50.9, the lowest index reading since July 2009 and adds to the confirmation that the economy is slipping quickly. The reaction sent the 10 yr note to 2.75% -4 bp and pushed mortgage prices +11/32 (.34 bp) on the session, up 12/32 (.37 bp) frm 9:30. The report sent the key stock indexes down hard, from +50 on the DJIA to -92 within three minutes of the 10:00 release. (see below for 10:10 prices)
June construction spending at 10:00, forecast unchanged from May, as reported up 0.2%.
This is employment week; Friday July employment data, the early estimates are for 84K non-farm jobs and 100K non-farm private jobs with the unemployment rate unchanged at 9.2%.
This Week’s Economic Calendar:
Today 10:00 am July ISM manufacturing index
June construction spending
Tuesday;
8:30 am June personal income and spending (income +0.1%, spending +0.1%)
2:15 July auto and truck sales (N/A)
Wednesday;
7:00 am weekly MBA mortgage applications (N/A)
8:15 am ADP July non-farm private jobs estimate (+100K)
10:00 am June factory orders (-1.0%)
July ISM services sector index (53.7 frm 53.3)
Thursday;
8:30 am weekly jobless claims (+7K to 405K)
Friday;
8:30 am July unemployment (9.2%, non-farm jobs +84K, non-farm private jobs +100K)
3:00 pm June consumer credit (+$5.0B)
Although all focus has been on the debt default debates in Washington, now that it appears they have once again dodged another political bullet it is time to turn back to the economy. The economic outlook is becoming less optimistic with each key economic report. Friday Q2 advance GDP report was much weaker than thought, up just 1.3% with most looking for +1.9%; Q1 GDP was revised from +1.9% to just +0.4% a huge slap in the face of the better economic outlook.
We continue to remain optimistic for interest rates as the economy slides back to the edge of a double dip recession.
This Week; over the weekend it appears there is a deal to avoid a debt default. Congressional leaders and the President came to a compromise as by know everyone is aware of. What isn’t clear yet is will the deal make it through the House after members actually see the plan that early this morning hasn’t been seen by most members in the House or Senate. The stock market will open better this morning on the news but the bond market isn’t likely to buckle much. So far there has been nothing from the rating agencies whether the deal is sufficient to avoid a downgrade of US credit rating.
Once the borrowing limit is increased markets can move back to focusing the economy. Today at 10:00 the July ISM manufacturing index and this afternoon auto and truck sales for July. This is employment week with July employment data on Friday. Expect continued uncertainty and potential market volatility this week as investors sift over the debt ceiling details. Prices of bonds and mortgages will continue to hold a bullish bias given the economic weakness and high unemployment. Whether we can hold the 10 yr at 2.75% area is not clear; it will take a few days for the entire agreed upon plan to be digested.
Monday Minutia
Treasuries started better this morning on continuing debt problems in Europe; today its Italy and Greece but also Portugal, Spain and Ireland also rattling global markets. Sovereign debt in those countries is serious and unlikely to be resolved anytime soon. Increasing concerns that in the end there will be actual defaults in Europe; here in the US the debt mess and budget impasse continues. The US isn’t near the problems in Europe but the country is headed that way unless Americans get serious about deficit reductions, a very hard pill to swallow in these soft economic times. In the meantime Congress and the Administration will continue to kick the can down the road until citizens demand them to cut spending—–a decision many will have trouble with. By 9:00 the 10 yr note had lost all its early gains and mortgage prices went negative (-3/32, 0.09 bp) frm Friday’ close.
President Barack Obama is pressing congressional leaders for a multitrillion-dollar agreement in deficit-cutting talks as negotiators near an Aug. 2 deadline for raising the debt limit. A default would cause more panic than the collapse of Lehman Brothers Holdings Inc. in 2008, former Treasury Secretary Larry Summers told CNN in an interview broadcast yesterday. Treasuries rose and the euro fell amid concern European leaders will fail to stop the region’s spreading debt woes at a summit this week.
Mortgage rates being pulled lower as treasuries get safety driven buying; the stock market opening lower this morning also helping. Crude oil lower today as stocks decline; Brent crude declined for a third day in London as investors bet that Europe’s worsening debt crisis may slow the economy and crimp fuel demand. Gold back over $1600.00 also driven by safety moves with investors becoming less comfortable with any currencies.
At 9:30 the DJIA opened down 65, the 10 yr note +2/32 and mortgage prices +1/32 (.03 bp).
This Week’s Economic Calendar:
Today;
10:00 July NAHB housing index (as reported 15 frm 13; still very negative)
Tuesday;
8:30 am June housing starts and permits (starts +1.75%, permits unchanged)
Wednesday;
10:00 am June existing home sales (+2.5% at 4.93 mil units annualized)
Thursday;
8:30 am weekly jobless claims (+6K at 411K)
10:00 am July Philly Fed business index (0.0 frm -7/1 in June)
June leading economic indicators (+0.3%)
FHFA May housing price index (N/A)
Economists in a Bloomberg News survey projected long-term U.S. financial assets would show net buying of $40B in May; as reported net purchases were $23.6B. The Treasury’s reporting on long-term securities is a gauge of confidence in U.S. economic policy, and today’s report suggests the U.S. continues to offer safety from the economic crisis in Europe even with the White House and Congress at odds over raising the Treasury’s borrowing authority; although the increase was much less than was thought suggesting all is not that rosy.
US interest rates still have a bullish bias based on Europe’s problems and the on-going debates in Washington over the debt ceiling and budget cuts; however, we remain somewhat defensive with interest rates as low as we have them now. We don’t want to fight the tape but at the same time we have to be cautious and not get too optimistic. Go with it, but be prepared to take advantage of the low rates when markets turn. It is highly unlikely the US will lose its AAA credit rating by rating agencies, and the US will not default on our debt; nevertheless markets are dancing on a hot skillet as the deadline approaches. It is a day-to-day trade these days; unfolding and very fluid events can have a swift and big move in markets; interest rates are at all time lows now, it will take a lot of surprising bad news to drive rates lower.
Wednesday’s Wash
At 9:00 this morning al global markets are glued to the events in Athens with the vote on austerity is taking place; in the streets police firing huge amounts of tear gas to break up protesters. The vote has been completed and it passed. Greek citizens will pay a heavy price for its government and its country over-spending for years. As we have noted many times in this column once a positive vote on spending cuts would happen the US bond market would see selling as safety trades are taken off. The US rate markets have moved higher quickly as we noted previously they would likely do once Greece moved back from the cliff. Two days ago France got their banks to re-cast shorter term Greek debt to much longer payout terms, one necessary step along with austerity plans to keep Greece from defaulting. News out of Germany indicates it will also get their banks to follow France’s necessary action.
The bond and mortgage markets have turned bearish near term, breaking most bullish technical levels in the last 48 hours. From a technical perspective, as we have mentioned a multitude of time here, both the US equity and bond markets have been at extreme overbought (bonds) and oversold (equities). It was only a matter of time before markets would turn over. It usually takes some event to trigger the swift change in over-extended markets; the Greece vote, the poor bidding on this week’s Treasury auctions and comments from Jean Claude Trichet yesterday interpreted to imply the ECB will raise its base lending rates in July have combined to send interest rates higher.
Is this the end of the declining interest rate markets? It is too soon to make that call! Markets have to settle and turn back to basic economic fundamentals and calm down from the current volatility. What we can take away, when the 10 yr note trades below 3.00% it is on thin ice. Investors in US bond markets are increasingly likely to demand a higher rate of return to continue funding the US growing budget deficit as interest rates in Europe and China increase. The outlook for US economic growth also a question mark; the divide between bullish outlook and a less optimistic outlook is wide—-both views not well grounded.
Monday and yesterday Treasury auctioned $70B of notes in two auctions; both failed to meet expected demand. Today Treasury will auction $29B of 7 yr notes after rates have increased 20 basis points since the close last Friday, with higher rates will the 7 yr see better demand? If not expect more selling.
Already this morning markets have been very volatile; in the bond and mortgage markets prices have had a wide range. The 10 yr note yield spiked to 3.10% at 9:00, by 9:30 back to 3.06%; mortgage prices at 9:00 -9/32 (.28 bp), at 9:30 -3/32 (.09 bp). The three stock indexes equally volatile into the 9:30 open. Expect more trade volatility through the rest of the day.
Mortgage applications decreased 2.7% from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending June 24, 2011. The Market Composite Index, a measure of mortgage loan application volume, decreased 2.7% on a seasonally adjusted basis from one week earlier. The Refinance Index decreased 2.6% from the previous week. The seasonally adjusted Purchase Index decreased 3.0% from one week earlier. The unadjusted Purchase Index decreased 3.8% compared with the previous week and was 4.5% higher than the same week one year ago. The four week moving average for the seasonally adjusted Market Index is up 0.7%. The four week moving average is down 1.5% for the seasonally adjusted Purchase Index, while this average is up 1.5% for the Refinance Index. The refinance share of mortgage activity increased to 69.5% of total applications from 69.2% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 5.8% from 5.9% of total applications from the previous week. The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.46% from 4.57%, with points increasing to 1.19 from 0.91 (including the origination fee) for 80% loans. This is the lowest 30-year rate recorded in the survey since the middle of November 2010. The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.64% from 3.70%, with points increasing to 1.11 from 1.05 (including the origination fee) for 80% loans. This is the lowest 15-year rate recorded in the survey since the beginning of November 2010.
The DJIA opened +40 at 9:30, the 10 yr note -9/32 at 3.07% +3 bp and mortgage prices -3/32 (.09 bp) frm yesterday’s close. Stock indexes have rallied for the past couple of days and interest rates have increased; all about the belief that the Greek bailout would be completed, now that the vote passed it may be a buy-the-rumor-sell the fact trade today in both the stock and bond markets.
The NAR reported May pending home sales at 10:00; expected up 3.5% jumped 8.2% frm April. Yr/yr +13.4%. A better rep[ort than was thought. There was no initial reaction to the report. At 10:00 the DJIA has turned lower.
Monday Market Update
Treasuries and mortgage markets opened weaker this morning with the US stock indexes looking slightly better after falling 172 points on Friday. The bellwether 10 yr still hanging close to 3.00%, unable to sustain under 3.00% for any length of time. There are no economic reports today but the momentum will pick up through the rest of the week after very little last week.
On the global picture, still no consensus in Europe over how to deal with Greece’s debt problems. It seems one day they have have a plan, the next day not. Greece and other European countries are aiding the low rates in the US but mostly its the new momentary outlook that the economy is rolling over. While pessimism has increased recently it won’t take more than a couple of better than expected key data points this week to swing the wobbly sentiment to one of more optimism. In essence the markets have little conviction about the economic outlook either way. From China; its economy is weakening; lending in the country is declining. China is wanting a cooling of its over-heated economy.
Paul Muolo at National Mortgage News is reporting that risk retention for lenders looks like it is dead. What a good way to start the week; hopefully his sources are correct. FDIC chairman Sheila Bair, a big booster of RR, leaves next month and exits the debate permanently. By August or so legislation is introduced that amends the Dodd-Frank bill and gets rid of the whole concept of risk retention, qualified residential mortgage and its cousin qualified mortgage. In other words this colossal industry headache goes away and mortgage bankers are happy and hopefully consumers will be, too. IN the panic and adolescent reaction to the sub prime mortgage meltdown Congress led by two totally unknowledgeable politicians, Barney Frank and Chris Dodd, ran amok in Washington with a 2800 page bill to reform the world; we only hope more intelligent heads will begin to prevail and correct the mess those two have made.
This Week’s Economic Calendar:
Monday; no data
Tuesday;
8:30 am May retail sales (-0.7%; ex auto sales +0.2%)
May PPI (+0.1%, ex food and energy +0.2%)
10:00 am April business inventories (+1.0%)
Wednesday;
7:00 am weekly MBA mortgage applications
8:30 am May CPI (+0.1%; ex food and energy +0.1%)
June NY Empire manufacturing index (10.0 frm 11.9 in May)
9:15 am May industrial production (+0.2%)
May capacity utilization (77.0% frm 76.9% in Apr)
10:00 am NAHB June hosing market index (16, the same as it has been for months)
Thursday;
8:30 am weekly jobless claims (-6K to 421K; con’t claims 3.69 mil frm 3.676 mil)
May housing starts and permits (starts +3.2% to 540K units annualized; permits -0.5% to 548K)
Q1 current account (-$130B)
10:00 am June Philadelphia Fed business index (7.0 up frm 3.9 in May)
Friday;
9:55 am U. of Michigan consumer sentiment index (73.5 frm 74.3)
10:00 am May lading economic indicators (+0.4%, April -0.3%)
Crude oil prices down again today after last week’;s report that Saudi Arabia will go it alone and increase production after Iran blocked any increase at the OPEC meeting. Gold down a little. The DJIA opened +37, the 10 yr -8/32 at 3.00% and mortgage prices down 6/32 (.18 bp).
Not real sure about it but one source is indicating Bernanke will speak at 2:30 this afternoon on the US debt issues.
The Pavlov’s Dog trade continues; stock indexes up, bonds lower in price. We are not expecting much out of today’s trade with no data today and a lot of it hitting through the rest of the week. The equity markets are oversold technically while the bond market is equally overbought now. No clarity yet but we worry that interest rates may begin to edge up a little, particularly if this week’s various data points show some improvement compared to last months series of surprisingly weak data.
It’s June – Where is the Warm Weather?
What the heck is going on Bay Area? It still feels like winter out there! Let’s take a look at what is in store for us this week in regards to the mortgage market.
This Week; the stock market will continue to struggle after the very weak employment report last Friday and all recent data that is confirming a slowdown in growth. The bond and mortgage markets will benefit as long as the outlook for the economy is expected to slip back. The 10 yr note is working on the psychological 3.00% level, to push yields lower it will take continuing declines in the equity markets. Another weekly lower lose in the stock market will make it six weeks in a row, not seen since back in 2002.
This week there is much in the way of economic data; Treasury will auction a total of $66b of notes and bonds beginning Tuesday through Thursday ($32B 3 yr, $21B 10 yr and $13B of 30 yr). The auctions will likely go well as most have in the last few months; however, there is always some concern that should keep interest rates frm improving much until the demand for the 10 yr note on Wednesday is measured. OPEC will meet on Wednesday with the Saudis wanting to push production higher, crude will likely trade lower in the meantime. While we continue to look for somewhat lower interest rates, this week may not provide much improvement. Technically the rate markets are overbought and likely will consolidate here for awhile. Early Monday rate markets were a little weaker with stock indexes also pointing to a lower open.
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.
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?