Posts Tagged → Mortgage Rates
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.
Thursday Trivia
Treasuries and mortgages doing better again this morning, the stock indexes in pre-market trade were better. Weekly jobless claims at 8:30 were a little softer than expected but generally in line; +1K to 427K, last week’s claims were revised from 422K to 426K. Continuing claims were down 71K to 3.676 mil. Treasuries were better prior to the claims and increased slightly after the release; by 9:00 however the 10 yr note backed off to unchanged and mortgage prices that were +3/32 at 8:00 were down 4/32 (.12 bp) on the session.
Also at 8:30 the April US trade deficit was expected at -$48.8B, good news, the monthly deficit was -$43.69B. Good news but does it imply the US economy is weaker than thought with less imports? More likely the decline is a result of Japan’s problems with the earthquakes and tsunami that hindered auto part exports. Imports dropped 0.4 percent to $219.2 billion from $220.2 billion in March. Demand for foreign-made automobiles and parts dropped by $2.82 billion to $19.1 billion, and crude oil imports fell by $2.42 billion as prices rose.
The ECB met and held interest rates unchanged; markets were expecting the bank to leave rates unchanged, no direct reaction of consequence.
The White House is said to be considering lowering or eliminating payroll taxes for businesses hiring new employees. It is in the planning stage, if actually proposed it will likely get bi-partisan support as Republicans have been pushing for more help for businesses.
Will there be another easing move from the Fed? As the economic outlook weakens the prospect is more in play in the minds of analysts. Not real sure what another Fed easing move will accomplish but with Congress and the Administration seeming to be paralyzed the Fed is seen as the only game in town. QE 2 didn’t help the economy as is obvious now, lower interest rates won’t help much. The problems in the economy are structural; consumers unwilling to spend much, gasoline prices and food prices continuing to increase, the housing sector being left out to dry; another easing move by the Fed won’t help cure those problems.
OPEC refused to increase output in their meeting yesterday; this morning Congress and the Administration are making comments that the US should open the strategic oil reserve to keep crude from increasing. The reserve has 727 million barrels in it; it would take a week or so once a decision to release oil to reach markets. Crude oil at 9:00 this morning up $1.00 at $101.74.
The last of this week’s auctions at 1:00 this afternoon, $13B of 30 yr bonds will be sold. Yesterday’s 10 yr auction met with good demand, today’s auction should also go well.
While the bond and mortgage markets remain strong with the prospect for lower rates still in tact; the markets presently are somewhat overbought in the near term, all momentum oscillators we use are in overbought levels.
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.
The Week to Come
Not a good start this morning in the bond and mortgage markets. This is employment week when most attention is directed to working the estimates all week; current thoughts are for jobs to increase 185K with non-farm private jobs +220K and unemployment unchanged at 9.0%. The forecasts likely to be moving all week; on tomorrow we get a look at what ADP estimates, presently it is expected to show an increase of 170K private jobs.
The 10 yr note yield is finding momentary resistance at its 200 day moving average. Over the weekend news from Europe that a deal may be in the offing to help Greece avoid defaults has also pressured the bond and mortgage markets as the dollar is declining against the euro, that in turn is putting a bid in US equities. Some of the safety buying from potential debt problems in Europe are being lifted adding additional pressure in the US rate markets. At 9:30 the DJIA opened +106, the 10- yr -6/32 at 3.10% and mortgage prices -7/32 (.22 bp).
German retail sales rose in April as unemployment fell below 3 million for the first time in almost 19 years, fueling bets that the European Central Bank will signal next week that it may raise interest rates for a second time this year. A separate European Union report showed euro-region inflation slowed in May to 2.7% from April’s 2.8%, the fastest pace since October 2008. Better economic reads from Germany and lower inflation added to what is expected on the US jobs report on Friday are a drag on US rate markets.
The Case/Shiller home prices fell 4.2% yr/yr; in April prices fell 0.6% in the 10 city and -0.8% in the 20 city data. Prices continue to fall and the outlook doesn’t look any better; housing according to Shiller are now in a confirmed double dip with prices expected to continue to fall particularly in the areas hardest hit; Phoenix, Florida, Nevada and California. Until the inventory is stabilized (banks continuing to unload foreclosures into markets) the deli one in prices is expected to continue.
At 9:45 the May Chicago purchasing mgrs data was weaker than expected and follows the various Fed regional reports over the past couple of weeks. The overall index was expected at 62.5 frm 67.6, as reported it fell to 56.6; new orders index 53.5 frm 66.3, prices pd at 78.6 frm 81.8 and employment fell to 60.8 frm 63.7. Any index over 50 is considered expansion, under 50 contraction. Only a slight reaction to the data improving rate prices by 3/32 frm their low.
At 10:00 My consumer confidence from the Conference Board was expected at 66.3 frm 66.0 in April; as reported it fell to 60.8 the lowest level since last November. Present conditions 39.3 frm 40.2, expectations at 75.2 frm 83.2 and inflation expectations at 6.6 frm 6.3. Another weak report.
This Week’s Economic Calendar:
Wednesday;
7:00 am MBA mortgage apps
8:15 am ADP jobs estimate for May (+170K non-farm private jobs)
10:00 am ISM May manufacturing index (57.6 frm 60.4)
Apr construction spending (-0.5%)
3:00 pm May auto and truck sales (N/A)
Thursday;
8:30 am weekly jobless claims (-11K to 413K; con’t claims 3.688 mil frm 3.690 mil)
Q1 productivity revision (+1.6% unch frm previous release)
Q1 unit labor costs (+0.9%)
10:00 am Apr factory orders (-1.0%)
Friday;
8:30 am May employment data (non-farm jobs +185K, non-farm private jobs +220K, unemployment +9.0%)
10:00 am May ISM services sector index (53.3 frm 52.8)
The data this morning was all weaker than expected; the rate markets have improved by 10:10 from levels where prices were set this morning.
Wednesday Economic Update
Rate markets started slightly weaker this morning, the bellwether 10 yr note still unable to crack 3.10% closing yesterday at 3.11% and at 8:45 this morning at 3.13%. Mortgage prices also a little weaker, -4/32 (.12 bp) at 8:45. Asian stock markets were lower on soft earnings, Europe’s stock markets trading weaker and US stock indexes looking soft into the 9:30 open. Crude lower to start the day while gold a little higher.
At 8:30 April durable goods orders were a lot weaker than thought; orders expected down 2.0% fell 3.6% after increasing 4.4% in March, the decline in April the biggest since Oct 2010. When transportation orders are excludes durables fell -1.% against estimates of an increase of o.5%; ex defense orders -3.6% (-0.4% expected), the largest decline since Jan 2009. Durables are the most volatile series we deal with each month and subject to big revisions, no initial market reaction to the weaker report, but as the clock ticked the interest rate markets held well; at 9:15 mtg prices +1/32 (.03 bp).
At 9:30 the DJIA opened weaker, down 35, the 10 yr +2/32 at 3.11% and mortgage prices +2/32 (.06 bp).
At 10:00 March FHFA housing price index, a series that doesn’t mean a lot in that housing is still dragging the US economy down and there is nothing on the immediate horizon that will change. The index as reported a decline of 0.3% after a decline of 1.5% in Feb.
Early this morning the weekly MBA mortgage applications. Applications increased 1.1% from one week earlier. The Market Composite Index, a measure of mortgage loan application volume, increased 1.1 percent on a seasonally adjusted basis from one week earlier. The Refinance Index increased 0.9% to its highest level since December 10, 2010. The seasonally adjusted Purchase Index increased 1.5% from one week earlier. The unadjusted Purchase Index increased 0.8% compared with the previous week and was 3.1% higher than the same week one year ago. The four week moving average for the seasonally adjusted Market Index is up 5.2%. The four week moving average is up 1.2% for the seasonally adjusted Purchase Index, while this average is up 7.1% for the Refinance Index. The refinance share of mortgage activity increased to 66.8% of total applications from 66.7% the previous week. This is the highest refinance share since January 28, 2011. The adjustable-rate mortgage (ARM) share of activity decreased to 5.8% from 6.3% of total applications from the previous week. The average contract interest rate for 30-year fixed-rate mortgages increased to 4.69% from 4.60%, with points decreasing to 0.69 from 0.93 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages increased to 3.78% from 3.75%, with points decreasing to 1.04 from 1.22 (including the origination fee) for 80% loans.
Yesterday’s $35B 2 yr note auction met with strong demand; at 1:00 this afternoon the second of the three borrowing auctions. $35B of 5 yr notes will be sold, after the firm demand for the 2 yr expectations are for another good auction today with investors looking for safety as global equity markets and economic outlooks are being lowered. Not much incentive to invest in stock markets now, commodity prices churning after the purge in the past two weeks.
The OECD maintained its forecasts for the world economy to expand 4.2% this year and 4.6% in 2012, and raised them for U.S. growth in 2011 even as it warned of stagflation in some economies. Nice forecast but we are not that optimistic. The OECD warned that the US and Japan have to deal more directly on the respective growing deficits; that of course isn’t new news. So far the US has no political appetite to make the serious decisions that are necessary to lower the annual budget deficits; Congress and the Administration have until August 2nd to get an agreement to extend the debt ceiling and come up with a plan that actually cuts spending, likely they won’t have anything until August 1st.
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.
TGIF!!
Yesterday’s shocking surprise on the May Philly Fed business index turned what was likely to be a run to slightly higher rates around on a dime. The index was expected to increase from 18.5 in April to 20 in May’ as released the index plunged to 3.9 and the new orders component fell substantially, from 18.8 to 5.4. Until that hit at 10:00 the bond and mortgage markets were not looking good; the 10 yr note yield had spiked from 3.11% on Tuesday to 3.25% at 9:59 yesterday and mortgage prices had declined 24/32 (.75 bp) with the 30 yr rate up 10 basis points. The very closely monitored Philly Fed decline temporarily reversed heavy selling that was predicated on the FOMC minutes from the 4/27 meeting in which there was a lot of discussion about the Fed ending easing moves and how the Fed would begin to exit and the first move to tighten. The take away on Wednesday; the Fed believes the economic recovery will continue, no more QE and with interest rates so low investors and traders started toward the exit.
Already this morning we have seen a little volatility; at 8:00 the 10 yr note traded up 4/32 at 3.15%; at 9:00 the 10 yr note -4/32 at 3.19%. Mortgages followed, trading up 3/32 (.09 bp) at 8:00, -3/32 (.09 bp) at 9:00. At 9:30 the DJIA, NASDAQ and S&P all opened weaker; at 9:30 the 10 yr note unchanged and mortgage prices down 3/32 (.09 bp) frm yesterday’s close.
There are no economic releases scheduled today and nothing next Monday. With no data points to either confirm the weak Philly Fed data or refute it the bond and mortgage markets will look to the action in the equity markets for direction today. Next week Treasury will auction $99B of notes, with the markets presently uncertain today well be a quiet one.
Crude oil started a little better but has turned lower, while the key stock indexes are starting a little soft after some minor improvement yesterday. By 10:00 the DJIA was down 61, mortgage prices at 10:00 up 6/32 (.18 bp) frm 9:30 levels and the 10 yr note yield 3.15 -2 bp. As equity indexes fall the rate markets will benefit and helps erase the bearishness that had developed on Wednesday.
News out of Germany’s central bank today that the economy will likely slow suggests Germany will not likely have to increase rates again. The reaction is strengthening dollar against the euro and indirectly adds some support to the US bond market. The US economic outlook has been lowered, if Europe’s economies slow our bond and mortgage markets should hold up well. German growth is “likely to ease somewhat in the foreseeable future,” the Frankfurt-based Bundesbank said in its monthly bulletin published today. Not only Europe; Japan is now in its third recession in the last 10 yrs, this time the March 11th earthquake is causing deeper spending cuts by consumers than what had been expected. Household spending had the largest back-to-back quarterly drop since the global financial crisis in 2008, the Cabinet Office said yesterday. The figures contrast with comments by Japan’s central bank, which refrained from adding more stimulus today, that the economy’s main challenge is one of supply chain disruptions caused by the earthquake, tsunami and nuclear crisis.
Earlier this week we were expecting a small increase in rates when the bellwether 10 yr note continued to fail at its resistance level (3.14%/3.11%). Until yesterday’s Philly Fed business index collapsed rates were gathering momentum with rates increasing. The Philly Fed changed our view somewhat; with increasing evidence of economic slowing what appeared to be the beginning of a little increase in rates has been alleviated, at least momentarily. Technically the 10 yr, 30 yr futures contracts as well as the 30 yr 4.0 FNMA coupon all testing their respective 200 day moving averages, so far all of those averages have held.
Tuesday Trivia
At 8:30 April housing starts were worse than expected, down 10.6% to 523K units annualized with forecasts up 2.8%; March starts were revised higher, up 12.9%. April single family starts -5.1%. April building permits expected down 0.7% fell 4.0%. We don’t have a lot to add to the report in that it continues to slide, as long as housing does not show any recovery there is little anyone should expect in the way of economic improvement. We are amazed, and even somewhat shocked that there is very little outward attention to the crisis in Washington; possibly because there is not much that can be done except to wait it out. Interest rates are not the problem; inventory levels are and that can’t be changed quickly. Tight underwriting, low appraisals, banks unwilling or unable to make deals with investors willing to buy properties but at prices banks won’t yet accept.
More not so good news at 9:15; April industrial production was expected up 0.4%, it was unchanged; March production revised frm 0.8% to +0.7%. April manufacturing production fell 0.4%, the first decline in manufacturing since June 2010. April factory usage expected at 77.7% fell to 76.9%, March factory use originally reported at 77.4% was revised to 77.0%.
This is only Tuesday but each economic release so far has been weaker than analysts and economists were estimating. Yesterday the Fed’s NY manufacturing report a lot weaker than thought and prices pd for materials jumped. Today three data points also weaker. Commodity prices continue to fall as the economic outlook deteriorates; gold, crude oil, silver all lower this morning being pushed down as the economic outlook worsens. Yesterday the GDP outlook for this year was revised from +3.3% to +2.8%, the second revision lower and likely won’t be the last. A double dip economic recession? Not yet willing to buy that but there will be increasing talk about it along with renewed use of the word stagflation.
The DJIA at 9:30 opened down 80, the 10 yr note at 9:30 at 3.12% -3 bp and mortgage prices +.22 bp frm yesterday’s close.
In Europe the situation isn’t much better; inflation moving higher in England. Consumer prices rose 4.5% in April after a 4% increase in March, data today showed. The median forecast of 32 economists in a Bloomberg News survey was 4.1%. Core inflation quickened to the fastest in at least 14 years. In Germany investor confidence declined for a third month in May as faster inflation threatened to curb consumer spending and Europe’s sovereign-debt crisis worsened.
The weak economic data this morning has finally pushed the key 10 yr note through its resistance at 3.14% fueling the outlook for more declines in mortgage rates and US treasuries as money is moving to safety and away from risk trades. With most commodity prices falling recently inflation fears have lessened for now. Crude oil now down about $8.00 frm highs two weeks ago, gold off $90.00/oz frm its highs. The stock market is seen by Wall Street as just in a corrective pattern, we submit it is much more than just a correction—-more an adjustment that prices had exceeded future economic reality.
Can the 10 yr treasury hold below 3.14% as it is now into the close today? Likely it will be dictated by how the spastic stock market trades through the session. The key equity indexes are weaker now but recent activity has been choppy, still a multitude of bulls out there.
Monday Money News and The Week to Come
Interest rate markets started a little soft but generally hanging around unchanged with the stock market looking like a softer open at 9:30. At 9:00 the DJIA traded -36 after declining 100.25 on Friday. At 8:30 the May NY Empire State manufacturing index, it was expected at 18.0 frm 21.7, as reported it fell to 11.88. The prices pd component increased to 69.89 frm 57.69, some concern on the increase as markets continue to watch anything that might suggest inflation is increasing. The new orders component was 17.19 frm 22.34, the employment index did increase, to 24.73 frm 23.08. Overall a weaker than expected report but didn’t generate any noticeable reaction in the bond and mortgage markets. (any index reading over zero is considered expansion)
At 9:30 the DJIA opened -39, the 10 yr note unchanged and mortgage prices -1/32 (.03 bp).
At 10:00 the May NAHB housing market index, expected unchanged at 16, as reported it was unchanged. 16 has been the weak outlook for 6 out of the past 7 months with 15 being what is considered the pivotal level.
By now most are aware of the arrest of International Monetary Fund chief Dominique Strauss-Kahn in NY on charges of rape, criminal confinement, and a criminal sex act. Yet another scandal, this time the head of the IMF and a potential candidate for the Presidency of France. The arrest comes when the IMF is scheduled to begin talks about Greece’s debt problems. The meeting will take place as officials discuss increasing a 110 billion-euro ($155B) loan package to Greece amid concerns the country may be unable to finance its debt next year. While a juicy story, and likely to lead to his resignation, the incident hasn’t caused much reaction in any markets here or in Europe. Scandals these days, from insider trading, to inappropriate behaviors are unfortunately becoming commonplace; sad but true.
This Week’s Economic Calendar:
Today;
8:30 am May NY Empire St manufacturing index (as reported 11.88 frm 21.70)
10:00 am NAHB May housing mkt index ( expected unchanged at 16, as reported
Tuesday;
8:30 am April housing starts and permits (starts +2.8%, permits -0.7%)
9:15 am April Industrial production (+0.5%)
April capacity utilization (77.7% frm 77.4% in Mar)
Wednesday;
7:00 am weekly mortgage applications
2:00 pm FOMC minutes 4/27 meeting
Thursday;
8:30 am weekly jobless claims (-16K to 420K; con’t claims 3.713 mil frm 3.756 mil)
10:00 am April existing home sales (+2.3% to 5.22 mil annualized)
May Philadelphia Fed business index (17.5 frm 18.5 in Apr)
Apr leading economic indicators (0.0% frm 0.4% in Mar)
Crude oil appears to be settling down in a range of $3.00; not running higher but not falling either. Gasoline prices likely won’t decline much now until after Memorial Day as demand should stay high and oil companies take advantage as they do every late May. With crude prices moderating, as long as it continues the outlook for consumer spending will improve; but in our opinion unless gasoline prices fall $0.75/gal consumers will not increase their spending much.
The 10 yr note, the segment of the curve that directs mortgage markets, has for 7 days tested what is increasingly become a key level at 3.14% and each day it has failed to break through. On the other side, there is no appreciable selling. The 10 yr and mortgage rates have settled in a 4/32 range (.12 bp) for over a week now. Nice to have stable markets; however it won’t last much longer. After testing and being rejected for 7 trading sessions, if the 10 breaks and closes below 3.14% we would expect a move down to 3.00% taking 30 yr mortgage rates down 10 to 12 basis points in rate. The other outlook; if the 10 closes above 3.20% we can expect additional increase in rates.
Data and Auction to Influence Rates
Three data points at 8:30 this morning; weekly jobless claims were expected to have declined 50K last week, as reported claims were down 44K after increasing 43K the previous week. Continuing claims 3.756 mil frm 3.751; the 4 wk average of claims 436K from 432K the previous week. April retail sales were reported up 0.5% overall, when auto ales are taken out sales were up 0.6%; about in line with estimates. April producer price index hit a little hot, up 0.8% overall, excluding food and energy up 0.3%; both were a little higher than forecasts. Yr/yr overall PPI +6.8%, ex food and energy +2.1%.
The 8:30 data taken well by all markets initially; the bond and mortgage markets were fractionally better prior to 8:30 and showed no movement on the data but we are somewhat concerned about how the bond market will take the increases in the PPI data. The increase, although minor, won’t likely sit well for rate markets. With interest rates at these low levels any sniff that inflation may increase, whether real or imagined, will hinder bond markets.
The stock market supporting rate markets this morning with the indexes trading weaker prior to the 9:30 open. At 9:00 the DJIA -42, the 10 yr note about unchanged from yesterday’s auction when a new 10 yr note was issued. Mortgage prices at 9:00 +.03 bp. At 9:30 the DJIA opened -23, the 10 yr note rate at 3.19% up frm 3.16% on the old 10 yr yesterday but -2 bp frm the auction yesterday; mortgage prices -.06 bp.
At 10:00 March business inventories expected up 0.9%, were up 1.0%, sales up 2.2%, Feb revised from +0.2% to +0.5%. The inventory to sales ratio a record low at 1.23 months from 1.24 months in Feb. No reaction.
Crude oil and gold, along with most other commodities continue to fall as the commodity trade that pushed most every commodity higher and to excess is ending with huge declines. Crude oil on Monday climbed back up to $103.50, at 9:00 this morning trading at $97.00. Yesterday gasoline futures came under heavy selling pressure pushing prices to limit down in the futures markets.
The Senate Banking Committee is starting hearings today on the Dodd Frank bill that in our view was Congress running amok. Bernanke along with FDIC Chair Sheila Bair, SEC Chair Mary Schapiro, CFTC Chair Gary Gensler, and Deputy Treasury Secretary Neal Wolin. There had to be some legislation to rein in the large banks that clearly demonstrated they have little self control and really demonstrated in the sub prime catastrophe that management of these huge banks didn’t have a clue about what was happening in their banks. Most of the other stuff in the Dodd Frank bill was mostly unnecessary in its detail and complexity. Bernanke is expected to support the bill, many Republicans want the bill tossed into the trash.
At 1:00 Treasury will auction $16B of 30 yr bonds, it will be a new issue of 30s. Yesterday the 10 yr auction met with good demand; today’s auction will also likely see firm demand according to traders we talk with. If however the 30 doesn’t meet expectations rates will likely come under additional pressure. The 10 yr note still cannot clear 3.14%, the yield level achieved in early March before running up to 3.60%. Technically the bond and mortgage markets are still in overbought conditions; as noted yesterday, the longer the 10 yr fails to break resistance the more likelihood rates will notch up a little. Logic being, why continue to hold the 10 yr if this is the best the market can do; there is always hot money in the bond markets (trading on short term outlooks), that money moves quickly when the markets seems to run out of momentum.