Market Update for Wednesday 11-30-2011

Treasuries and mortgages being hit early this morning on news tht the U.S. and five other central banks injected liquidity into markets in a move to lower currency swap rates.  The move is aimed at easing strains in markets and boosting the central banks’ capacity to support the global financial system.  The interest rate has been reduced to the dollar overnight index swap rate plus 50 basis points (bps), or half a percentage point, from 100 basis points (bps), and the program was extended to February 1, 2013, the Federal Reserve said in a statement in Washington.  Eurpoean stocks extended their gains, the euro advanced against the dollar; treasuries and MBS’s fell after te announcement.  With the program, the Federal Reserve lends dollars to the EBC and other central banks in exchange for currencies inluding euros.  The central banks lend dollars tocommercial banks in their jurisdictions through an auction process.

Thenext hit to the bond market came at 815am on the ADP Employment Report;ADP was widely expected to report non-farm private jobs at +125k to +130k.  ADP said private jobs increased 206k.  Analysts are now re-working their estimates for job growth when the BLS Employment Report is released on Friday morning.  Prior to the report estimates were for an increase of 150k private jobs from the BLS.  Last month, ADP’s initial figures showed a 110k gain for October, while the Labor Department’s data two days later showed an increase of 104k in private payrolls.

At 830am Q3 Productivity was revised to +2.3% from +3.1% and Q3 Unit Labor Costs were revised to -2.5% from -2.4%.  With the liquidity injection and the ADP report, the data was pushed into the background

Prior to the actual open of stocks the DJIA at 900am was +275.  The 10-Year Note at 900am was -28/32 at 2.08% above its 20-day and 40-day moving averages.  mortgage prices at 900am were -6/32 (.18 bps) from yesterday’s close.  As the case has been, the volatility in the rate markets is confined mainly to treasuries.  Treasuries have been highly volatile over the past three months as European leaders tried to convince investors that nations in the region will be able to pay their debts.  The U.S. 10-Year Note uyield rost to 2.42% on October 28th, after reaching a record low 1.67% on September 23.

By 930am the 10-Year Note, which hit 2.10% early on was back to 2.06% and mortgage prices moved back to unchanged after being down 10/32 (.31bps) at 830am.  The DJIA opened +243, the 10-Year Note at 2.06% and mortgge prices -4/32 (.12 bps).

At 945am the November Chicago Purchasing Managers’ Index, expected at 59.0 from 58.4, jumped to 62.6; the components, Employment at 56.9 froom 62.3, New Orders 70.2 from 61.3 and Prices Paid 60.2 from 66.0.  The headline much better than thought and added to the ADP jobs report pushed the DJIA to +388 at 950am.

At 1000am September Pending Home Sales, contracts signed but not closed, was thought to be +0.1%.  NAR reported Pending Sales jumped 10.4%; year-to-year Pending Sales +9.6%.  More positive news.

Later this afternoon (200pm) the Federal Reserve will release its Beige Book, the Federal Reserve’s detailed economic report from all 12 Federal Reserve Bank Districts.  Normally not much in it that markets are not already aware of but at times the details do attract interest.  In this case it probably won’t with all the attention on the Employment Report on Friday and the continual unfolding drama out of Europe.

Some positive movement in the world of central banks, better job growth than thought and the regional Chicago Purchasing Managers Index all combine to send equity indexes roaring higher and pushing treasury interest rates higher.  We have mentioned numerous times over the last couple of months that U.S. long-term interest rates would find it a huge hill to climb to trade for any extended time under 2.00%.  The 10-Year Note, driver for mortgages, has tried a number of times since September to hold under 2.00% but has not been able to hold.  We believe U.S. long-term interest rates are about as low as they may fall based on the present fundamentals.  That said, Europe is a time bomb, if defaults actually occur it would change out outlook; until then at the 2.00% area is about the best we expect

For all your real estate and mortgage lending needs please visit www.crestico.com 

Market Update for Tuesday 11-29-2011

Treasuries and mortgages turned nicely better yesterday afternoon after opening weaker in the morning: most lenders re-priced as MBS prices at the end of the day were 50 bps better than at 930am. The 10-Year Note climbed to 2.08% early then fell to 1.95% and closed at 1.97% unchanged while the stock market rallied  to push the DJIA +291 and the NASDAQ +86.  Treasury 10-Year Note yields traded at less than 2% for a sixth day as Italy once again paid above 7% in its debt auctions and the European Cetral Bank failed to fully offset the extra liquidity created by its bond purchase program.  Retail Sales over the weekend were much stronger than what markets were expecting.  The bond market was supported by comments from a few Federal Reserve Officials that the Federal Reserve should think about increasing purchases of MBS’s to keep rates low and hopefully support the housing sector that so far has not shown any progress

This morning September Case/Shiller Home Price Index was a little better than expected, down 0.6% for the 20-city and -0.4%

for the 10-city price, forecasts were for a decline of 3.0% on the 20-city.  Year-to-year the 20-city prices were down 3.6% while the 10-city prices were down 3.3%.  As usual it got very little attention from traders, nothing new; prices continue to fall.

At 930am the DJIA opened unchanged, the 10-Year Note traded -9/32 at 2.00% +3bps and mortgage prices -4/32 (.12bps).

At 1000am the Conference Board reported November Consumer Confidence Index 56.0 from 40.9 last month against forecasts of 44.0, the expectations index jumped to 67.8 from 50.0.  Strong increase in consumers’ attitudes and the highest index since July.  The reaction so far has been subdued, not much initial reaction to the better confidence readings.

Also at 1000am the September FHFA Home Price Index, expected unchanged, increased 0.9%, year-to-year -2.2%.

Today finance ministers will meet in Europe (again)in an effort to solve the impossible, the debt crisis contagion that is spreading through Europe like the Bubonic Plague.  The 17-member monetary union meet in Brussels today to debate using their bailout fund, the Financial Stability Facility, to insure sovereign debt with guarantees.  Europe’s stock markets are weaker this morning before the meeting to discuss insuring a portion of bonds issueed by debt-stricken countries.  Investors and financial markets are continuing to lose confidence in Europe’s ability to stop the debt crisis contagion from spreading though the region and eventually to the U.S. as Europe is sure to re-enter recession.  The ECB failed to fuly offset the extra liquidity created by its bond purchases for the first time in seven months, a sign of mounting tensions among euro-area banks.  The EBC tries to frain bank liquidity in the same amounts if buys bonds from Italy and Spain; the offering today for 7-day term deposits didn’t match up as euro banks did not bid enough to cover the bond nuys.  The EBC worrying about inflation wants to offset purchases with short-term deposits from banks.

This is employment week, traders and investors pay a lot of attention to Europe these days but U.S. employment is also critical.  Tomorrow ADP will release their estimate for private jobs in November, the forecast is an incrrease of 125k jobs.  Friday the official BLS data is expected to show an increase of 118k non-farm jobs and +133l non-farm private jobs with the unemployment rate unchanged at 9.0%

For all your real estate and mortgage lending needs please visit www.crestico.com 

Market Update for Monday 11-28-2011

Markets had a shortened day on Friday, normally not likely to make huge moves but the bond market saw selling on increased optimism that Europe is on the path to coming up with a “plan”.  More likely Treasury prices fell on increasing optimism that Holiday shopping would exceed estimates that were saying sales would be less than last year. The 10-Year Note fell 24/32 on Friday to 1.97% +9 bp, mortgage prices down 6/32 (.18 bp) frm Wednesday’s close. Friday the stock indexes were lower, -26 on the DJIA -19 on the NASDAQ and -3 on the S&P 500 index.

For the first time in 11 days U.S. equity futures, commodities and the Euro advanced as European leaders drafted a fremework for the region’s bailout and American’s Thanksgiving Retil Sales jumped to a record, up 16%.  The cost of insuring against default on European government debt fell for the first time in eight days.  Europe’s bailout fund may insure bonds of debt-stricken countries with guarantees of 20% to 30%, depending on financial markets, accourding to guidelines that finance ministers eill discuss this week.

This morning the stock market is opening strong; at 9:00 the DJIA futures traded +267 with the other key indexes also up in optimism over retail sales and less pessimism over Europe.  All key markets in Europe were trading higher adding more strength to U.S. markets.  At 9:30am the DJIA opened +250, the 10-Year Note at 9:30am -28/32 at 2.06% +9 bp from Friday, mortgage prices -7/32 (.22 bp).

U.S. interest rates fell last week but not much; the 10-Year Note declined 4 bp and mortgage prices were unchanged. Last week the DJIA took a 565 point hit.

Will the Federal Reserve renew buying MBSs?  News reports this morning saying the biggest primary dealers are saying the Federal Reserve may buy as much as another $545B of MBSs next quarter. 16 of the 21 primary dealers of U.S.

At 10:00am October New Home Sales were expected to be -0.3%; as reported sales increased 1.3% to 307K annualized sales.  The inventory remained unchanged at 6.2 months. September sales originally +5.7% was revised to +3.4%.

This week markets do have a number of significant economic releases capped on Friday with the November Employment Report.

 

This Week’s Economic Calendar:

11/28: 1000am - October New Home Sales

11/29: 0900am – September Case/Shiller 20 city index (-3.0%)

10:00am – November Consumer Confidence Index (43.0 frm 39.80)

FHFA Sept price index (unch frm August which was down 0.1%)

11/30: 0700am – Weekly MBA mortgage Applications (N/A)

0815am – ADP November Private Jobs (+125k)

0830am – Q3 Productivity (+2.6% from +3.1%)

Q3 Unit Labor Cost (-2.1% from -2.4%0

0945am – Chicago Purchasing Managers November Index (59.0 from 58.4 in October)

1000am – September Pending Home Sales

0200pm – Federal Reserve Beige Book

12/01: 0830am – Weekly Jobless Claims (-3k to 390k)

1000am – November ISM Manufacturing Index (51.5 from 50.8)

October Construction Spending (-0.2%)

0300pm – November Auto & Truck Sales (n/a)

12/02:  0830am – November Employment Report (Non-Farm Jobs -118k, Non-Farm Private Jobs

+150k, Employment Rate unchanged at 9.0%)

 

The 10 yr note continues to find resistance when it falls below 2.00%, to push rates lower it will take defaults in Europe that will lead to an increase in sentiment that the economy will slide back as Europe enters recession.

 

For all your real estate and mortgage lending needs please visit www.crestico.com 

Market Updates for Tuesday 11-22-2011

Prior to 8:30 the bond and mortgage markets were slightly weaker in price with stock indexes better. At 8:30 more not so good news, the Q3 preliminary GDP data was weaker than expected and weaker than last month’s advance report. Q3 GDP was revised from +2.5% to +2.0% with forecasts of +2.3% to +2.5%; consumer spending +2.3% frm +2.4%, business investment +14.8% frm +16.3%, all sales +3.6% unchanged from the advance report. The reaction turned the 10-Year Note from -5/32 to +6/32 at 8:40, mortgage prices frm -3/32 to =2/32 and the stock indexes slightly lower.

The revision lower to Q3 GDP sets up a redo of the estimates for Q4 which had been talked at 3.0%; that is unlikely now. The weaker economy won’t sit well with equity markets, the key indexes opening weaker this morning after the DJIA closed down 248 points yesterday.

In Europe it’s still the same, no positive news. Germany is the key and so far it will not step up and take command, can’t blame it though as every EU country in the final analysis will look inward first. Germany rejected calls from allies and investors to do more to counter market turmoil as Spain’s financing costs surged and pressure mounted on Greek political leaders to submit written commitments to austerity measures. Bond yields in France, Spain and Italy climbed as the absence of progress toward enacting a month-old comprehensive crisis-fighting package; Spain’s leaders saying the country cannot afford 7.0% interest rates.

One more failure by elected officials to do the country’s business. Nothing from the Super Committee. The committee had no chance to begin with as members of both parties were pleased to just let it go by. It is all about elections for Congress and the Administration; failing to cut spending by $1.2T simply lets spending cuts and taxes die for the next year. The cuts were to begin 2013 not next year; by 2013 there may be an entirely different political make up in Congress so any real attempt to deal with spending cuts didn’t matter much with the Super Dud Committee.

At 9:30 the DJIA opened down 50, the 10 yr at 1.96% unch and mortgage prices +1/32 (.03 bp).

Thanksgiving week is short with most investors ending the week tomorrow (Wednesday), although the U.S. markets will trade in shortened sessions. Volume this week in trading activity is thin and possibly affecting the wide swings in equities, the bond market is holding under 2.00% on the 10-Year Note but isn’t showing much strength given the soft equity markets and the troubles in Europe. Safe haven buying of U.S. treasuries is waning recently as more investors simply take to the sidelines; not buying equities, gold or interest rates. Gold today is opening better but has fallen over $100.00 on the past week.

At 1:00 Treasury will borrow $35B of 5-Year Notes in its auction; yesterday’s 2-Year Note found solid bidding. At 2:00 the Fed will release the minutes of the 11/2 FOMC meeting.

Market Update Monday 11-21-2011

Treasury rates a little lower this with the stock market opening weaker.  That the Super Committee has failed to reach any compromise is driving markets this morning.  The bond and mortgage markets should hold through the week but unlikely to decline in rates much. It will be a short week with Thanksgiving on Thursday and a skeleton crew on Friday with most taking the day off.  The rest of the world doesn’t do Thanksgiving so outside the U.S. it’s business as usual.  The only data today is October Existing Home Sales; Tuesday has the second look at Q3 GDP; Wednesday is loaded with data including Weekly Jobless Claims normally released on Thursdays.

The Super Committee has already admitted defeat with its deadline on Wednesday. No compromises on taxes and spending cuts so automatic spending cuts will occur totaling $1.2T including cuts in some of the social programs. The fact that these automatic cuts are supposed to occur mean it is unlikely that in the end there will be no cuts as Congress and the Administration won’t step up and do it.  2012 is all about the election a year from now and given the impasse between Republicans and Democrats the year won’t likely see anything of real substance in relation to budgets and spending with both parties unwilling to take their responsibilities seriously—-what politicians take seriously is being re-elected.  

The Treasury will auction $99B of Notes beginning Monday with $35B of 2-Year Notes, Tuesday $35B of 5-Year Notes and Wednesday $29B of 7-Year Notes.  Europe still holds U.S. markets by the throat with 5 of the EU countries facing debt crisis and three countries currently changing governments in attempts to deal with huge austerity plans that will increase taxes and cut large chunks out of spending.

The 10-Year Note trades around 2.00% and seems to find resistance when its yield moves below 2.00%;mortgages continue to lag treasuries as the move lower in rates is primarily into treasuries as insurance against continuing uncertainty in Europe.

The DJIA opened -125, the 10-Year Note at 9:30 +13/32 at 1.96% -5 bp while mortgage prices at 9:30 +4/32 (.12 bp).

 At 10:00am October Existing Home Sales expected down 1.2% were up 1.4% to 4.97 mil annualized; the median sales price $162.500 -4.2% yr/yr, 28% of sales were distressed sales, down from 30% in September.  There is an 8 month supply based on current sales down 2.2% from September.  There was no immediate reaction to the better report.

This Week’s Economic Calendar:The Bundesbank commenting today that growth in Germany, Europe’s largest economy, may slow to a near standstill next year as the region’s debt crisis saps demand for exports. Europe is on the path of another recession as it cannot come up with a way to deal with the massive debts accumulated by Southern Europe countries. The bond market continues to move with equity markets, that isn’t likely to change anytime soon. As stocks fall on failure of the Super Committee, the weakening outlook for the global economies and now increasing fears S&P and the other rating agencies may once again lower US economic outlook and cut our debt rating again. Even if the agencies lower US debt ratings it isn’t likely to impact our rate markets directly as the US will still be the place for worldwide investors to seek safety in the present chaotic world.

Market Update for Friday 11-18-2011

Interest rates started a little higher this morning but are holding well after the 10-Year Note closed at 1.97% yesterday. Early this morning the 10-Year Note traded at 2.03% at 7:30am, but by 9:00am it fell back to 1.99%.mortgage prices a little lower in line with the 10-Year Note price decline; stock indexes were pointing to a better open at 9:30am (at 9:30am the DJIA opened +40). There was no economic data today until 10:00am when October Leading Economic Indicators, expected up 0.6%, increased 0.9%; September revised to +0.1% frm 0.2%. The LEI suggests the economy is holding and improving a little. There was no noticeable reaction to the better report. At 10:05 the 10-Year Note at 2.00% +3 bp and mortgage prices -.12 bp. Although LEI is better the outlook for employment still is dismal.

In Europe the ECB was in again buying Italian and Spanish bonds keeping their rates under what is considered a key rate at 7.00%. A rate over 7.00% for Italian bonds is being considered as the level that has to hold if Italy and Spain have any chance of avoiding defaults because the austerity cuts at higher rates would be impossible to achieve.  European officials may start talks with the International Monetary Fund on a mechanism for the ECB to lend to the IMF for sovereign bailouts in the region, Dow Jones Newswires reported. Agreement on the proposal between ECB and IMF may result in an announcement at a European Union summit on Dec. 9, Dow Jones said, citing two unidentified people with direct knowledge of the matter. Sounds nice but we won’t hold our breath that a workable plan will emerge; it hasn’t happened in the last 2 yrs.

The ECB is continuing to buy Italian and Spanish debt, how that is being justified is unsure since the EU treaty precludes the central bank from buying individual country bonds. Nevertheless it is doing it and it seems the only actual activity in the region. With the EU teetering on the edge of potential breakup all the rules are subject to change. Germany continues to resist the intervention by the ECB, and Germany is at increasing odds with France over how to deal with the debt crisis. The longer the crisis drags on the more EU countries will turn inward toward their own interests above those of the EU as a group. Germany is already thinking outside the box of the EU.

A little better to start today in the equity markets but no assurance the key indexes can improve. A stronger equity market today would work against the rate markets; not something new though, that has been the trade for months…higher indexes equals lower prices in rate markets.

Yesterday the 10-Year Note closed under 2.00% and increased the bullish technical outlook. The 10-Year Note remains slightly below 2.00% this morning, the longer it holds the better the outlook for mortgage rates. The relative strength in the bond market is increasing and more of our studies are turning more positive. That said, even with Europe and safe haven moves, if the U.S. equity markets rally it will take a toll on rates.

Market Updates 11/17/2011

Before the 8:30 data this morning the 10-Year Note traded at 1.97%, after the 8:30 economic reports the 10-Year Note back to 2.03% at 9:00 am. Weekly jobless claims were down 5K to 388K last week, estimates were for an increase of 5K to 10K. Weekly claims last week were revised to 393K frm 390K originally reported. The claims lowest since April 2nd 2011. Continuing claims fell to 3.608 mil frm 3.665 mil. October housing starts and permits also at 8:30; starts were expected to be down 8.0% as reported -0.3% at 628K. September starts revised lower to +7.7% frm +15.0%. Single family starts up 3.9% while multi-family starts -8.3%. Permits up 10.9% to 653K the best since March 2010. The two reports turned stock indexes frm weaker to better, at 9:00 the DJIA +40 after being off 50.

In Europe more talk but nothing of substance in terms of progress. Now France and Germany squabbling;  Germany’s Angela Merkel rejected French calls to deploy the European Central Bank as a crisis backstop, defying global leaders and investors calling for more urgent action to halt the turmoil. ECB itself has also resisted calls to provide more support. Mario Draghi, the Italian who took over as president of the central bank this month, said November 3rd that backstopping government borrowing lies outside the ECB’s responsibility. The spread between French and German 10-Year yields widened to as much as 204 basis points today as France sold 6.98 billion euros ($9.38 billion) of notes. Spanish bonds sank, driving 10-Year yields to the highest since the euro was introduced in 1999, as borrowing costs climbed to the most in at least seven years at an auction of securities. The ECB said to be buying more Italian debt today after buying yesterday; the Italian 10-Year traded above 7.00% early this morning triggering some safe haven buying in U.S. Treasuries, now at 6.95% and the U.S. 10-Year Note back over 2.00%.

At 9:30 the DJIA opened -13, 10-Year Note at 2.02% +2 bp and mortgage prices -3/32 (.09 bp) from yesterday’s close.

At 10:00 a few minutes ago the key Nov Philadelphia Fed business index, expected at 9.0 from 8.7 in October, earlier this week the index was expected at 6.8. As released the index was weaker at 3.6, prices paid component 22.8 frm 20.0, new orders 1.3 frm 7.8, employment component 12.0 frm 1.4. Employment better but new orders and the overall index weaker than expected. There isn’t much initial reaction to the report. An index above zero is considered expansion, below zero, contraction.

The 10-Year Note and mortgage markets continue to trade in very tight ranges for the past two weeks with little change. Early today the 10-Year Note traded at 1.97%, at 10:00 back to 2.00%. Two factors for U.S. rates; Europe and the U.S. equity markets. Stock indexes turned up at 10:05 this morning and immediately themortgage market slipped a little. We still have somewhat positive technicals but overall the recent activity is neural with little changes.

Market Updates 11/16/2011

Prior to 8:30 this morning the 10-Year Note quieted but down 4/32 to 2.05%, mortgages down 4/32 (.12 bp). At 8:30 October CPI was -0.1% against forecasts of unch; the core (ex food and energy) +0.1% in line with estimates. Year-to-year overall CPI +3.5%, ex food and energy +2/1%. The slightly better inflation report turned the 10 to +6/32 to 2.03% -1 bp on the day, and mortgage prices up 1/32 (.03 bp). Early trade in stock indexes were weaker, the DJIA down 88 points. U.S. index futures and the euro fell after the Bank of England said failure to resolve Europe’s debt crisis may have “significant adverse effects” on the economy.

Europe continues to dictate to markets; about any sneeze from anyone in the region has some kind of reaction in global markets. Italian Prime Minister-designate Mario Monti will announce his new government today.  Two days of consultations with parties, unions and employers left him “convinced” that Italy can overcome the crisis, he said yesterday. Italian bonds gained for the first day in three, with the 10-year yield falling 15 basis points to 6.92%. Italy’s deficit, at 4.6 percent of gross domestic product last year, is about the same as Germany’s, lower than that of France and less than half the U.K.’s, at 10.3 percent. Still, its debt load is bigger than that of Spain, Greece, Ireland and Portugal combined. German Chancellor Angela Merkel said Germany is prepared to cede some national sovereignty to the European Union to achieve closer economic and political ties.

Treasuries are on hold the last couple of weeks with little change in interest rates; the 10-Year Note is between 2.10% and 2.00% while mortgage prices equally flat. News out of Europe at the moment is generally constructive, at least no more shocks in the last few days. Still have a safe haven trade in U.S. treasuries however, there is really no end in sight for Europe’s debt problems. French banks troubled, Germans resisting additional support although Merkel sounded somewhat conciliatory but we have heard plenty of that over the last year.

 

October Industrial Production at 9:15 was better than estimates, up 0.7% with estimates at +0.4%, however September production was revised to -0.1% frm +0.2%. October factory usage increased to 77.8% from 77.3%; September also better than expected. There was little reaction to the better data in stock and bond markets. Europe still trading with weaker markets, U.S. is like the faithful dog that never leaves the master’s side and these days Europe is the master and U.S. the faithful pup.

Crude oil this morning breached $100.00/barrel; at 9:15 $100.91 +$1.54 (see below for 9:50 level). Gold prices falling, down to $1760.00 -$22.00. 

At 9:30 the DJIA opened very weak, down 130; the 10 yr at 2.02% -2 bp and mortgage prices +5/32 (.15 bp) on 30s.

At 10:00, a few minutes ago the November NAHB housing market index, expected at 18 increased to 21 the highest in a very long time; October index revised from 18 to 17.

As long as the 10-Year Note fails to break 2.00% the opportunity for lower mortgage rates is absent. MBS markets have been flat for over two weeks, same as the 10-Year Note. Investors still hold somewhat of a bullish bias as a safe haven against the ever changing situation in Europe but for the last week or so there have been no additional shoes to drop. No shocks but no actual progress that is aimed at the banks in Europe that are in as bad if not worse shape than U.S. banks found themselves in 2008 when Lehman failed and the sub prime bubble exploded. U.S. banks were extremely leveraged just as Europe’s banks are now.

Market Updates 11/15/2011

Three economic reports at 8:30 this morning; October retail sales better than estimates, +0.5% overall and +0.6% ex auto sales, estimates were +0.4% and +0.2% respectively. November Empire State manufacturing index expected -0.8 frm -8.48 in Oct was +0.61; new orders component -2.07 frm +0.16, employment at -3.66 frm +3.77 and prices pd at 18.29 frm 22.47; any index lower than zero is considered contraction. The headline was better but the components didn’t look so good with employment and new orders weaker. Oct PPI expected -0.2% overall and ex food and energy +0.1%; as reported the overall was -0.3% and the core unch. Yr/yr overall PPI +5.9% while the core yr/yr +2.8%. At the wholesale level inflation is rather tame.

Prior to the 8:30 data the 10-YRAT Note once again traded down to 2.00%, once again it hasn’t held as 2.00% is a brick wall for long term rates. Although the 1 has moved under 2.00% it hasn’t been able to sustain it.mortgage prices prior to 8:30 up 7/32 (.22 bp), at 9:00 +5/32 (.15 bp).

In Europe the economy continued to muddle along. The EU’s gross domestic product increased 0.2% from the previous three months, when it rose at the same pace, according to EU data. The euro weakened as the cost of insuring French bonds climbed to a record and Spanish yields rose at an auction.  Mario Monti, Italy’s premier-in-waiting, faced political resistance on forming a Cabinet during talks in Rome yesterday. Monti wants a technocratic government without politicians, politicians in Italy refusing to go along.  French and Italian interestrates increased today. Germany and Britain exchanging words over Britain’s refusal to go along with a tax on financial transactions. 25% of Britain’s lawmakers are calling for a referendum vote to exit the EU. Germany has been at the forefront of calls for a European transaction tax, a levy Britain is only willing to countenance if the U.S. and Asian nations join in to prevent financial services from deserting London’s financial center. The European Commission has proposed a plan that it says would raise 57 billion euros ($77B) a year.

 

The DJIA opened -12 points at 9:30, the 10-Year Note +4/32 to 2.03% -1 bp and mortgage prices at 9:30 +3/32 (.09 bp).

At 10:00 September business inventories expected +0.1% were reported unchanged.

Chicago Fed Pres Evens out this morning advocating more easing from the Fed to lower the persistent high unemployment rate. Evens was the lone dissenter at the last FOMC meeting (11/2) when the FOMC decided to not announce anymore easing. Another Fed easing however won’t reduce unemployment; all the easing so far hasn’t done anything to lower unemployment.

We continue our concern that interest rates are running out of steam at the present levels. The 10 yr note hasn’t been able to move below 2.00% and hold it; recent turmoil in Europe that isn’t lessening but becoming worse hasn’t generated the kind of safe haven moves into treasuries the last few weeks. mortgage rates also finding resistance at present prices and yields. Although buying has slowed there isn’t much to suggest interestrates should increase either; the 10-Year Note is comfortable between 2.10% and 2.00% while mortgage ratesare stable at present rates. The equity market in the U.S. and the chaos in Europe are the issues; this morning so far a good example, the 10 yr was holding positive with a gain that had the yield at 2.00% when the stock indexes were weaker. At 9:45 the key indexes went positive and took mortgages and the 10 yr back to unchanged.

Mortgage Market Updates 11/14/2011

Treasuries and mortgage markets were closed last Friday for Veteran’s Day; the stock market and most other houses were open. The DJIA rallied 259 points, NASDAQ +54 and the S&P +24. Likely had the bond market traded, prices would have been lower. This morning the indexes prior to 9:30 were generally flat from Friday’s closes. U.S. interest rates are faltering at present levels; mortgage prices trading in a narrow range with the 10 yr note losing any momentum when it approaches 2.00%.

 

This week; still all about what comes from Europe as it continues to tilt at windmills unable financially to step up and cover the troubled countries that hang on the cliff of default. Italy made a positive step last week with Berlusconi agreeing to step down and a new leader in place (Monti), a financial guy, to form a technocratic government ( no politicians) to work out a budget that will save the country from defaulting. Italy is so big and carries more debt than the EU and ECB can handle. The bellwether 10-Year Note still is unable to break below 2.00% with any momentum (2.09% early Monday morning). mortgage prices and rates are stuck in a very tight range with very little change in rates for the last couple of weeks.

 

Italian bonds and stocks erased early gains and declined as Monti met with leaders of the country’s political parties to discuss Cabinet nominees. The yield on Italy’s benchmark 10-Year Bond rose 19 bps to 6.64% this morning.  The professor, as Monti is known, already faces resistance to appointing some politicians to his so-called technical Cabinet. Europe is a dead man walking when it comes to dealing with the debt crisis; even if the ECB wanted to pump funds to Italy, it doesn’t have enough to make a dent in the debt. Germany and France will not pony up anymore funds as their citizens resist the financial stress it would out on each country.The inability to contain a regional debt crisis that started in Greece more than two years ago led to a surge in Italian bond yields as investors bet on which nation may need aid next. Monti, an economist and former adviser to Goldman Sachs Group Inc., will try to reassure investors that Italy can cut a 1.9 trillion-euro ($2.6 trillion) debt load and spur economic growth that has lagged behind the euro-region average for more than a decade.

 

Italy’s bond sale today highlighted investor skepticism that euro area’s leaders will struggle to push through reforms needed to end the debt crisis. Italian bonds today fell for the first time in three days, after the government sold 3 billion euros ($4.1 billion) of 5-Year Notes, the maximum target, at the highest yield in more than 14 years. Rising yields highlighted the challenge facing the new government.

 

This week, no economic releases on Monday but we have a lot of key data through the rest of the week.Inflation reads, retail sales, reports on factory usage and output, housing starts and permits and the key Philly Fed business index. Economic releases recently have been secondary to the constant and confusing news that seeps out daily from Europe. This week leads into next week’s short week with Thanksgiving holiday taking 2 days out of play and likely thin volume as investors wind down. The rate markets are stumbling at present levels, the longer the 10-Year Note fails to break 2.00% the more tedious the outlook becomes.

 

This Week’s Economic Calendar:

 

11/15 @ 0830am: Oct PPI (-0.2%, ex food and energy +0.1%)

Oct retail sales (+0.4%; ex auto sales +0.2%)

Nov Empire State manufacturing index (-0.8 frm -8.48 in Oct)

                1000am: Sept business inventories (+0.2%)

11/16 @ 0700am: weekly MBA mortgage applications

                0830am: Oct CPI (0.0%, ex food and energy +0.1%)

                0915am: Oct industrial production (+0.4%)

Oct capacity utilization (77.6% frm 77.4% in Sept)

                1000am: NAHB Nov housing mkt index (18 unch)

11/17 @ 0830am: weekly jobless claims (+10K to 400K; con’t claims 3.648 mil frm 3.615 mil)

Oct housing starts and permits (starts -8.0%, permits +7.7%)

                1000am: Nov Philly Fed business index (6.8 frm 8.7)

11/18 @ 1000am: Leading economic indicators (Oct +0.6%)

 

There has been little movement in mortgage or 10 yr note rates for the last two weeks; regardless of the momentary and constantly conflicting news from Europe US long term rates are hitting key resistance levels (2.00%) on the 10 yr note and mortgage rates hanging in a 10 basis point yield range. The longer the rate markets find resistance at current levels the more concerned we are that rates may have found a bottom. Traders and those that seek safety against turmoil in Europe appear to resist buying when the bellwether 10 yr falls to 2.00%; although the rate has dipped below 2.00%, when it occurs it lasts no longer than a few hours before bouncing back.

Europe continues to control U.S. markets

Yesterday there was a passing thought that Italy’s debt problems would deal a serious blow to the country with its interest rates at record highs since the EU began. Yesterday another passing thought that the EU would eventually be restructured based on comments from French Pres Sarkozy that a two tier EU may be the best thing eventually. Yesterday the stock market dropped 389 points, the 10-Year Note yield fell 12 basis points to close under 2.00% at 1.96%. That was yesterday; like it has been the last few weeks, one day its doom and gloom, the next not as bad. No one actually knows what will happen tomorrow; therein lies the difficulty in attempting to assess the situation on a day to day basis.

Yesterday there were comments from supposed knowledgeable people that the ECB was precluded from buying bonds from individual EU countries; obviously that isn’t the case. We reported it as fact and one reason that the debt problems in the region were unlikely to be resolved for years and that there would be defaults in a number of countries. Overnight reports from the wires saying the ECB was in buying Italian bonds, so far no confirmation from the central bank.  Italy did sell bills today, the demand was strong and for the moment markets are less concerned that Italy can not fund itself. The country sold 5 billion euros ($6.8B) of one-year bills at an average yield of 6.087% after yields yesterday on 10-Year Notes surged past the 7 percent level.

In Greece there is apparently a new leader that will form an interim government;  former vice- president of the European Central Bank Lucas Papademos will head a national unity government for Greece, according to the country’s presidency.

At 8:30 this morning weekly jobless claims along with the every other day optimism about Europe driving stock indexes higher and interest rate prices lower. Weekly claims fell 10K to 390K the lowest claims in 7 months, expectations were for unchanged at 400K; continuing claims also fell, from 3.707 million to 3.615 million.

September U.S. trade balance declined to -$43.11B, if here is any consensus in the markets these days the forecast was for the balance to -$46.3B. October import prices fell 0.6% against estimates of -0.2%; export prices fell 2.1%.

At 1:00 this afternoon Treasury will complete borrowing $72B this week with $16B of 30-Year Bonds. The 10-Year Note auction yesterday was weaker than traders were expecting, sending rates higher on the reaction before regaining strength into the close with the 10-Year Note at 1.96%. This morning the 10-Year Note is hovering at 2.05%.

At 9:30 the DJIA opened +126, NASDAQ +30, and the S&P +13; the 10-Year Note 2.05% +9 bp and mortgageprices down 8/32 (.25 bp).

Attempting to trade on fundamentals these days is almost impossible with the constant changes happening in Europe. Looking solely at the technicals, the 10-Year Note presently is sitting right on its 40 day average at 2.05% with its 20 day average at 2.09%. 30-Year FNMA MBS today is trading below its 40 day and at the moment holding at its 20 day, similar to the 10-Year Note. The relative strength in both markets is hanging at neutral. The overall technical picture slightly positive but not by much. That the 10-Year Note this morning is back over 2.00% somewhat negates its close yesterday below 2.00%. With U.S. markets being completely dominated by what happens in Europe the outlook for U.S. interest rates in the end is impossible to anticipate. Bottom line; markets are adrift in a sea of uncertainty over Europe and the impact on the U.S. economy.