Treasuries started a little better this morning and mortgage prices were generally unchanged in early trading. Yesterday Europe’s markets rallied and as they did the U.S. indexes rallied; better manufacturing readings out of Germany and the U.S. ISM data overrode the debt problems still facing Europe and to an extent global markets. This morning it’s back to debt concerns that banks will need to raise more capital to weather the debt crisis. Countries in Europe are borrowing these days setting up a question of whether the single euro currency will survive. Germany and Portugal sold bonds today, kicking off a competition for finance. The offers will be followed by auctions from Greece, Italy and Spain later in the month as common-currency members commence sales that may reach 262 billion euros in the first quarter and 865 billion euros in 2012, according to Deutsche Bank AG forecasts.
The weeks may have been short and the seasonal adjustment difficult but mortgage application activity definitely declinedduring the two weeks ended December 30th (December 23 week was included due to the holiday). This is the conclusion of the mortgage Bankers Association whose purchase index over the two-week period fell a very steep 9.7%. The drop interrupts what had been a steady stream of good news out of the housing sector. ReFinancing was down 1.9%, which makes up the great bulk of mortgage activity, at 82% for the highest share of 2011. Homeowners are increasingly reFinancing their mortgages as rates sink. For the lowest rate of 2011, the average 30-Year Conforming mortgage ($417,500 or less) was 4.07% in the period.
At 930am the DJIA opened down -30, 10-Year Note was down -2/32 at 1.96% (+1 bps) and mortgage prices were up +2/32 (.06 bp).
At 1000am November Factory Orderswere expected up 2.0%, as reported orders increased 1.8%, October orders origninally reported -0.4% were revised to -0.2% with no market reactikon.
Later today December Auto and Truck Sales will be reported with expectations are for a slight increase over November. Generally the report doesn’t have any direct impact on markets.
ICSC-Goldman earlier this morning and now Redbook both report strong acceleration in same-store sales for the December 31week with Redbook up on year-on-year at 4.9% vs. 5.3% for ICSC-Goldman. The year-on-year rate just three weeks earlier, for both reports, was far slower at only plus 2.9%. Redbook attributes strength in the latest week to deep markdowns especially at department stores. Despite the strength, Redbook’s monthly comparison of December vs. November shows a deep decline of 2.1%.
Banks in Europe are still hanging on by the fingertips; hoarding assets that they may need as collateral if they have to borrow from the ECB. Each day we get news from the region that the ongoing and frustrating mess is nowhere near a resolution. U.S. interest rates and equity markets will likely continue to be driven by the news and comments out of anyone considered official. For two plus weeks now there hasn’t been anything from the ECB, the EU or the IMF. The U.S. rate markets are not improving nor are they worsening, just hanging in a narrow range awaiting any solid news out of Europe while focusing on what appears to be at the moment a better economic outlook.
After two hours the bond and mortgage markets are not doing much and it looks like it’s going to be a quiet session. Yesterday’s strong equity market rally has so far shown no follow-through. The bond and mortgagemarkets have been relatively unchanged for the past few hours.
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