Real Estate and Mortgage Market Update for Monday 06-18-2012

This morning we read;

The Greece vote yesterday to some degree confirmed Greece will stay in the Union. At least for a while. The conservative party that backs keeping Greece in the EU won by less than a majority taking 30.1% of the vote with 65% counted while the radical Syriza party that wants to bolt the Union took 26.5%. The conservative New Democracy Party has 103 seats of the 300 seat parliament while Syriza has 70 seats; now the New Democracy Party has to form a government that has the votes to work out a plan to stay in the Union. The situation in Greece is far from settled and we continue to believe before its all over (whenever that may occur) Greece will leave the Union as will some of the other troubled debt loaded countries. In the meantime that will likely last another couple of years the world will have to put up with what now appears a failed experiment joining so many sovereign countries under one umbrella. Last week Alan Greenspan joined in with his comment, “ it was a noble but failed experiment. 17 countries, 17 parliaments, 17 central banks; 17 opinions; not an easy situation to expect something of substance.

Spain’s 10 yr debt rose above 7.0% today; Spain is slipping and may lose its borrowing party while getting money frm the EU and ECB to keep its banks from failing. Spanish debt has slumped, pushing the 10-year yield today to a euro-era record of 7.14%. The bonds are the worst performers among 26 developed markets since June 9, when  the Economic minister said he would request as much as 100 billion euros ($127B) of emergency loans from the euro area to shore up a Spanish banking system hobbled by bad assets. The bank aid will increase Spain’s debt to about 90% of gross domestic product, Moody’s Investors Service said on June 14, since the sovereign is responsible for repaying the loans. That threatens to further limit its ability to sell bonds, Moody’s said, as it dropped Spain’s rating three levels to Baa3, one step above junk. Italy’s 10-year yield climbed 14 basis points to 6.06%. The U.K. two-year gilt yield slid to as low as 0.173%, arecord.

G-20 countries meeting in Mexico with the topic being Europe. These G meetings usually don’t amount to much; photo ops and quotes structured to make leaders look good. Nevertheless there will be comments about how G-20s are concerned and will help if certain conditions are met. After the G-20 gathering, Italian Prime Minister Mario Monti will host a meeting in the Italian capital on June 22 with Merkel, Hollande and Spanish Premier Mariano Rajoy to seek common ground. The three will gauge Germany’s position after Merkel last week said her country’s resources weren’t “infinite” in the “Herculean task” of mastering the debt crisis — and that jointly issued euro bonds and a euro-wide deposit insurance were a non-starter. Merkel’s role as leader of Europe’s biggest economy gives her an effective veto on crisis-fighting policy.

Treasuries and mortgages doing slightly better this morning as the stock indexes slightly weaker. At 9:30 the DJIA opened -47, NASDAQ -16; the 10 yr note +5/32 at 1.57% -1 bp; 30 yr mortgage prices at 9:30 +1/32 (.03 bp).

The only data today; the June NAHB housing mkt index was expected at 28 unchanged from May; the index increased 1 point to 29 after increasing 4 points in May. The index is at its best level since May 2007; in that context it clearly shows how weak the housing market is.

This week most all data is directed to the housing sector with May housing starts and permits on Tuesday and May existing home sales on Thursday. Thursday we get the weekly unemployment claims currently expected -6K at 380K. Thursday also has the key Philadelphia Fed business index, expected at -3.5 frm -5.8 in May.

It looks like a quiet day; interest rate markets about unchanged and the stock market showing little appetite for rallying so far. If he stock indexes turn positive the bond andmortgage markets will likely see some selling. With the Greek vote behind us the next key event is the FOMC policy statement on Wednesday at 12:30 then Bernanke’s press conference at 2:15. In the absence of any news out of Europe the US markets are not likely to change much until Wednesday afternoon.

Real Estate and Mortgage Market Update for Friday 06-15-2012

Treasuries, mortgages and the stock indexes all better early this morning. Prior to 8:30 stock indexes were higher than at 8:30 after the June NY Empire State manufacturing report was very weak. The index was expected at 10.0 frm 13.5 last month, as reported the index fell to 2.29 with May revised to 17.09. The components also weaker; new orders at 2.18 frm 8.32, employment at 12.37 frm 20.48 and prices pd at 19.59 frm 37.35. Readings greater than zero signal expansion in the so-called Empire State Index, which covers New York, northern New Jersey and southern Connecticut. The last negative reading was in October. Factory executives in the New York Fed’s district were also less optimistic about the future. A measure of the outlook six months from now fell in June to 23.1, the lowest since October, from 29.3 the month earlier.

The next data hit at 9:15; May industrial production and factory usage. Production was expected to be up 0.1%, it declined 0.1%. May factory use expected at 79.2% fell to 79.0% but still the highest level or three years. The reaction was minor initially but by 9:30 treasuries and mortgages were at their best levels of the session so far.

The Greek election on Sunday is the dominating factor for the markets today; Greece will vote on whether it wants to say or leave the EU, meanwhile the EU leaders do not want Greece to depart, fearing other countries will walk. Yesterday afternoon news out of the region that central banks in the EU were prepared to provide additional funds to Greece to help Greece lessen the austerity forced on the country by the EU lead by Germany’s insistence that Greece cut spending, cut employment and increasetaxes. Greek citizens are rebelling, the vote for the party that calls for staying in the EU or the party that wants to leave, according to polls is too close to call. Central banks intensified warnings that Europe’s failure to tame its debt crisis threatens to roil the world’s financial markets and economy as Greece’s election in two days looms as the next flashpoint for investors.

At 9:30 the DJIA opened +50, NASDSAQ +6. The 10 yr note yield at 9:30 1.58% -6 bp and 30 yr MBSs +9/32 (.28 bp) frm yesterday’s close.

The U. of Michigan consumer sentiment index hit at 9:55, thoughts that the index would decline to 77.0 from May final at 79.3, the index fell to74.1; the expectations index at 68.9 frm 74.3, current conditions at 82.1 frm 87.2, both the lowest since last December. The 12 month outlook index at 82.0 frm 91.0. Although the report is weaker than thought it didn’t have any immediate impact on  the stock market or the rate markets. Investorscontinue to believe a Fed easing will turn the economic outlook. That said, these days there isn’t much investor money in the stock market, its all computers and traders; those with a time frame of ore that a week or two are sitting this uncertainty out.

Honk if you heard this before. European Union leaders will press for new efforts to boost economic growth and improve lending conditions when they meet later this month, according to a draft document prepared for a June 28-29 summit in Brussels. The 27-nation bloc will pursue growth measures at a time when, in the words of European Central Bank President Mario Draghi, “there is no inflation risk in any European country” and the ECB will continue to provide liquidity to the banking system.

The recent economic reports have heightened expectations the Fed will ease again when the FOMC meets next week. The data has confirmed the US economy is slowing, being dragged down by Europe’s inability to find a solution to its debt problems. While the softening in the outlook is real, the Fed isn’t likely to ease much, we expect the FOMC to announce an extension to Operation Twist that will expire at the end of this month. Extending the Twist will help keep long term interest rates from increasing much, but there isn’t any evidence that it will help the economy much. Until Europe is settled with plans that make sense to stimulate its economies, growth will continue to stall.

Real Estate and Mortgage Market Update for Monday 06-11-2012

Very early this morning the 10-Year Note price traded down 10/32 at 1.66% but by 900am was down -3/32 at 1.64% (the 10-Year Note hit 1.72% briefly on the news announcement);mortgage prices at 900am were  generally unchanged.  Spain abandoned unilateral attempts to rescue its banks and became the fourth country in the 17-member currency union to seek an emergency bailout.  The aid blueprint hammered out in an emergency conference call among euro finance chiefs two days ago is designed to create a line of defense if the Greek voting unleashes a new bout of market turmoil. Next Sunday Greece will vote again to form a government, two months ago there was no consensus with the country tilting toward rejecting the EU austerity pushed on it.  The most recent surveys showed the main party opposing the terms of its bailout vying for first place.

As the clock ticked on, the positive take over Spain’s cash infusion began to wear off.  The stock indexes at 800am were up +100 on the DJIA, at 900am it was up +69.  The bond market lost some of its price declines.  While the Spain thing is welcome, there are still very high hurdles with Greece’s election and the belief Spain will need more to fend off bank collapses.  Next week is a huge weak for the U.S. and global markets.  On Sunday the Greek election that at this point is too close to call on whether citizens will essentially vote to leave or stay, recent polls are slightly positive that voters will vote to say.  On Monday June 18^th there is a G-20 meeting scheduled in Mexico that will focus on Europe’s mess.  On Tuesday and Wednesday (June 19^th and 20^th) the Federal Reserve Open Market Committee (FOMC) meets, on Wednesday the policy statement and Bernanke’s press conference.  There is still many that believe the Federal Reserve will announce some kind of QE, most likely an extension of Operation Twist set to expire at the end of the month.

The excitement over Spain’s asking for $125B to shore up its banking system was short-lived with  markets pulling back from the highs in stock markets.  It is a step but a baby one at best, and indicates there are more troubles ahead.  Attention now will turn to Italy, the third largest economy in the EU.  The bailout helped move Italy to the front line of the crisis, as bets increased Europe’s third largest economy may be the next one to succumb.  Italy’s economy shrank 0.8% in the first three months of this year from the fourth quarter, confirming an initial estimate.  Italy has 2 trillion euros of debt, more of a share of its economy than any advanced nation after Greece and Japan.  Its Treasury has to sell more than 35 billion euros of bonds and bills per month to keep from defaulting.

Re-capping the reaction to the Spanish bailout, initially there was euphoria, the U.S. 10-Year Note last night hit 1.72% from its 1.64% close last Fridayand that lasted about a minute or so before it backed down.  Europe’s stock markets are better but off their highs, the U.S. stock indexes are also off the best pre-opening levels at 930am.  The Spain deal is a slight plus but not much and now the spotlight will also turn to Italy and of course the Greek election next Sunday.

At 930am the DJIA opened up +75, NASDAQ up +24; the 10-Year Note rate at 1.65% (+1 bps) with 30-Year  mortgage prices down -4/32 (.12 bps).

Expect continued volatility today in the U.S. markets.  This week Treasury will auction 3-Year Notes, 10-Year Notes and 30-Year Bond issues to borrow $66B, the same amount Treasury has gone for over the last few months.  The economic data calendar has meat on the bone and will get attention but as long as Europe flounders the main emphasis will remain on what snippets and news comes from the region as it continues to drag down global economic outlooks.  There isn’t any data out today.

Real Estate and Mortgage Market Update for Thursday 06-07-2012

Thursday’s bond market has opened in positive territory despite stock gains and unfavorable results in today’s minor economic data. The major stock indexes are showing fairly strong gains, but are well off earlier highs. The Dow is currently up 70 points while the Nasdaq is higher by 2 points. The bond market is currently up only 4/32, but we should see this morning’s mortgage rates lower by approximately .250 of a discount pointcompared to yesterday’s morning pricing.

This morning’s only economic data came from the Labor Department, who announced that 377,000 new claims for unemployment benefits were filed last week, down from the previous week’s revised total of 389,000. Analysts were expecting to see 375,000 new claims filed, but that was based on the previous week’s 383,000 claims. In other words, they were forecasting a decline of 8,000, which puts last week’s new target at 381,000. That means today’s report gave us stronger than expected results because new claims for benefits were lower than predicted, making it bad news for bonds and mortgage rates. Fortunately, this data tracks such a short time frame that its results usually don’t have a significant impact on the markets or mortgage rates.

Today’s big news though was Fed Chairman Bernanke’s testimony to a Joint Economic Committee late this morning. He words are being taken as positive for bonds andmortgage rates and neutral for stocks. He stated that the European crisis is a threat to our economy, but they are ready to take further stimulus action if the economy weakens. He also said inflation remains subdued, meaning the Fed could act with little fear of inflation spiking, at least short-term. Overall, nothing was said that is really a concern to bond traders, while some points are good news. The Fed meets for their next FOMC meeting June 19 and 20th, so I think there will be more optimism in the markets about a potential QE3 plan being announced (good news for the bond market). I suspect we will hear much more about that topic as we approach the meeting, however, that issue could be the catalyst for a bond sell-off if it is not announced or addressed following the adjournment.

Yesterday’s afternoon release of the Federal Reserve’s Beige Book didn’t reveal any significant surprises, but did indicate that economic conditions improved in many of the Fed regions. Particularly, a modest increase in new hiring stands out after last Friday’s disappointing monthly Employment report. Today’s report did say that inflationary pressures remain subdued, which was good news for bonds and mortgage rates. However, the report basically showed stronger economic conditions than its last release in mid-April.

Tomorrow has only one relevant event and it is one of the least important reports we see each month. April’s Goods and Services Trade Balance report will be released early tomorrow morning, giving us the size of the U.S. trade deficit. It isn’t likely to cause much movement in the markets or mortgage rates, but nevertheless forecasters are expecting to see a $49.7 billion trade deficit. It will take a wide variance from this projection for the data to influence mortgage rates. In fact, I believe the stock markets will have a bigger impact on tomorrow’s mortgage rates than this report will.

Real Estate and Mortgage Market Update for Wednesday 06-06-2012

Wednesday’s bond market has opened in negative territory due to a strong open in stocks. The Dow is currently up 141 points while the Nasdaq has gained 40 points. The bond market is currently down 11/32, pushing the yield on the benchmark 10-year Treasury Note back above 1.60% (1.61%). However, I am not expecting to see much of a change in this morning’s mortgage pricing.

This morning’s only economic data was the revision to the 1st Quarter Productivity and Costs data. It showed a stronger than expected decline in productivity of a 0.9% annual pace. This means U.S. workers were less productive per hour last quarter than previously thought, making the data unfavorable for bonds and mortgage rates. Fortunately, the data is not considered to be a highly important release, so its results have taken a back seat to this morning’s stock gains. That has helped prevent the data from negatively influencing mortgage rates.

We will get to see the Federal Reserve’s Beige Book this afternoon, giving us a snapshot of economic conditions in each Federal Reserve region. The report gets its name simply after the color of the binder it is presented in, but is relied upon heavily by the Fed to determine monetary policy during their FOMC meetings. If it shows surprisingly softer economic activity since the last report, the bond market should thrive and mortgage rates could drop shortly after the 2:00 PM ET release. If it reveals signs of inflation growing or rapidly expanding economic activity in many regions, we could see mortgage rates revise higher this afternoon. My guess is that this report is much more likely to help lower mortgagerates than it is likely to cause upward movement.

Tomorrow has no important economic data scheduled for release, but we will get the Labor Department’s weekly update on unemployment filings at 8:30 AM ET. They are expected to announce that 375,000 new claims for unemployment benefits were filed last week, down from the previous week’s 383,000. That would signal a slightly improving employment sector, but unless we see a large variance from forecast, the data will probably have a minimal impact on bond trading and mortgage pricing. The higher the total number of new claims, the better the news for mortgage rates.

The focus of tomorrow’s trading will be Fed Chairman Bernanke’s testimony before a Congressional Joint Economic Committee late tomorrow morning. His outlook for the economy and potential economic stimulus can be highly influential on the markets andmortgage rates. It will be interesting to see exactly what he says and how much his outlook has changed in the recent weeks, especially after Friday’s disappointing Employment report. He is scheduled to testify at 10:00 AM ET, so we could see manylenders post rates later than usual to allow the markets to react to his prepared speech and the Q&A that follows. I think this event is more likely to benefit mortgage shoppers than lead to a spike in rates, but it is the week’s most important event so I recommend proceeding cautiously into it if still floating an interest rate.

Real Estate and Mortgage Market Update for Tuesday 06-05-2012

Tuesday’s bond market has opened in negative territory again as investors continue to book profits from the recent rally in bonds. The stock markets are showing modest gains with the Dow up 26 points and the Nasdaq up 5 points. The bond market is currently down 12/32, which will likely push this morning’s mortgage rates higher by approximately .250 – .375 of a discount point over yesterday’s morning pricing. A good portion of this morning’s increase comes from weakness late yesterday, so if your lenderrevised rates higher during afternoon hours Monday, you will not see nearly as much of an increase in today’s pricing.

There is no relevant economic data or other events scheduled today that are expected to influence mortgage rates. I would expect to see a fairly quiet day in the mortgage market unless stocks stage a rally or move well into negative ground. As long as the major indexes remain near current levels, mortgage rates should follow suit the rest of the day.

There are two events tomorrow that could affect mortgage rates, in addition to potential stock influences. The first is the revised 1st Quarter Productivity and Costs data at 8:30 AM ET. This data measures employee output and employer costs for wages and benefits. It is considered to be a measurement of wage inflation, which is relevant because it is believed that the economy can grow with low inflationary pressures when productivity is high. Economic growth isn’t much of a concern to the bond market at the moment, but if productivity is at a high level when the economy does turn the corner, inflation may not be as much of a topic as it would be without strong productivity levels. Last month’s preliminary reading revealed a 0.5% decline and analysts are expecting to see a 0.7% decline, but I don’t think this piece of data will have much of an impact on the bond market or mortgage pricing unless it varies greatly from that reading.

Tomorrow afternoon brings us the release of the Federal Reserve’s Beige Book. The report gets its name simply after the color of the binder it is presented in. The data in it details economic conditions throughout the U.S. by Federal Reserve region. It is relied upon heavily by the Fed to determine monetary policy during their FOMC meetings. If it shows surprisingly softer economic activity since the last report, the bond market may thrive and mortgage rates could drop shortly after the 2:00 PM ET release. If it reveals signs of inflation growing or rapidly expanding economic activity in many regions, we could seemortgage rates revise higher tomorrow afternoon. My guess is that this report is much more likely to help lower mortgage rates than it is likely to cause upward movement.

Real Estate and Mortgage Market Update for Monday 06-04-2012

This Week:After a huge drop in interest rates last week, this week should see some consolidation.  The stock market and the bond markets are both technically over-extended.  That said, we still don’t expect interest rates will increase much even if there is some reversal this week.  The overall trend is remarkably bullish on increasing U.S. economic weakness and the never-ending debt problems in Europe.  Spain has serious problems in its banking sector and unemployment is increasing.  Greece will hold elections on the 17^th to determine whether Greek citizens want to stay in the European Union or leave it.  A Greek exit of the EU would generate additional fears that Ireland and Portugal might follow.  Presently there is little belief one way or the other that Europe will solve its debt and deepening economic crisis, leaving the U.S. bond market as a place to park money.

The Federal Reserve Beige Book will be released on Wednesday.  There isn’t much this week on the data with the May ISM Services Sector Index out tomorrow and Weekly Jobless Claims on Thursday are the only key data this week.

Early activity this morning had the bond and mortgage markets trading lower after the explosive rally on Friday on the weak May employment report.  The 10-Year Note and 30-Year Bond are falling in rate on increasing global moves to safety.  Obviously Europe is leading the parade to safety as there is little progress in dealing with its debt and rapidly declining economy.  China is slowing quickly and India is now showing cracks in its economy.  In the U.S. we are doing better for the moment but also being pulled down by the global softening.  Investors of all sizes are simply parking moneyin sovereign debt, in the U.S., Germany and other AAA rated sovereign debt (the U.S. rating is AA+).  Investors are no longer looking for a return on investment, just return on the principal.

As euro-area unemployment reached its highest level on record, manufacturing output contracted for a 10th straight month in May and the currency plunged close to a two-year low against the U.S. dollar, leaders continued to wrangle over the details of support for the currency bloc.  There is an increasing cry in Europe from the debt ridden countries to institute euro bonds.  With markets bracing for further deterioration in Spain’s finance sector and a possible Greek departure from the 17-member euro area, there are calls for a “banking union” in Europe involving a centralized system to re-capitalize lenders.  Germany’s Merkel shut off another crisis-fighting avenue the same day as she toughened her opposition to euro-area debt sharing, saying that “under no circumstances” would she agree to euro bonds.  Germany holds most of the cards, so far unwilling to play many of them fearing the inevitable, decline in Germany’s economy and its own debt if it has to back euro bonds.

Treasuries and mortgage markets are technically overbought while the U.S. equity market is oversold.  A bounce back is not unusual with short term oscillators and momentum indicators at extreme levels.  Traders will be reluctant to step in now until markets can consolidate and test the underlying demand at current levels in financial markets.  There is however no reason to expect interest rates will increase much given the underlying fundamentals.

The DJIA opened up +15, NASDAQ up +18; the 10-Year Note at 930am down -20/32 at 1.53% (+7 bps) and 30-Year MBS prices down -6/32 (.18 bps).

At 1000am the data for the day, April Factory Orders expected up +0.1%, took another dive to -0.6% and March orders were revised to -1.9% from 1.5%.  The reaction turned stock indexes down from slight gains.  The 10-Year Note was -20/32, it bounced up to -14/32.

There aren’t a lot of key economic measurements this week; Weekly Jobless Clams and the May ISM Services Sector Index lead the headlines.  We expect a choppy bond and mortgage markets this week to ease the over-extended move we saw last week.  Last Friday’s heavy buying in treasuries looked much like a capitulation from the bond bears after the 10-Year Note easily broke 1.50%.  One media guru was out today conjecturing that the 10-Year Note could go to 1.00% before the rate markets turn around.  We can’t get on board with that however.  Although Europe at the moment looks impotent in dealing with the economy and debt problems, it isn’t unreasonable that in the next few months there will be a plan in place that will reduce risk off trades into bonds.  If Europe can’t come up with a fix that makes sense in the next few months, the entire EU may come tumbling down in a heap.  That isn’t an option so something will have to give In the present stalemates that have grid-locked all of the region.