Market Update for Thursday 12-01-2011

Treasuries and mortgages opened weaker this morning, at 830am Weekly Jobless Claims that were expected to be down 2k jumped 6k to 420k and last week’s claims were revised higher to 396k from 393k.  Back above what traders consider pivotal 400k.  Prior to the Weekly Jobless Claims Report the 10-Year Note traded at 2.13% up 5 bps from yesterday’s close and breaking its key short-term moving averages.  mortgages still holding well against the rise in treausry rates but still a little weaker at 900am, down 6/32 (.18 bps) from yesterday’s close.

Markets still thinking about what was behind the unexpected coordinated central bank’s move yesterday to increase liquidity in the currency markets.  Some talk that a bank in Europe was on the edge of failing but who really knows these days.  Whether there is any truth in it doesn’t matter; banks in Europe are drowning in debt from Greece, Italy, Spain and a few other countries and are on the edge of failure.

Spain and France borrowing costs declined today after the lowered curecny swap rate announcement yesterday.  Is Europe getting closer to some kind of resolution of the debt mess that will save its banks?  Hard to be sure, the debts are so huge that in the end it will take many years to resolve it.  Next week leaders of the EU will meet (Dec. 9th), if they don’t have a workable solution or plan that is credible markets are going to blow up, stocks will likely drop globally and safety to U.S. treasuries will increase once more.  That said, although we have no insight other than it has to end soon, markets seem to be expecteing something positive next week.  U.S. treasury rates are increasing, the safety trade into U.S. treasuries ran out of gas a few weeks ago, and the action by the central banks yesterday suggest Europe has to do something now; further delays will bring the house of cards down hard.  Europe is at the end of the road of arguments and differences of opinion; after two years either Europe’s  banks will begin to fail or there will be some kind of plan to take it back from the edge…there is no time left for fiddling, time is up!

A lot of talk these days that the U.S. economy is improving, most of it comes from those that have a vested interest in touting any bullish view.  The economy is stagnant at best; like the three bears not too hot but not too cool either.  Every data point recently is taken as the final word, and every negative data point these days is largely discounted.  The reality is, with Europe teetering on a serious crisis and there is actually no real strong consensus either way.  The proof is obvious; huge swings in stock indexes but in the wider perspective no directional change.  We are all in a state of mass uncertainty and until Europe can find any solution to their debt crisis nothing will change.  Wrap a big red Christmas ribbon around it; with the housing market in depression and unemployment not likely to decline much, the outlook for the U.S. is not good, not bad either

At 930am the DJIA opened -27, the 10-Year Note yeild at 2.12% (-13/32) and mortgage prices down 7/32 ).22 bps).

At 1000am the November ISM Manufacturing Index was expected at 51.5 from 50.8; as reported it jumped to 52.7; New Orders at 56.7 from 52.4; Prices Paid at 45.0 from 41.0; and Employment at 51.8 from 53.5.  Any index above 50.0 is considered expansion.

Also at 1000am October Construction Spending; expected up 0.2%, jumped 0.8%.

The two 1000am data points turned the equity markets up from being lower; the 10-Year Note rate increased to 2.13%; mortgage prices slipped a few basis points.

Attempting to read the tea leaves of the fundamentals these days is impossible with the issues that bear on the markets.  Looking purely at the technicals thoughis somewhat cleaner; the 10-Year Treasury yield is increasing and breaking support levels, mortgage prices locked in a 50 basis point price range for the last three weeks.  Technicals ignore all the talk and measure what is actually happening with each market; how much buying and selling…what money is doing, not what CNBC or Bloomberg guest have to say.  Based on whatmoney is doing today, money is leaving treasury markets and in turn have capped the decline in mortgage rates.  As noted though, uncertainty over Europe keeps volatility and uncertainty at the very high levels.

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

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.