Real Estate and Mortgage Market Update for Monday 07-30-2012

This morning we read;

This Week; one of the busiest in months with most attention on Central Banks in the US and Europe. The FOMC meets on Tuesday and Wednesday with the policy statement Wednesday afternoon. It is widely believed in markets that the Fed will start another QE, the question at the moment isn’t will they but when. Some believe the Fed will announce an easing move on Wednesday while others are saying at the Sept FOMC meeting. The European Central Bank will meet on Thursday, an even more important event than the FOMC meeting. Last week interest rate markets were rocked when the President of the ECB said in a speech the bank will do whatever it takes to save the euro. Since then Germany and Italy in talks over the weekend sounded upbeat. Last week on the Draghi comments the 10 yr note and mortgage rates jumped; the 10 yr yield up 14 basis pointsince Wednesday and mortgage rates up 7 to 9 basis points in rates. This morning European stocks rose to a four-month high and Spanish bonds extended a rally on speculation that policy makers will take action to ease Europe’s debt crisis.

European Central Bank President Mario Draghi meets with U.S. Treasury Secretary Timothy Geithner in Frankfurt today after leaders in Berlin, Paris and Rome backed him by saying they will do what’s needed to protect the 17-nation euro. Draghi’s proposal involves Europe’s rescue fund buying government bonds on the primary market, buttressed by ECB purchases on the secondary market to ensure transmission of its record-low interest rates, two central bank officials said July 27 on condition of anonymity. Further ECB rate cuts and long-term loans to banks are also up for discussion, one of the officials said.

Adding to the importance of the week; the July employment report on Friday, early estimates call for private job growth of 105K with unemployment rate unchanged at 8.2%. The two key ISM reports also out this week, manufacturing index expected about unchanged at 49.9 and the services sector at 52.2 frm 52.1 in June. Easing from the Fed and the ECB meeting are the dominant focus this week but the data also important. We expect an increase in market volatility this week; technically the US interest rate markets are trading at critical levels.

At 9:30 the DJIA opened +1, NASDAQ +7, S&P +1; the 10 yr note at 9:30 unchanged at 1.54% with 30 yr MBSs.

Markets’ total focus this week will be on central banks and what the banks may do to ease interest rates lower. The ECB meets Thursday, after comments last week from its President Mario Draghi that the bank will do whatever it takes to save the euro, and that it essentially has enough bullets to do it, the safety trades that had driven US interestrates to historic lows are lightening up with investors and traders backing down on the view the EU might break apart.  Meanwhile the Fed may or may not ease on Wednesday. In many respects the Fed is out of ammo in terms of helping the overall economy and lowering the unemployment level; nevertheless it is believed the Fed may announce an increase in MBSs in efforts to force mortgage rates lower.

From the technical perspective; last week’s heavy selling in the bond and mortgagemarkets took the 10 yr and 30 yr MBSs to their respective support levels. The 10 yr note found some support at its 40 day moving average while the MBS 30 yr tested its 40 day average and also held. This morning mortgage prices are holding minor gains from Friday’s close. The strong bullish bias has lessened but so far we do not have outright sell signals. We now define the market as neutral; bot bullish, not bearish—-on the cusp pending how the trade goes today and tomorrow into the FOMC policy statement.

Real Estate and Mortgage Market Update for Friday 07-08-2012

This morning we read;

Just prior to the 8:30 employment report for June the 10 yr note traded +3/32 at 1.58%, 30 yr MBS price +1/32 (.03 bp). The expectations for private jobs was increased yesterday after ADP reported 176K private jobs, with forecasts of just 105K. 30 yr mortgage rates hit a new record low yesterday, not by a lot but a new record nonetheless; the 10 yr note has technical resistance at 1.56%.

June employment data at 8:30 was another indication the US economy is slipping; non-farm jobs after the ADP data yesterday were expected up 115K with most guessers increasing estimates. Non-farm jobs increased a weak 80K, private jobs up 84K, half what ADP thinks. The unemployment rate unchanged at 8.2%. If we average out the private job growth it amounts to 1680 new jobs per state, hardly a reflection of any job growth of substance. The only positives were average hourly earnings were up 0.6% and the average work week was longer.

Europe is continuing to drag the world down. There are those however that will argue there are other issues pulling recovery down but the bottom line, with no caveats, is Europe’s inability to find a workable solution to the over-spending in many of the EU countries that went completely unchecked for years; the US sub-prime meltdown began the financial crisis that continues with no end in sight at the moment. The IMF is about to lower (again) its estimate for global growth. Weakness in investment, jobs and manufacturing in Europe, the U.S., Brazil, India and China, Managing Director Lagarde said in a speech in Tokyo that is forcing it to lower its forecasts once again. The IMF has already lowered its U.S. growth estimate to 2.0% from April’s 2.1%. “The global growth outlook will be somewhat less than we anticipated just three months ago,” Lagarde said. “And even that lower projection will depend on the right policy actions being taken.” The new outlook will be announced in 10 days according to Lagarde, after an April estimate of 3.5%. The most recent Federal Reserve data released last month lowered the growth outlook for the US for the second time since last November.

After another weaker data point the initial thoughts have turned to another QE from the Fed when the FOMC meets at the end of this month. Central banks are cutting rates and increasing buying. China and the ECB cut rates over the last few days, the Bank of England announced it would increase purchases in its QE endeavor. With soft reports in almost every category of measurements over the last two months, and now the June employment report, the view of the Fed launching anther QE has increased. What can the QE do to increase employment? Not much, but in the end the Fed is the only body that can do anything even with very little ammo left in its arsenal. One analysts this morning offered the Fed should increase the cost to banks for excess reserves held by the Fed, possibly actually charging banks to hold reserves; the idea would be to force banks to increase lending. Sounds good but unlikely banks are going to lessen stringent lending requirements; it a chicken-egg thing; improving economic outlook would allow banks to lend more, however banks are not going to lead the charge.

At 9:30 the DJIA opened -120, NASDAQ -22. The 10 yr at 9:30  still didn’t break through its resistance at 1.56%. mortgage prices up 7/2 (.22 bp) frm yesterday’s close.

A lot of talk this morning after another weaker than expected data point, that the Fed will launch another QE—but talk is just that. Action is where the rubber meets the road, and so far action in the bond market isn’t showing much optimism that the Fed will move to lower interest rates. The 10 yr note still isn’t able to crack the month long resistance at 1.56%. mortgage markets are setting new records though, investors buying the higher interest rates instead of moving to safety into treasuries. There hasn’t been anything out of Europe officials since the summit meeting last week that would suggest any progress or anything that would increase the fear factor either. The ECB lowered rates and lowered collateral requirements for banks in the EU, a positive baby step, but a step nevertheless.

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.