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The bond and mortgage markets started a little weaker this morning with stock indexes better. Not surprising however after the run the bond market drove long term rates (10 yr) down from 1.90% to 1.70% over the last five sessions, and the stock market down 9 of the last 10 days. The financial markets remain bullish for interest rates and bearish on stocks. There are no economic reports to think about today.
The day’s big event is Facebook going public today; the stock will begin to trade at 11:00 am at the IPO price of $38.00.
Moody’s Investors Service downgraded 16 Spanish banks last night, citing the nation’s recession, reduced funding access for lenders and deterioration in loan quality that will spread beyond real estate to household and company loans. Concern more bad loans will come to light at Spanish banks has driven up the country’s borrowing costs on speculation the final bill may hurt government finances. Spanish 10-year bond yields surged to 6.46% this week, the highest since November. The yield slipped 7 basis points to 6.21% today. With unemployment topping 24 percent and the economy set to shrink 1.8 percent this year, according to International Monetary Fund estimates, analysts say the state will need to impose more charges on banks as the slump damages assets beyond real estate.
In China, prices of new homes fell from a year earlier in 46 of the 70 cities tracked by the National Bureau of Statistics, the agency said today. Many analysts are lowering its estimate for China’s second-quarter growth after weaker-than-forecast economic data released last week. The nation’s expansion may drop to a 13-year low this year. The slowing global economies are directly yield to Greece and other European economies as the region continues to be unable to stop the concern that Greece’s debt problem will eventually force it out of the 17 member Union and spread to Ireland and Portugal; Spain also suffering and becoming more a concern.
Angela Merkel and fellow European leaders will face pressure from their G-8 counterparts to do more after speculation Greece will exit the euro wiped about $4 trillion from global stock markets this month. The summit starts today in the U.S. Greece has new elections on June17th, in the meantime Germany has to re-think the severe austerity it jammed down Greece and other EU countries with debt default concerns. France’s new President and the recent inability in Greece to form a government that will accept the draconian spending cuts pushed by Germany. It isn’t news that Europe is in complete turmoil as no matter the debate, in the end there is not enough money to fend off eventual defaults. It keeps on dragging on but reality is increasingly sinking in that defaults and bank failures are inevitable.
Some minor price declines today in the bond and mortgage markets, but the outlook remains positive for lower rates. The 10 yr and mortgages have made a huge run over the week or so, a slight pullback isn’t unusual. At 9:30 the stock market (DJIA) opened +45 but by 10:00 the key indexes were having trouble holding gains. 1.70% on the 10 yr note is a technical resistance level that held the rally last Sept; this time though we expect the 10 will move below 1.70% with the potential of 1.50%, especially if traders believe the Fed will launch anther QE. Given the decline in economic outlooks around the world the Fed is more likely to ease again to continue pushing rates lower and with the intent that investors will be forced into the stock market and business will increase spending; at least that is what many believe.
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Treasuries and mortgages are fractionally better this morning but not much. Friday the 10 yr note pushed through 1.90%, a key technical resistance level. Stock indexes in pre-market opening were trading weaker supporting the bond market. In Europe over the weekend Greece and France voted out the leadership that drove the massive austerity plans that have crippled Europe. France elected Francois Hollande and ousted Sarkozy; Sarkozy and Germany’s Angela Merkel were the architects of the severe cuts in spending in the debt riddled countries of Greece, Portugal, Ireland, Italy and Spain that has routed what was left of the economies and driven unemployment to depressionary levels. The results of the elections in the two countries came after a tumultuous few weeks that saw the Dutch government fell as Britain’s conservative led coalition took a whipping in local elections. Most analysts believe voters in Europe are in favor of balanced budgets and good fiscal governance but the spending cuts are too severe and too quick. Germany and France, especially Germany, have forced unemployment higher and dealt the euro economy into a very deep recession.
Here in the US the stock market had a bad week last week and we expect additional selling this week as investors are increasingly concerned valuations in many of the “hot” issues have become too expensive. Europe’s recession is slowing China and investors see recent US data as evidence the US will slow. That the US will slow growth flies in the face of the most recent Fed forecasts; last week the Fed raised its outlook for GDP growth this year and next compared to their outlook in January. Uncertainty is the word of the moment.
At 9:30 the DJIA opened -46, NASDAQ -13, S&P -4; 10 yr note +2/32 at 1.87% -0.5% while mortgage prices up 2/32 (.06 bp).
This week Treasury will auction $72B of notes and bonds; $32B of 3 yr notes tomorrow, $24B of 10 yr notes on Wednesday and $16B of 30 yr bonds on Thursday. There isn’t much in the way of key economic releases this week. This afternoon at 3:00 March consumer credit; it is one our favorite reports each month although there isn’t a lot reaction when it hits. Credit is expected to have increased $11.0B after +$8.7B in Feb; our focus is on revolving credit (credit card usage) not so much on the headline. Consumer credit has been surging the last six months driven by non-revolving credit, credit in large part that’s used to fund vehicle purchases. Revolving credit, which also turned higher late last year, has however been lagging and contracted slightly for a second month in a row.
Last Friday crude oil plunged $4.00, this morning down again now trading well under $100.00 (see below). Oil fell to the lowest level in more than four months after European election results fed speculation that austerity efforts will be derailed and weaker-than-expected jobs data underscored concern the U.S. economy may falter. Crude for June delivery plunged as much as $3.15 to $95.34 a barrel in electronic trading on the New York Mercantile Exchange early this morning. The contract tumbled $4.05 to $98.49 Friday, the lowest close since Feb. 7. Prices slumped 6.1% last week, the biggest weekly drop since September. Over the last three weeks crude as fallen from $104.00.
The remainder of the day will likely be directed by the stock market; the indexes are already off their opening levels. Like a broken record, the 10 yr has never traded below 1.90% for more than three days; the point being that the present levels of long term US rates should be monitored closely. We are not forecasting rates will increase, what we see though is that in the past the 10 yr and mortgages have run into solid resistance under 1.90% on the note.
This Week; there isn’t much in the way of key economic reports. Over the week-end French and Greek voters sent a strong message from their citizens and to Germany that the austerity jammed down the throats of people isn’t working. Both elections removed the leaders that were forcing what many see as draconian spending cuts in spending was too much too soon. The spending cuts have already brought down leaders in Spain, Italy, Portugal and now Greece and France. The initial; reaction to the elections over the weekend are pushing US rates lower and US stock indexes down.
This week has Treasury auctioning a total of $72B of notes and bonds with 3 yr, 10 yr and 30 yr auctions beginning on Tuesday. Last week key US tock indexes were down after the strong rally over the last six weeks. Many traders are thinking a large correction is overdue with recent economic reports on manufacturing and services sectors slowing. China and Europe also seeing a decline in growth. Europe is the prime suspect as its economy is falling deeper into recession with little reason to expect much improvement. Last Friday the 10 yr note broke what we saw as strong resistance when it fell below 1.90%, from a technical perspective the 10 yr now likely to move to 1.80%; mortgage rates are also expected to decline further. Interest rates are now at levels that since last September have not been able to sustain them. This time may be different, leaving the question of how low can US interests go?
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Before I deliver your mortgage news for today, I just wanted to thank everyone for their business and continued trust in our company and tell you to make it a great week. Life is not measured by the breaths we take but by the moments that take our breath away. Have a great week, and please call CU Mortgage Division in Olympia for all your mortgage needs.
Here is today’s snapshot:
Treasuries and mortgage markets opened about unchanged this morning. At 8:30 two data reports; March retail sales, expected up 0.3%, was up 0.8% and ex auto sales +0.8% (ex-autos expected up 0.6%). April Empire State manufacturing index was expected at 17.5 frm 20.2 in March; as reported the overall index plunged to 6.56; new orders component at 6.48 frm 6.84 and the employment component at 19.28 frm 13.58—- over zero is considered expansion, more indication that there is a slowing in the manufacturing sector. The retail sales report is trumping the Empire State data this morning; stock index are better and at 9:00 the 10 yr note, after being up slightly (+3/32) was -1/32 at 2.00%, mortgage prices at 9:00 -2/32 after opening +3/32 prior to the 8:30 data.
Asian stocks fell overnight, with the regional benchmark index headed for its biggest drop in almost two weeks after the cost of insuring against a Spanish default climbed and U.S. consumer confidence dropped last Friday, clouding the earnings outlook for Asia’s exporters. Stocks also fell after five-year credit-default swaps on Spain surged to a record as Prime Minister Mariano Rajoy struggles to prevent the nation from becoming the fourth euro-region member to need a bailout.
European stocks rebounded from four consecutive weeks of losses and U.S. index futures advanced after American retail sales increased more than forecast in March. Spanish bond yields climbed before a debt sale while the euro weakened. Credit-default swaps on Spain jumped 17 basis points to 519. Contracts on Italy rose seven basis points to 441, the highest level in almost three months. Spanish 10-year bond yields jumped as much as 18 basis points, to 6.16%, the highest level since Dec. 1. Five-year credit-default swaps linked to Spanish bonds jumped to an all-time high. Spain will sell 12- and 18-month bills tomorrow, followed by auctions of debt due in October 2014 and January 2022 on April 19.
At 9:30 the DJIA opened +85, the 10 yr note traded unchanged At 1.99% and 3-0 yr MBS prices unchanged.
Although Europe’s debt issues remain, this morning there is a little relaxation about the possibility of default as EU ministers are calling for the ECB to step up and buy Spain’s bonds to keep their interest rates from increasing more. So far nothing from the ECB but words implying it is “prepared” to act if necessary. The US bond market remains the safe port for investors and has been one of the reasons we have seen US rates fall over the last two weeks. US stock market is rallying this morning on the March retail sales increase, US interest rates are not seeing any selling on the better stock indexes; as long as the debt problems in Europe continue it should keep a bid in US treasuries, thus supporting the mortgage markets.
At 10:00 Feb business inventories were expected up 0.5%, as reported inventories increased 0.6%, sales were up 0.7% with an inventory to sale ratio unchanged from Jan at 1.28months. Also at 10:00 the April NAHB housing index, expected at 29 frm 28 in March, fell to 28, the first decline in 7 months; single family index at 26 down from 29. The drop in the NAHB index sparked some increases in bond and mortgage prices. The DJIA off its high, the NASDAQ has been weaker all session so far.
Technically the treasury and mortgage markets remain bullish; the 10 yr so far today is holding a gain as are mortgage prices, but at 9:30 both were flat on the day and now boosted by the NAHB housing mkt index and stock indexes off their best levels. Looks like the 10 yr is headed to 1.90% (at 10:10 1.96% -3 bp today).
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This week; after a week with little new economic data, this week’s calendar has a number of key reports beginning Monday with March retail sales and the NY Empire State manufacturing index. The benchmark 10 yr note ended last week at 1.99% an improvement of 6 basis points in rates on the week. Europe’s debt crisis resurrected a week ago increasing safety moves into treasuries and global economic conditions are slowing somewhat; the two factors driving rates back down. Mortgage interest rates on 30s were down about 5 basis points last week. With the current view that Europe and China are slowing, and the US although growing is also slowing based on the data on employment over the last two weeks.
The 10 yr note at 2.00% has the potential to fall to 1.90% but at this point we don’t think it will go much lower than that. Mortgage rates are within 10 basis points of their best levels. Europe’s debt issues, a present view that global economies will slow has increased the belief the Fed will likely do more easing; it all depends on the data we see this week. Next week the FOMC will meet on Tuesday and Wednesday with the policy statement that is expected to confirm the Fed is thinking about easing. The previous meeting’s policy statement disappointed as there was no mention that the Fed was thinking an easing move.
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US interest rates better this morning with US stock markets opening lower on reports out of China show its economy is slowing more than thought. China’s GDP rose 8.1% in the first quarter from a year earlier following an 8.9% increase in the fourth quarter, the National Bureau of Statistics in Beijing said today; that was less than the 8.4% growth predicted. China’s economy slowing as exports decline to Europe and the US, and the latest data shows imports are also slowing.
Europe’s debt problems are back as we noted previously; average net borrowings by Spanish banks climbed to 227.6 billion euros last month from 152.4 billion euros in February, the Bank of Spain said. Lenders in the whole euro system took 361.7 billion euros, the data showed. Spanish government bonds headed for a second weekly decline, a sign the respite in the region’s debt crisis created by the ECB’s three-year loan program may be coming to an end. Seventeen of 22 economists surveyed this week predicted the ECB will be forced to resume its so-called Securities Markets Program to contain bond yields. In Italy protests by labor unions against the austerity plans being implemented. Prime Minister Monti’s pension plan was part of a $26 billion austerity package passed in January to fight the sovereign crisis by putting Italy’s debt, the second highest in Europe after Greece, on a downward trajectory from next year.
With slowing in global economic growth comes an increasing belief the US Fed will institute another QE soon. Europe’s debt crisis is adding support to lower interest rates. The recent swift decline in rates after the 10 yr spiked to 2.40% may be already discounting another easing action. This morning the stock indexes are lower after a two days of improvement, the 10 yr note hit 2.00% this morning.
At 8:30 March consumer price index was right on estimates; the overall CPI increased 0.3% frm Feb, yr/yr up 2.7%. The core rates (ex food and energy) up 0.2%, yr/yr +2.3%. There was no immediate reaction to the report.
At 9:30 the DJIA opened down 41 points, the 10 yr note at 2.01% -4 bp and mortgage prices up 6/32 (.18 bp).
The last data this week, at 9:55 the U.of Michigan/Reuters consumer sentiment index was expected unchanged at 76.2, it fell to 75.7, the current conditions index at 80.6 frm 86.0, expectations at 72.5 frm 69.8 and the 12 month outlook at 87 frm 79. The stock market worsened further and the bond market gained a little with the 10 yr at 2.00% and MBS prices .06 bp better than at 9:30.
Federal Reserve Chairman Ben Bernanke will speaking to the Russell Sage Foundation and The Century Foundation on “Rethinking Finance” at 1:00 this afternoon and will take questions from the audience. More than likely he will field questions on what the fed may be prepared to do, and questions on his outlook on the US economy and the Fed’s course of keeping the FF rate at zero to +0.25% for the next two and a half years.
Two readings on employment recently, the March employment report and yesterday’s weekly jobless claims, both added concern about the status of the economy. Tie that to the renewed fears of debt problems and economic decline in Europe and slower growth in China and we have a momentary perfect storm for lower interest rates. But how much lower will longer term rates fall is the ultimate question. The 10 yr note is just 10 basis points higher now than where it has encountered major resistance at 1.90%; although the rate did fall below 1.90% a few times but each time it couldn’t be sustained (only fifteen days since last September). The majority of trading on the 10 yr note since the beginning of last Sept has been between 2.10% and 1.90%.
This week had very little key economic data, only weekly jobless claims. Next week there are a number of key measurements; March retail sales, Apr Empire State manufacturing and the Apr Philly Fed business index, March housing starts and permits and March existing home sales March industrial production and factory usage— a lot of data that pending the results may either encourage more QE talk or dampen it. The next FOMC meeting on Tuesday the 24th and Wednesday the 25th.
Putting it in perspective; this week the 10 yr note has been tied to a 7 bp range; mortgage prices so far this week have traded in an 8/32 (.25 bp) range (103.14 to 103.06). For all the angst and talk the rate markets were essentially flat this week , at least through 10:00 this morning.
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Treasuries and mortgages are lower in price this morning, driven by the stock market opening better. After five sessions sending the DJIA down 546 points this morning a bounce; not unusual. The bond and mortgage markets have declined in yield on the weak employment report, soft US and global equity markets and renewed thinking that the Fed will have to do another QE. The current decline in rates has about totally discounted another easing into present rates. Going back to early August last year the 10 yr note has traded in a 50 basis point yield range frm 2.40% to 1.90% with the exception of 15 days when it dropped under 1.90%. Yesterday the 10 yr fell to 1.97% before closing at 1.99%; based on the last eight months the 10 is nearing its best levels on weaker global economic outlooks and the belief the Fed will ease again.
At 8:30 March import prices were up more than expect at +1.3%, mostly on energy imports; export prices +0.8%. Yr/yr import prices +3.4%, yr/yr export prices +0.9%. No reaction to the report.
Mortgage applications decreased 2.4% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 6, 2012. The Refinance Index decreased 3.1% from the previous week. The seasonally adjusted Purchase Index decreased 0.5% from one week earlier. The four week moving average for the seasonally adjusted Market Index is down 2.08%. The four week moving average is up 2.19% for the seasonally adjusted Purchase Index, while this average is down 3.45% for the Refinance Index. The refinance share of mortgage activity decreased for the eighth consecutive week to 70.5% of total applications from 71.2% the previous week. This is the lowest refinance share since July 29, 2011. The adjustable-rate mortgage (ARM) share of activity remained unchanged at 5.5% of total applications from the previous week. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 4.10% from 4.16%, with points remaining unchanged at 0.43 (including the origination fee) for 80% loans. This is the lowest 30-year fixed rate since March 9, 2012. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) decreased to 4.43% from 4.46%, with points decreasing to 0.36 from 0.49 (including the origination fee) for 80% loans. This is the lowest 30-year jumbo rate since March 9, 2012. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.87% from 3.89%, with points decreasing to 0.55 from 0.58 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.37% from 3.40%, with points decreasing to 0.37 from 0.41 (including the origination fee) for 80% loans. The average contract interest rate for 5/1 ARMs decreased to 2.89% from 2.93%, with points increasing to 0.38 from 0.35 (including the origination fee) for 80% loans.
At 9:30 the DJIA opened +90, NASDAQ +28 and S&P 500 +12. The 10 yr note -14/32 at 2.03 and mortgage prices -6/32 (.18 bp) on 30s and -5/32 (.15 bp;) on 15s.
1:00 this afternoon Treasury will auction $21B of 10 yr notes, a re-open of the 10 yr note issued in February. Yesterday’s 3 yr note was OK, today’s 10 yr should also get solid bidding; if not look for yields to increase.
The Fed’s Beige Book will be released at 2:00 pm. Details from each of the 12 Fed districts. After the weak employment report for March and other recent data points the Book will get a lot of attention. The Book is used by the FOMC when it meets on April 25th.
European stocks rebounded from a two-month low and U.S. equities halted the longest slump of the year as Alcoa Inc. opened the earnings season with an unexpected profit. Spanish bonds rose as a European Central Bank official signaled the ECB may revive its bond-purchase program. The euro strengthened from a seven-week low against the yen as Spain’s bonds climbed after a board member of the European Central Bank indicated it may buy the nation’s debt to reduce borrowing costs. “Spain shows the markets remain nervous,” ECB Executive Board member Benoit Coeure said at an event in Paris today. “Will the ECB intervene? We have an instrument, the securities markets program, which hasn’t been used recently but it still exists.” Last week Spain’s Prime Minister’s comments renewed fears of another debt crisis and it is one of the issues that has led to the decline in US interest rates.
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A quiet start this morning in the bond, mortgage and stock markets. At 9:00 the 10 yr +3/32 at 2.04% unch, MBS prices on 30 yr fixed +2/32 (.06 bp) and the DJIA index +9. By 9:30 the 10 yr yield down 1 bp, +5/32 and MBS prices on 30s +5/32 (.15 bp); the DJIA opened -20 points. European stocks fell to a two-month low and Asian equities retreated on concern growth is slowing after China’s imports missed economists’ forecasts. Bernanke said in a speech yesterday that the U.S. was still “far from having fully recovered.” The Bank of Japan kept its key interest rate unchanged today and no policy maker proposed extra stimulus. China reported a trade surplus for March as import growth trailed forecasts; March exports rose 8.9% from a year earlier, after an 18.4% increase in February. Growing concerns that China’s economy is slowing as imports slide.
The German 10 yr note yield sits at 1.67%; Spain’s 10 yr note at 5.94%, the spread the largest since late Nov as Spain struggles to cut expenses; Spain’s 10 yr up 18 basis points from last week. The euro region as the debt problem hasn’t gone away despite the liquidity support from the European Central Bank, a strong support for US treasuries as safety moves increase to treasuries.
Today begins earnings season for Q1 with Alcoa reporting late this afternoon. There is concern that earnings in Q1 may be lower than in Q4 when very strong earnings dominated; economic slowing in China and Europe will likely push earnings lower. The U.S. economy will accelerate 2.2% this year, up from 1.7% in 2011, according to the average of 72 estimates compiled by Bloomberg.
10 yr treasury yields would have to rise about 120 basis points to track the estimated price-earnings ratio for the S&P 500 as they did during the first three quarters of 2011; the differential primarily reflects the Federal Reserve’s plan to keep its benchmark interest rate close to zero at least through late 2014.
Last Friday’s very soft employment data for March is continuing to dominate traders’ thoughts. Was the data a one and out thing with job growth likely to bounce back in April? Or was it the beginning of a downturn in job growth that will continue as the global economic outlook declines. Europe’s economies with the exception of Germany and France are declining as cost cutting and job losses widen. Talk of QE 3 increased immediately on the employment data. While still uncertain what the fed will do, the momentum is building for another easing. The Fed however isn’t likely to move quickly, wanting to see more key data and possibly the April employment report on May 4th. Whether or not the Fed does ease again, the outlook for another easing has increased in the rate markets.
The only data point today, Feb wholesale inventories were expected +0.5%; as reported up 0.9%. Sales were up 1.2%, the inventory to sale ratio 1.17 months unchanged from January. Stock indexes sold off while the bond and mortgage markets gained a little on the report.
This afternoon at 1:00 Treasury will begin three days of auctions with $32B of 3 yr notes, the auction is expected to see strong bidding.
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This Week; after last week’s very weak employment report that drove interest rates lower n mortgages and treasuries, Treasury will auction $66B of notes and bonds beginning Tuesday. Thursday and Friday PPI and CPI for March will be r3eported. The US stock market was closed on Friday so Monday morning the market will open weaker on the employment report. The bellwether 10 yr note ended Friday at 2.05% down 16 basis points on the week, almost all the decline in rates last week occurred Friday when non-farm jobs were just half of what was widely expected.
Not just the March employment report that is sending US rates lower; Europe’s debt problems, after being somewhat benign for the last few weeks, is back. Spain now the poster child with concern it can’t make it without another EU bailout. The prime minister of Spain set up the concern when he said last week the country was in “extreme difficulty”. Comments like that has renewed safety moves into treasuries as was the case with Greece that took the long rates down.
On Wednesday the Fed Beige Book will get a lot of attention after the weak employment report on Friday. The Book is a staff report on the economy with details from each of the 12 Fed districts. The employment report will likely increase the talk of another easing by the Fed; QE 3 has been debated now for the last month and the Fed, while not Saying anything at the 3/13/FOMC about another ease, is still not willing to completely discount it if necessary.
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Good Friday to Everyone.
Most markets are closed today. A great deal of large investors on the East Coast are closed in order to observe Good Friday as well, so today should be a relatively calm day in mortgage land. There will be no major market movers today and no mortgage people calling a code blue or a code brown so all the hospitals, walk in clinics and trauma centers should have an easy day.
Do something special today and hug your child or practice a random act of kindness. Enjoy your weekend, and reflect upon your blessings as sometimes we forget how large they are as we focus on what we don’t have. Kind of like we don’t have 3.875% but how really blessed we are to still have 4.125% and a roof over our head or the opportunity to buy a home.
So for today’s update, here you are:
This morning’s March employment report shocked markets with its weakness. Non-farm jobs were widely expected to have increased 201K, as reported up just 120K; non-farm private jobs were expected up 224K, as reported +121K. The unemployment rates declined to 8.2% frm 8.3% suggesting more people are not looking for jobs. On Wednesday ADP said private jobs increased 209K. The bond and mortgage markets rallying hard this morning, at 9:00 the 10 yr note yield at 2.08% down 10 basis points frm yesterday’s close and mortgage prices +16/32 (.50 bp). Employment data has always been difficult to forecast, usually there is a burst of volatility on the data, today is one major example. If the stock market were trading today the DJIA would open down 150 points based on trading in the futures markets. The Feb jobs originally reported +227K was revised to 240K; Jan jobs originally reported +284K revised to 275K. A smaller than forecast addition of 120,000 jobs last month broke a pattern that was giving U.S. voters a growing sense of security.
The very weak March employment data will increase the idea the Fed may consider another easing; we have held the Fed would not ease again, but if employment continues to be soft the Fed has the evidence it needs to ease again if necessary. Although the odds have increased as a result of the employment data, and somewhat confirms what the Fed has been concerned about that the economic recovery is not on solid footing; another easing may be unnecessary as long as interest rates stay low. With today’s sharp drop in rates, and the declines this week, the Fed doesn’t have to ease.
What now appears to be a weaker economy that had driven equity markets to four year highs, has changed the near term outlook on the surprisingly weak employment data. Not only the economy but Europe, after a couple of months of stability, is now back on the front page. Two days ago Spain’s Prime Minister rocked markets with his comment that its economy is in“extreme difficulty,” renewing the possibility that another bailout will be needed. The two events has changed the outlook for the bond and mortgage markets for the moment. Today’s improvement in the bond and mortgage markets turned most of our technical work from generally neutral to bullish. When markets open on Monday we expect the recent increase in volatility to continue. We were not looking for rates to decline much, with safety trades back on Europe and the very weak employment report today the outlook has changed. From now until the next FOMC meeting on April 25th the debate on another Fed ease will dominate thinking and be influenced on every data point between now and then.
Filed under: Daily Mortgage Interest Rate Update, Interest Rates | Tags: Conventional Loan Rates, CU Mortgage Division, CU Mortgage Division Olympia Washington Mortgage Lender, First Mortgage Rate Lock Advice, Interest Rates, William Tuning - Olympia
A quiet start in the bond market this morning but helped a little with stock indexes looking weaker into the open at 9:30. Yesterday treasuries and mortgage prices improved even with the stock market improving. Europe’s stock markets were lower after a couple of good days. Today’s only data, Feb factory orders, out at 10:00 were expected to jump after declining in Jan. At 9:00 this morning the 10 yr note unchanged while mortgage prices on 30 yr fixed loans up .03 bp.
March auto sales are expected to have increased as consumers were driven by high gasoline prices. Chrysler sales already out were up 35% in March on sales of small Fiat models; sales last month climbed to 163,381 cars and light trucks from 121,730 a year earlier. Sales of the Fiat 500 led Chrysler but other models also saw stronger sales. Later today the rest of the manufacturers will report; GM sales are expected to be boosted by the Chevrolet Sonic subcompact that gets 33 miles (53 kilometers) per gallon in combined city and highway driving, may report a 19% increase in March sales. A Ford executive told CNBC this morning its sales were up 5.0%. Toyota probably increased total sales by 15%, Honda sales may have increased 5.3%. A 14.5 million sales rate for March would exceed the 13.1 million pace from a year earlier and set an average rate of 14.6 million for the first quarter, ahead of analysts’ estimates for full-year deliveries. Total light-vehicle sales may rise to 1.42 million, the average of eight analysts’ estimates. That would be the highest monthly total since August 2007, according to researcher Autodata Corp.
At 9:30 the DJIA opened -16, 10 yr note +2/32 at 2.17% and MBS prices +3/32 (.09 bp).
At 10:00 Feb factory orders expected to be up 1.4% were reported +1.3%; no reaction to the report as it was in line with forecasts. Jan orders were revised from -1.0% to -1.1%.
This afternoon the minutes from the 3/13/FOMC meeting will be released; traders and investors keen to get a look at the discussions about the economic outlook and comments concerning another QE move. Bernanke has been manipulating markets recently, using his speeches to talk rates down while at the same time trying to talk the economy up a little. Never had a Fed chief doing as much manipulation to keep long term rates from increasing. Not too sure if that is good or bad; nevertheless that is what he has been doing for the past couple of months. On one hand keeping short rates lower, on the other continuing to discount any inflationary expectations. Bernanke clearly realizes he is the Lone Ranger out there trying to keep the economy moving forward with very low interest rates while Congress is completely impotent and can’t find any common ground to add fiscal incentives. As long as Bernanke holds out the carrot of another easing if the economy were to reverse course he can keep longer dated treasuries and mortgage rates low; he is saying the economy is recovering with soft spots still there, however he insists if necessary he will ease further. The real question is; can he keep mortgage rates under 4.00%?
Technically, the 10 yr yield is trading below its 20 day average for the first time since early March. 30 yr MBS is trading above its 20 day average and working on its 40 day average. The 10 yr still is having a problem getting below 2.15%. With March employment data on Friday we are not expecting much major change in the bond and mortgage markets until the data hits. Tomorrow ADP will come with its private job estimate; recently the ADSP data has been close to what the BLS reports.
