Friday's bond market has opened in negative territory as yesterday afternoon's selling extends into this morning's trading. The stock markets are mixed with the Dow down 25 points and the Nasdaq up 17 points. The bond market is currently down 6/32, which will likely push this morning's mortgage rates higher by approximately .125 - .250 of a discount point.
Today's economic data came in favorable for the most part, but one the more important reports we see each month showed stronger than expected results. The bad news came in the Commerce Department's Retail Sales report for September that measures consumer spending. It showed a 0.6% increase in retail levels sales, exceeding analysts' forecast of a 0.4% rise. Today's release also revised sales from up 0.4% to up 0.7%, indicating that consumers spent more in August and September than many had thought. This is bad news for the bond market and mortgage rates because consumer spending makes up two-thirds of the U.S. economy. Consumers spending more money each month fuels economic growth that makes long-term securities such as mortgage bonds less attractive to investors.
Now it is time for the good news of the day. The Labor Department said this morning that September's Consumer Price Index (CPI) rose 0.1% last month, while the core data was unchanged from August's level. Both of these readings fell short of forecasts, meaning prices remained flat at the consumer level of the economy. This is very good news for the bond market since inflation devalues long-term securities. However, the fact that inflation remains subdued should be of no surprise to the markets with all of the recent data and Fed comments on the topic.
The third report of the day and the final piece of data for the week was the preliminary reading to the University of Michigan's Index of Consumer Sentiment for October late this morning. They announced a reading of 67.9 that fell short of forecasts and was a decline from September's final reading. This means that surveyed consumers were less optimistic about their own financial situations than analysts had expected. That is also good news for the bond market and mortgage rates because waning confidence usually means consumers are less likely to make large purchases in the immediate future, limiting fuel for economic growth.
Yesterday's 30-year Bond auction did not go very well. Investor interest was pretty weak and not nearly what market participants had hoped for. As I had suspected, the result was selling in the broader bond market yesterday afternoon. And despite this morning's generally favorable economic data, the tone in the bond market is still somewhat negative or cautious. This does not bode well for mortgage rates if it continues next week.
Next week brings us a couple of relevant economic reports for the markets to digest, but none of them are nearly as important as some of this week's data was. Unlike many Mondays, there is data being posted this Monday that could nudge mortgage pricing. September's Industrial Production will be released mid-morning Monday and is considered moderately important to the financial and mortgage markets. Look for more details on it and the rest of the week's events in Sunday's weekly preview.
If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Lock if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.
Monday, October 25, 2010
Market Snapshot
Choppy, with no direction in the bond and mortgage markets. Both trading in a wide range and awaiting the FOMC meeting on Nov 2 and 3 and the elections on Nov 2. Yesterday a strong rally in the bond market and heavy selling in the equity markets on the news China increased its base rate by 25 basis points and in turn the US dollar spiked higher. A strong dollar is not what the equity markets want, nor does the Fed want the dollar to increase. There is an increasing belief that a weaker dollar will be the catalyst that lifts the economy out of its slump by improving the US export markets.
Yesterday mortgage prices improved by .31 bp while the 10 yr note yield fell 4 basis points to 2.47%. This morning the 10 yr note yield is up 3 basis points while mortgage prices at 9:30 were down .18 bp. Yesterday the dollar rallied sending stock indexes down (DJIA -165) this morning the DJIA opened up 22 pints, the 10 yr at 9:30 -7/32 at 2.51% +3 bp and mortgage prices -.18 bp from yesterday's close. The bellwether 10 yr note is continuing to trade close to 2.50% with moves rotating around it but no momentum to move much ahead of the QE 2 easing that is widely expected at the next FOMC meeting.
US interest rates at the long end of the curve that also includes mortgage rates are moving into what may be one of those Catch 22s. The Fed will likely be buying huge amounts of treasuries to push rates lower, but the Fed is on record that one of its targets by doing another QE is to get inflation moving higher in order to avoid deflation. Any increase in inflation is necessary in this environment but any increase, or perceived increase, is not supportive to continued lower rates at the long end of the curve or mortgages.
The MBA released its Weekly Mortgage Applications Survey for the week ending October 15, 2010. The Market Composite Index, a measure of mortgage loan application volume, decreased 10.5% on a seasonally adjusted basis from one week earlier. This week’s results do not include an adjustment for the Columbus Day holiday. The Refinance Index decreased 11.2% from the previous week after increasing 21% the previous week. The seasonally adjusted Purchase Index decreased 6.7% from one week earlier. The unadjusted Purchase Index was 29.4% lower than the same week one year ago. The four week moving average for the seasonally adjusted Market Index is up 0.4%. The four week moving average is down 1.1% for the seasonally adjusted Purchase Index, while this average is up 0.7% for the Refinance Index. The refinance share of mortgage activity decreased to 82.4% of total applications from 83.1% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 5.8% from 5.4% of total applications from the previous week. The average contract interest rate for 30-year fixed-rate mortgages increased to 4.34% from 4.21%, with points decreasing to 0.81 from 1.02 (including the origination fee) for 80% loans.This is the first increase in the 30-year contract rate in six weeks. The average contract interest rate for 15-year fixed-rate mortgages increased to 3.74% from 3.62%, with points decreasing to 1.00 from 1.06 (including the origination fee) for 80% loans. This is the first increase in the 15-year contract rate in six weeks.
Nothing on the economic calendar this morning; at 2:00 the Fed will release the minutes of the 9/21 FOMC meeting. The focus will be on the debate over another QE that the short statement after the meeting indicated the Fed was "prepared" to undertake. That statement has led to almost 100% belief the Fed will re-start buying US treasuries.
Mortgage Market Update
Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Treasuries and mortgages opened firm this morning ahead of the Sept existing home sales at 10:00. The dollar is being hit again this morning, adding support to the stock indexes and the bond market; the finance ministers finished their meeting in South Korea with a statement that MAYBE the G-20 will think about adopting a plan to make currencies more attuned to markets and the economy rather than moving closer to a currency war that has been brewing for months; the dollar this morning is pushing into lows against the yen not seen in years. European stocks climbed after Group of 20 finance chiefs heightened speculation the Federal Reserve will announce further stimulus measures next week. Ben Bernanke spoke early this morning (8:30) saying the central bank and other regulators are “intensively” examining financial firms’ home-foreclosure practices and expect preliminary findings next month. “We have been concerned about reported irregularities in foreclosure practices at a number of large financial institutions,” ...... “We are looking intensively at the firms’ policies, procedures, and internal controls related to foreclosures and seeking to determine whether systematic weaknesses are leading to improper foreclosures.” He didn’t comment on the outlook for the economy or monetary policy, eight days before the Fed meets to decide on what economists and investors expect will be a plan to boost growth by restarting large-scale securities purchases. After discussing foreclosures, he devoted much of his remarks to the Fed’s housing-market efforts, such as studies, conferences and events serving troubled borrowers.
The DJIA opened +50; 10 yr at 9:30 +14/32 2.51% -6 bp and mortgage prices +7/32 (.22 bp) on 30s and +5/32 (.15 bp) on 15s.
At 10:00, the only data today, Sept existing home sales, expected up 2.9%, increased 10.0% to 4.53 mil annualized. A big jump but not what the headlines would suggest; most closings were part of the tax credit, 35% of the sales were distressed sales and now with the foreclosure issues sales in Oct won't do so well. The median home price $171,700.00 with a 10.7 month supply on the markets, inventory levels did decline 1.9% but still leaves a huge overhang, especially when the foreclosure moratorium ends. There was no reaction to the better report in the bond or mortgage markets on the report.
This Week's Economic calendar:
Tuesday;
9:00 am Case/Shiller 20 city home price index (+2.0%, August +3.18%)
10:00 Oct consumer confidence index (49.0 frm 48.5)
1:00 pm $35B 2 yr note auction
Wednesday;
7:00 am Weekly MBA mortgage applications
8:30 am Sept durable goods orders (+1.7%; ex transportation orders +0.1%)
10:00 am Sept new home sales (+2.4% to 295K units annualized)
1:00 pm $35B 5 yr note auction
Thursday;
8:30 weekly jobless claims (+3K to 455K)
1:00 pm $29B 7 yr note auction
Friday;
8:30 am Q3 advance GDP (+2.0% frm +1.7% in Q2)
Q3 employment cost index (+0.5%)
9:45 am Oct Chicago purchasing mgrs index (57.5 frm 60.4)
9:55 am U. of Michigan consumer sentiment index (68.0 frm 67.9)
Interest rate markets are likely to continue their narrow trendless range through the week ahead of the QE and elections next week. Over the past two weeks mortgage prices and mortgage rates have been generally flat with prices moving in a very narrow range. The Fed will step up and announce large scale buying of treasuries when the FOMC meeting concludes on Nov 3rd, in the meantime the Nov 2nd elections, while generally conceded to Republicans, is still a soft point for markets; the margins of victories and the number of them will be closely monitored as a measure of consumer discontent that has increased dramatically over the past 9 months. The health care bill a true mess, and government spending have consumers increasingly nervous over the economic outlook. Can the new make up of the House and Senate change the underlying fears of consumers? Will Pres Obama stand strong and use his veto powers to hold health care as it is currently written or will he concede the bill is flawed and work to fix it? These and other key questions will dominate through the remainder of the year.
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