Mortgage Rates

Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com




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Thursday, January 13, 2011


Markets got three data points at 8:30 this morning. Weekly jobless claims were expected to have declined 4K, claims increased 35K to 445K the largest increase in 6 months and back over the pivotal 400K level. After three weeks of declining claims reality is back, the holiday shortened week likely caused the recent declines. Continuing claims however are continuing to decline as unemployment insurance runs out; continuing claims fell to 3.879 mil frm 4.127 mil last week. Dec PPI jumped 1.1% against forecasts of an increase of 0.8%; excluding food and energy components up 0.2% in line with estimates. The Nov trade deficit was slightly better than expected at -$38.3B with estimates at -$41.2B. Businesses are benefiting from growing demand abroad and a lower dollar that is making American goods more competitive, propelling a factory-led economic recovery. The gain in exports exceeded an increase in imports that mainly reflected a price-driven surge in purchases of crude oil.

The market reaction to the data didn't move markets; at 9:00 the 10 yr note unchanged and mortgage prices also generally unchanged. Stock indexes in futures markets were lower, the DJIA at 9:00 down 16 points. Overall not much initial reaction to the data this morning. Mortgage prices held slight improvements at 9:15 while the 10 yr treasury note hovered close to unchanged. Mortgage markets from a technical perspective are performing better than the bellwether 10 yr note over the last three sessions, nevertheless still with little directional changes recently.

The ECB met and left its benchmark rate unchanged at 1.0%. ECB's Trichet said inflation pressures in the euro region have picked up, while signaling that policy makers have no immediate plans to raise interest rates. The euro currency is strengthening against the dollar on renewed belief that when Europe's finance ministers meet next week they may increase the size of aid reserves and lower rates on bailout loans. Yesterday Spain sold notes with strong demand, about a 2.1 bid/cover ratio; the rate was higher than in their Nov sale however.

At 1:00 this afternoon Treasury will auction $13B of 30 yr bonds, yesterday's 10 yr note auction was a good one.

The stock market opened at 9:30 with the DJIA off 13 points, the 10 yr note -2/32 and mortgages unchanged (+0.03 bp).

Bernanke is scheduled to speak at 1:00 at the FDIC on small business lending, likely nothing that will move markets.

Estimates for 2011 consumer spending continue to be ratcheted higher; in Dec most economists were saying consumer spending this year would increase 2.6% now the consensus is at +3.0% increase. The optimism for this year is gaining momentum yet we remain unconvinced and as stated previously we want to see consumer spending data for Jan that will not be reported until next month. Food prices will increase substantially this year as will oil prices; how will consumers react to higher base spending costs?