Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Building Strong, Lasting Relationships; One Client at a Time. Thursday, July 26, 2012 The US and global stock markets rallying hard early this morning on comments from ECB Pres. Draghi saying policy makers will do whatever it takes to preserve the euro. Markets continue to react on any comments from any official in Europe; Draghi’ s comment this morning just one more snippet that in one way or another has been said before. What else would he be expected to say? Nevertheless it is moving markets. He signaled central bank officials are prepared to do whatever is needed to ensure the euro’s survival and act on surging bond yields. His comments came as Spanish policy makers called on the central bank to fight a renewed bout of financial turmoil that pushed the yields on Spain’s bonds to euro-area records this week. He said high yields on sovereign debt was within the central bank’s mandate. German bunds declined as his comments damped demand for the region’s safest assets, and US bond and mortgage markets also weaker. Talk is cheap, we have heard this for two years but in the end nothing has happened, can’t fight the emotions though, and this morning they are running on high levels. The euro currency rallying on the comment. Europe continues to dominate all global financial markets. Whatever is said seems to be considered the last word. The Draghi comment today that the euro will be saved drove Spain’s and Italy’s bond markets down in yield. The problems in Europe are ones of solvency not liquidity, what can the ECB do to alleviate the debt crisis that is increasing? Spain needs more money, Italy needs more money, Greece needs more money----and on and on. Today Draghi is saying the ECB will do whatever is necessary to save the EU, according to Draghi it is within the ECB authority to do what is necessary, but it is all about debt and insolvent countries. The way out would be for the ECB to begin buying much of the debt from Spain and Italy and other debt ladened countries. What has changed in the last six months; the ECB ceased purchases in February amid concern from some officials that it was a form of monetary financing, which is prohibited under the institution’s founding treaty? Weekly jobless claims this morning were down 36K to 363K, the decline much more than 6K expected. Last week’s claims revised from 386K to 399K. Headlines look good but claims these days are being distorted by the annual auto makers change over, we don’t take claims in July as representative of the true claims picture. That said, it’s all about the headline regardless of the specifics and details. June durable goods orders were expected to be up 0.%, orders as reported jumped 1.6% however the more important ex transportation orders were down 1.1%. Aircraft orders tend to be volatile, markets look more at the ex-transportation data. At 10:00 the NAR reported June pending home sales, expected up 0.9%; sales fell 1.1%; yr/yr +9.5%. The NAR blames the lack of inventory for the decline, saying banks should put more properties on the market. This is the third June sales report that were weaker than expected (new and existing sales the other two). At 9:30 the DJIA opened +149, NASDAQ +47, S&P +17. The 10 yr note at 1.42% +2 bp, MBS prices on 30 yr mtgs down 8 bp frm yesterday’s close, 15 yr mtgs -3 bp At 1:00 this afternoon Treasury will auction $29B of 7 yr notes to complete this week’s $99B borrowing. Yesterday’s 5 yr note didn’t see the demand that the 2 yr saw on Tuesday. Looking ahead; next week on Wednesday the FOMC meeting policy statement, Thursday brings the ECB policy meeting and the Bank of England’s policy meeting. What will the central banks do to attempt to fuel the declining global economy? The Fed is expected to launch anther easing move, the questions are when and what? Some are expecting a move by the Fed next week while an equal number of analysts are looking to the Sept meeting for the Fed to act. It isn’t will they, it’s what will the Fed do and when. Talk of lowering the FF rate to zero to motivate banks to lend instead of leaving reserves at the Fed; more Treasury buying, and a big increase of MBS buying. We continue to believe interest rates will decline from current levels but with some increase in interday volatility as seen so far this morning. Central banks will step up easing moves. Whatever the banks do though won’t likely help economies. In the US the tax cuts at the end of the year will likely be extended but how long before the entire tax problem is faced next year. The SS payroll cut also will expire. Small businesses face the health care issue as well as the other uncertainties and won’t likely hire under those clouds.