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, December 16, 2010
Once again this morning the bond and mortgage markets tried to improve but by 9:00 all the early gains were gone. Yesterday after the 4:30 report was sent out mortgage prices took additional hits, falling 100 basis points on the day. At 9:30 mortgages were unchanged and the 10 yr note held a 7/32 price gain at 3.51% -2 bp.
At 8:30 this morning weekly jobless claims were reported down 3K to 420K, claims were expected to have increased about 4K. Continuing claims increased to 4.135 mil frm 4.113 mil the previous week. Although better than expected the changes from the previous week were nominal. Nov housing starts were expected up 4.8%, as reported starts increased 3.9% to 555K units. Nov building permits were expected up 2.5%, they fell 4.0% to 530K units. Although less than forecasts the increase in starts is the first since August. Probably not necessary to reprise it but the housing markets remain in depression and will not rebound much in 2011.
At 10:00 the Dec Philadelphia Fed business index, expected at 16.0 frm 22.5 in Nov, jumped to 24.3; the new orders sub component at 14.6 frm 10.4, prices pd index at 51.2 frm 34.0 and the employment component at 5.1 frm 13.3. The initial reaction to the release sent the 10 yr note back to unchanged but mortgage prices were not much changed from the pre-release. Any index reading over zero is considered expansion, under zero contraction. At 10:05 mortgage prices were 6/32 (.18 bp) better than we marked at 9:30.
Markets remain completely confused by the Fed; Bernanke has said more than a few times the Fed's $600B QE 2 was necessary to keep interest rates from increasing. It isn't news that the opposite has occurred, rates have increased over 100 basis points in rates since the Fed announced the treasury buying. The Fed is wasting money buying treasuries as rates increase; its Treasury portfolio is losing money with everyday that passes. On the economy the Fed and markets appear to be on very different paths; the Fed's FOMC statement Tuesday called the economic outlook questionable, growing but maybe unsustainable, growing too slowly. On the other side the equity markets and the bond market are waging heavily that 2011 will see strong economic growth; many economists are now forecasting 4.0% GDP growth. Meanwhile the Fed has gone silent, Bernanke and other Fed officials refrain from outwardly explaining why the difference in views; likely the Fed is confused. The Fed is out of step with the private sector outlook, that doesn't happen very often as markets mostly buy in to what the Fed is saying.
Who is right about the outlook? The equity markets or the bond market pushing interest rates higher daily? The private consensus among most analysts and economists that 2011 will see lower unemployment and stronger growth is based solely on the legislation currently moving through Congress; tax rates unchanged, a cut in payroll taxes of 2.0% that will put more cash in the pockets of consumers and other incentives. The bet now is that consumers will increase spending based on the legislation. Consumer spending remains luke warm at best, consumer credit is declining as many believe that saving is now the prudent course. The main wealth for most people is their home, that wealth has almost vanished; the outlook for housing in 2011 is not good. Why then is the outlook for next year so strong? Wishful thinking in our view.
I know it is redundant but it is the case; the bond and mortgage markets are very oversold based on traditional momentum oscillators. It is unusual that we are not getting a rebound by now, but no one should fight the trend no matter how overdone the move has been.
Thursday, December 16, 2010
Wednesday, December 15, 2010
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.
Wednesday, December 15, 2010
In Asia last night more US treasury selling, by the time Europe opened a little buying. By 8:00 this morning the 10 yr note was better by 12/32 and mortgage prices were up 12/32 (.37 bp). At 8:30 two data points; Nov consumer price index was right on, up 0.1% overall and +0.1% with food and energy removed, yr/yr overall +1.1%, yr/yr core +0.8%. The NY Fed Empire State manufacturing index jumped from -11.14 in Nov to +10.57 with estimates of an increase of 3.0; new orders jumped to 2.60 frm -24.38, employment component at -3.41 frm +9.09. The past two two months the NY manufacturing reports have been so volatile we don't give it much attention; any index over zero is considered growth, under zero contraction. Some immediate selling on the data but by 9:00 treasuries and mortgages were holding better.
At 9:15 Nov industrial production expected up 0.3%, increased 0.4%. Nov factory usage increased to 75.2% the highest utilization in almost two years. Economic data continues to exceed forecasts.
At 10:00 the Dec NAHB housing market index was expected at 17 frm 16 in Nov; was unchanged at 16. That it wasn't better has added a little increase in prices of treasuries and mortgages.
Yesterday the 10 yr note hit 3.50% briefly before backing down to close at 3.46%, mortgage prices were slammed again yesterday, down 39/32 (-128 bp). Mortgage rates have increased 100 basis points over the past four weeks. Interest rates climbing as rapidly as they have is confirmation that the end of inordinate low rates is over. Markets are increasingly more optimistic that 2011 economic growth will be stronger than what had been expected. Expectations until a couple of weeks ago were for GDP growth in 2011 to be 3.0%, now the consensus is for growth to be at 4.0% and a decline in the unemployment rate from the present 9.8% to 8.7% by the end of 2011. The extension of the Bush tax cuts, the 2.0% cut in workers contribution to social security will put more cash in consumers' pockets. Also driving rates higher, the end of safety moves generated by issues in Europe and in the US and Congress's unwillingness to cut federal spending. The $858B tax cut bill now moving through Congress is yet one more Christmas tree filled with earmarks (pork), politicians can't do anything that doesn't end up in more unnecessary spending. The fiscal budget bill also moving through Congress is hung with earmarks driven by Democrats and with not a lot of strong resistance from Republicans. Investors in fixed income are not willing to hold low rate treasuries with the deficit increasing, inflation concerns, and a better economic outlook.
The MBA today released its Weekly Mortgage Applications Survey for the week ending December 10, 2010. The Market Composite Index, a measure of mortgage loan application volume, decreased 2.3% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 2.7% compared with the previous week. The Refinance Index decreased 0.7% from the previous week. This is the fifth straight weekly decline for the Refinance Index. The seasonally adjusted Purchase Index decreased 5.0% from one week earlier. The unadjusted Purchase Index decreased 8.6% compared with the previous week and was 16.6% lower than the same week one year ago. The four week moving average for the seasonally adjusted Market Index is down 4.7%. The four week moving average is up 2.6% for the seasonally adjusted Purchase Index, while this average is down 6.8% for the Refinance Index. The refinance share of mortgage activity increased to 76.7% of total applications from 75.2% the previous week. The average contract interest rate for 30-year fixed-rate mortgages increased to 4.84% from 4.66%, with points increasing to 1.34 from 0.94 (including the origination fee) for 80% loans. This is the highest 30-year fixed-rate observed in the survey since the beginning of May 2010. The average contract interest rate for 15-year fixed-rate mortgages increased to 4.21% from 3.98%, with points increasing to 1.28 from 0.97 (including the origination fee) for 80% loans. This is the highest 15-year fixed-rate observed in the survey since the beginning of June 2010.
So far so good today; the bond and mortgage markets are holding slight gains after the 10 yr note touched 3.50% yesterday. Will it hold for now? Hard to say, the market has resisted any attempt to rally on short-covering even though it remains extremely oversold technically. Any improvement in rate however will not be much given the underlying fundamentals of the increasing economic outlook for 2011. End of yr selling that usually occurs in Dec may not be over. It is highly unlikely that any rebound will be sufficient enough to change the bearish trend.
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Wednesday, December 15, 2010
In Asia last night more US treasury selling, by the time Europe opened a little buying. By 8:00 this morning the 10 yr note was better by 12/32 and mortgage prices were up 12/32 (.37 bp). At 8:30 two data points; Nov consumer price index was right on, up 0.1% overall and +0.1% with food and energy removed, yr/yr overall +1.1%, yr/yr core +0.8%. The NY Fed Empire State manufacturing index jumped from -11.14 in Nov to +10.57 with estimates of an increase of 3.0; new orders jumped to 2.60 frm -24.38, employment component at -3.41 frm +9.09. The past two two months the NY manufacturing reports have been so volatile we don't give it much attention; any index over zero is considered growth, under zero contraction. Some immediate selling on the data but by 9:00 treasuries and mortgages were holding better.
At 9:15 Nov industrial production expected up 0.3%, increased 0.4%. Nov factory usage increased to 75.2% the highest utilization in almost two years. Economic data continues to exceed forecasts.
At 10:00 the Dec NAHB housing market index was expected at 17 frm 16 in Nov; was unchanged at 16. That it wasn't better has added a little increase in prices of treasuries and mortgages.
Yesterday the 10 yr note hit 3.50% briefly before backing down to close at 3.46%, mortgage prices were slammed again yesterday, down 39/32 (-128 bp). Mortgage rates have increased 100 basis points over the past four weeks. Interest rates climbing as rapidly as they have is confirmation that the end of inordinate low rates is over. Markets are increasingly more optimistic that 2011 economic growth will be stronger than what had been expected. Expectations until a couple of weeks ago were for GDP growth in 2011 to be 3.0%, now the consensus is for growth to be at 4.0% and a decline in the unemployment rate from the present 9.8% to 8.7% by the end of 2011. The extension of the Bush tax cuts, the 2.0% cut in workers contribution to social security will put more cash in consumers' pockets. Also driving rates higher, the end of safety moves generated by issues in Europe and in the US and Congress's unwillingness to cut federal spending. The $858B tax cut bill now moving through Congress is yet one more Christmas tree filled with earmarks (pork), politicians can't do anything that doesn't end up in more unnecessary spending. The fiscal budget bill also moving through Congress is hung with earmarks driven by Democrats and with not a lot of strong resistance from Republicans. Investors in fixed income are not willing to hold low rate treasuries with the deficit increasing, inflation concerns, and a better economic outlook.
The MBA today released its Weekly Mortgage Applications Survey for the week ending December 10, 2010. The Market Composite Index, a measure of mortgage loan application volume, decreased 2.3% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 2.7% compared with the previous week. The Refinance Index decreased 0.7% from the previous week. This is the fifth straight weekly decline for the Refinance Index. The seasonally adjusted Purchase Index decreased 5.0% from one week earlier. The unadjusted Purchase Index decreased 8.6% compared with the previous week and was 16.6% lower than the same week one year ago. The four week moving average for the seasonally adjusted Market Index is down 4.7%. The four week moving average is up 2.6% for the seasonally adjusted Purchase Index, while this average is down 6.8% for the Refinance Index. The refinance share of mortgage activity increased to 76.7% of total applications from 75.2% the previous week. The average contract interest rate for 30-year fixed-rate mortgages increased to 4.84% from 4.66%, with points increasing to 1.34 from 0.94 (including the origination fee) for 80% loans. This is the highest 30-year fixed-rate observed in the survey since the beginning of May 2010. The average contract interest rate for 15-year fixed-rate mortgages increased to 4.21% from 3.98%, with points increasing to 1.28 from 0.97 (including the origination fee) for 80% loans. This is the highest 15-year fixed-rate observed in the survey since the beginning of June 2010.
So far so good today; the bond and mortgage markets are holding slight gains after the 10 yr note touched 3.50% yesterday. Will it hold for now? Hard to say, the market has resisted any attempt to rally on short-covering even though it remains extremely oversold technically. Any improvement in rate however will not be much given the underlying fundamentals of the increasing economic outlook for 2011. End of yr selling that usually occurs in Dec may not be over. It is highly unlikely that any rebound will be sufficient enough to change the bearish trend.
Tuesday, December 14, 2010
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.
Tuesday, December 14, 2010
A little choppy very early this morning; the bond and mortgage markets started a little lower in price, took a quick hit on 8:30 data then just as quickly rebounded to sit lose to unchanged by 9:00 am. The bellwether 10 yr note at 9:00 traded weaker, -11/32 at 3.32% +4 bp (see below for 10:00 prices).
Two key data releases at 8:30; Nov retail sales were stronger than expected, up 0.8% overall and up 1.2% when auto sales are removed. Oct retail sales were revised from +1.2% to +1.7%. Retail sales strong adds to the view that the consumer is beginning to spend more. Pulling against that; early this morning Best Buy came with its earnings that were substantially lower than expected sending its stock price reeling. Also at 8:30 Nov producer price index; it was stronger than expected and added more concern that inflation levels may be increasing. Overall PPI +0.8% and without food and energy +0.3%; yr/yr overall PPI +3.5% less than in Oct, ex food and energy +1.2% yr/yr.
Treasuries remain soft this morning but mortgage prices have managed to trade better. Both markets very oversold as we have been saying for days. Likely the markets will be relatively quiet this morning and into early afternoon prior to the FOMC policy statement at 2:15. Treasuries being pressured a little on the higher PPI, continuing to worry that inflation may be increasing. The more fundamental inflation gauge is due out tomorrow when Nov consumer price index is released. Nov retail sales were also better than expected adding to pressure in the rate markets.
At 10:00 Oct business inventories increased 0.7%, less than the 1.1% expected; sales were up 1.4% with an inventory to sales ration at 1.27 months from 1.28 months in Sept. The initial reaction added more pressure on the 10 yr note and mortgage prices slipped a little.
Confidence among U.S. small businesses rose in November to the highest level since the recession began three years ago as more companies projected the economy and sales will improve, a private survey found. The National Federation of Independent Business’s optimism index increased to 93.2, the highest since December 2007, from an October reading of 91.7. “It was encouraging to see substantial improvement in expectations for economic performance, critical if spending and hiring are to elevate beyond survival and replacement levels,” William Dunkelberg, the group’s chief economist, said in a statement. “Plans to hire, make capital outlays and invest in inventories all rose, albeit from historically low levels.”
Not much is expected from the FOMC meeting today; the Fed isn't about to add to the $600B stimulus at this time, and very likely will face serious resistance next year from the Republican controlled Congress. There are a few key members that want to change the Fed's role and remove its mandate for full employment leaving the Fed's only mandate to control inflation. The present $600B QE 2 has not measured up to what Bernanke wanted, lower interest rates, increasing criticism from Congress and within the Fed itself will likely handcuff Bernanke unless the economy rolls over. Bernanke has said he is concerned that the present recovery may not be "self-sustaining". The point of QE 2 was to reduce interest rates; so far it has failed, the 10 yr note and mortgages since the Nov 3rd announcement of QE 2 have increased 80 basis points. Instead of lowering rates the move increased the view the economy would recover more rapidly and inflation concerns have increased sending rates higher.
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Tuesday, December 14, 2010
A little choppy very early this morning; the bond and mortgage markets started a little lower in price, took a quick hit on 8:30 data then just as quickly rebounded to sit lose to unchanged by 9:00 am. The bellwether 10 yr note at 9:00 traded weaker, -11/32 at 3.32% +4 bp (see below for 10:00 prices).
Two key data releases at 8:30; Nov retail sales were stronger than expected, up 0.8% overall and up 1.2% when auto sales are removed. Oct retail sales were revised from +1.2% to +1.7%. Retail sales strong adds to the view that the consumer is beginning to spend more. Pulling against that; early this morning Best Buy came with its earnings that were substantially lower than expected sending its stock price reeling. Also at 8:30 Nov producer price index; it was stronger than expected and added more concern that inflation levels may be increasing. Overall PPI +0.8% and without food and energy +0.3%; yr/yr overall PPI +3.5% less than in Oct, ex food and energy +1.2% yr/yr.
Treasuries remain soft this morning but mortgage prices have managed to trade better. Both markets very oversold as we have been saying for days. Likely the markets will be relatively quiet this morning and into early afternoon prior to the FOMC policy statement at 2:15. Treasuries being pressured a little on the higher PPI, continuing to worry that inflation may be increasing. The more fundamental inflation gauge is due out tomorrow when Nov consumer price index is released. Nov retail sales were also better than expected adding to pressure in the rate markets.
At 10:00 Oct business inventories increased 0.7%, less than the 1.1% expected; sales were up 1.4% with an inventory to sales ration at 1.27 months from 1.28 months in Sept. The initial reaction added more pressure on the 10 yr note and mortgage prices slipped a little.
Confidence among U.S. small businesses rose in November to the highest level since the recession began three years ago as more companies projected the economy and sales will improve, a private survey found. The National Federation of Independent Business’s optimism index increased to 93.2, the highest since December 2007, from an October reading of 91.7. “It was encouraging to see substantial improvement in expectations for economic performance, critical if spending and hiring are to elevate beyond survival and replacement levels,” William Dunkelberg, the group’s chief economist, said in a statement. “Plans to hire, make capital outlays and invest in inventories all rose, albeit from historically low levels.”
Not much is expected from the FOMC meeting today; the Fed isn't about to add to the $600B stimulus at this time, and very likely will face serious resistance next year from the Republican controlled Congress. There are a few key members that want to change the Fed's role and remove its mandate for full employment leaving the Fed's only mandate to control inflation. The present $600B QE 2 has not measured up to what Bernanke wanted, lower interest rates, increasing criticism from Congress and within the Fed itself will likely handcuff Bernanke unless the economy rolls over. Bernanke has said he is concerned that the present recovery may not be "self-sustaining". The point of QE 2 was to reduce interest rates; so far it has failed, the 10 yr note and mortgages since the Nov 3rd announcement of QE 2 have increased 80 basis points. Instead of lowering rates the move increased the view the economy would recover more rapidly and inflation concerns have increased sending rates higher.
Monday, December 13, 2010
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.
Monday, December 13, 2010
Started lower again today; the 10 yr note overnight it 3.39% +7 bp from Friday's close, a little improvement by 9:00, at 3.36%. Mortgage prices at 9:00 down 6/32 (.18 bp) frm Friday's close. Looks more and more likely that the 10 yr may eventually drive to 3.50%. The exit from fixed income investments at those low yields is not over although we believe the near term remains excessively overdone. Still looking for a bounce but it is clear now that to see that it is going to take some kind of disappointment in the economic data being reported this week, meanwhile the trend is firmly higher for rates and it is not appropriate to bet on when a bounce will occur.
No economic releases today but the rest of the week has a lot to consider. Today the FOMC meeting begins with the statement coming tomorrow afternoon at 2:15. No supply this week from Treasury; today the Fed is scheduled to buy Treasuries dated 06/30/16 - 11/30/17. China did not increase interest rates as many were fearful they would. Inflation fears are one of the reasons we are seeing rates increase, China is making efforts to slow their inflation rate which is now at 6.0%, that and the Fed's desire to get the US inflation higher is dealing a blow to US rates. Inflation fears and the increasingly better economic outlook with tax cuts, payroll tax cuts, tuition credits and the extension of emergency unemployment benefits are combining to paint a smiley face on the economic future. A huge leap of faith, nevertheless it is what investors are increasingly expecting. The Senate is sure to pass the bill put together by Obama and Republicans, the House however is fighting it with many Democrats resisting the plan because it keeps the tax cuts for "the wealthy". Over the weekend the House was decorating the Tree, and not the National Christmas Tree, adding pork to the bill to bribe some of the dissenters. Subsidies for ethanol, wind farms and a few other ornaments; it isn't possible for Congress to pass a bill on its merits without hanging pork on it.
This Week's Economic Calendar:
Tuesday;
8:30 am Nov PPI (+0.5%, ex food and energy +0.2%)
Nov retail sales (+0.5%, ex auto sales +0.6%)
10:00 am Oct business inventories (+1.1%)
2:15 pm FOMC policy statement
Wednesday;
7:00 am weekly MBA mortgage applications
8:30 am Nov CPI (+0.2%, ex food and energy +0.1%)
Dec NY Empire State manufacturing index (+3.0 frm -11.14 in Nov)
9:15 am Nov industrial production (+0.3%)
Nov capacity utilization (75.0% frm 74.8%)
10:00 am Dec NAHB housing market index (17 frm 16 in Nov)
Thursday;
8:30 am weekly jobless claims (+4K to 425K; continuing claims 4.078 mil frm 4.086 mil)
Nov housing starts (+4.8% to 545K annualized)
Nov building permits (+2.5% to 558K annualized)
Q3 current account (-$125.3B)
10:00 am Dec Philadelphia Fed business index (12.5 frm 22.5)
Friday;
10:00 am Nov leading economic indicators (+1.2% frm +0.5% in Oct)
Core Logic out this morning saying the number of U.S. homes worth less than the debt owed on them dropped in the third quarter, largely because of mounting foreclosures rather than a rise in property values. 10.8 million homes, or 22.5% of those with mortgages, were “underwater” as of Sept. 30, the Santa Ana, California-based real estate information company said in a report today. That was down from 11 million, or 23%, at the end of June, the third straight quarterly decline. Falling property values and unemployment near 10% have spurred a surge in foreclosures. The number of homes offered in foreclosure auctions averaged 110,000 a month in the third quarter compared with about 98,000 in the same period a year earlier, said Mark Fleming, CoreLogic’s chief economist. “There are two ways to reduce negative equity,” Fleming said in a telephone interview today. “Price appreciation or disposition, which means people getting taken out of their homes. At the moment, there’s more disposition.” A further decline in prices threatens to increase the number of homeowners with negative equity, Fleming said. U.S. home values will probably drop $1.7 trillion this year after rising foreclosures and the expiration of buyer tax credits that boosted demand early in the year, Zillow Inc. said Dec. 9. More than $1 trillion of the drop came in the second half, according to Zillow, a Seattle-based real estate data company. (Bloomberg)
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Monday, December 13, 2010
Started lower again today; the 10 yr note overnight it 3.39% +7 bp from Friday's close, a little improvement by 9:00, at 3.36%. Mortgage prices at 9:00 down 6/32 (.18 bp) frm Friday's close. Looks more and more likely that the 10 yr may eventually drive to 3.50%. The exit from fixed income investments at those low yields is not over although we believe the near term remains excessively overdone. Still looking for a bounce but it is clear now that to see that it is going to take some kind of disappointment in the economic data being reported this week, meanwhile the trend is firmly higher for rates and it is not appropriate to bet on when a bounce will occur.
No economic releases today but the rest of the week has a lot to consider. Today the FOMC meeting begins with the statement coming tomorrow afternoon at 2:15. No supply this week from Treasury; today the Fed is scheduled to buy Treasuries dated 06/30/16 - 11/30/17. China did not increase interest rates as many were fearful they would. Inflation fears are one of the reasons we are seeing rates increase, China is making efforts to slow their inflation rate which is now at 6.0%, that and the Fed's desire to get the US inflation higher is dealing a blow to US rates. Inflation fears and the increasingly better economic outlook with tax cuts, payroll tax cuts, tuition credits and the extension of emergency unemployment benefits are combining to paint a smiley face on the economic future. A huge leap of faith, nevertheless it is what investors are increasingly expecting. The Senate is sure to pass the bill put together by Obama and Republicans, the House however is fighting it with many Democrats resisting the plan because it keeps the tax cuts for "the wealthy". Over the weekend the House was decorating the Tree, and not the National Christmas Tree, adding pork to the bill to bribe some of the dissenters. Subsidies for ethanol, wind farms and a few other ornaments; it isn't possible for Congress to pass a bill on its merits without hanging pork on it.
This Week's Economic Calendar:
Tuesday;
8:30 am Nov PPI (+0.5%, ex food and energy +0.2%)
Nov retail sales (+0.5%, ex auto sales +0.6%)
10:00 am Oct business inventories (+1.1%)
2:15 pm FOMC policy statement
Wednesday;
7:00 am weekly MBA mortgage applications
8:30 am Nov CPI (+0.2%, ex food and energy +0.1%)
Dec NY Empire State manufacturing index (+3.0 frm -11.14 in Nov)
9:15 am Nov industrial production (+0.3%)
Nov capacity utilization (75.0% frm 74.8%)
10:00 am Dec NAHB housing market index (17 frm 16 in Nov)
Thursday;
8:30 am weekly jobless claims (+4K to 425K; continuing claims 4.078 mil frm 4.086 mil)
Nov housing starts (+4.8% to 545K annualized)
Nov building permits (+2.5% to 558K annualized)
Q3 current account (-$125.3B)
10:00 am Dec Philadelphia Fed business index (12.5 frm 22.5)
Friday;
10:00 am Nov leading economic indicators (+1.2% frm +0.5% in Oct)
Core Logic out this morning saying the number of U.S. homes worth less than the debt owed on them dropped in the third quarter, largely because of mounting foreclosures rather than a rise in property values. 10.8 million homes, or 22.5% of those with mortgages, were “underwater” as of Sept. 30, the Santa Ana, California-based real estate information company said in a report today. That was down from 11 million, or 23%, at the end of June, the third straight quarterly decline. Falling property values and unemployment near 10% have spurred a surge in foreclosures. The number of homes offered in foreclosure auctions averaged 110,000 a month in the third quarter compared with about 98,000 in the same period a year earlier, said Mark Fleming, CoreLogic’s chief economist. “There are two ways to reduce negative equity,” Fleming said in a telephone interview today. “Price appreciation or disposition, which means people getting taken out of their homes. At the moment, there’s more disposition.” A further decline in prices threatens to increase the number of homeowners with negative equity, Fleming said. U.S. home values will probably drop $1.7 trillion this year after rising foreclosures and the expiration of buyer tax credits that boosted demand early in the year, Zillow Inc. said Dec. 9. More than $1 trillion of the drop came in the second half, according to Zillow, a Seattle-based real estate data company. (Bloomberg)
Wednesday, December 8, 2010
Mortgage Update
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.
Wednesday, December 08, 2010
More heavy selling this morning after rates continued to increase yesterday. Yesterday the 10 yr and mortgage rates jumped 20 basis points and mortgages up 15 basis points. Nothing directly new overnight; interest rates are increasing ion Europe, in Japan and China with the US leading the way higher. Some of the recent increases in rates is likely tied to year end adjustments by investors but the majority of it seems to have eluded analysts and economists. Very unusual that there seems to be no one stepping up to try and put some reasoning behind the spike in rates. It is as if it is happening with shock and awe, no consensus or any particular explanation.
The increase in rates recently, in our opinion, is a final capitulation that interest rates had declined to unsustainable levels. Driven now by attention turning to central banks and countries in Europe that are teetering on defaults. In the US markets see the Fed's $600B QE 2 as a waste of money; the Fed's rationale is and was totally wrong. The Fed's balance sheet has ballooned to over $2T and approaching $3T as Bernanke tries to help the economy grow; it hasn't worked and won't work. Bernanke appears to have made a huge mis-calculation that buying $600B of treasuries would lower interest rates, since Nov 4th when the QE was put in place the 10 yr note has increased 72 basis points and mortgage rates up about the same. Last week alone 30 yr mtg rates increased 10 basis points and are 100 basis points higher than the lows six weeks ago. The markets are saying enough.
The most recent blow to the bond markets; Obama and Republicans adding another $700B to the US budget deficit by planning to cut payroll taxes by 2.0% next year. On the surface it sounds good, more money in the pockets of consumers to spend and lift the economy out of its very anemic growth. No one wants the economy to stall but adding more to the deficit is telling the world the US is still not close to being serious in dealing with US budget deficits. The end of the line of giving the US a pass on exploding deficit spending appears to have arrived.
The MBA today released its Weekly Mortgage Applications Survey for the week ending December 3, 2010. The Market Composite Index, a measure of mortgage loan application volume, decreased 0.9% on a seasonally adjusted basis from one week earlier. The Refinance Index decreased 1.4% from the previous week. This is the fourth weekly decrease for the Refinance Index which reached its lowest level since June 2010. The seasonally adjusted Purchase Index increased 1.8% from one week earlier. This is the third weekly increase for the Purchase Index which reached its highest level since early May 2010. The four week moving average for the seasonally adjusted Market Index is down 8.0%. The four week moving average is up 2.8% for the seasonally adjusted Purchase Index, while this average is down 10.9% for the Refinance Index. The refinance share of mortgage activity increased to 75.2% of total applications from 74.9% the previous week. The average contract interest rate for 30-year fixed-rate mortgages increased to 4.66% from 4.56%, with points decreasing to 0.95 from 0.96 (including the origination fee) for 80% loans. The average contract interest rate increased for the fourth consecutive week and is at the highest level since July 2010. The average contract interest rate for 15-year fixed-rate mortgages increased to 3.98% from 3.91%, with points increasing to 0.97 from 0.88 (including the origination fee) for 80% loans. The average contract interest rate increased for the second week in a row and is at the highest level since early September 2010.
At 1:00 this afternoon Treasury will auction $21B of 10 yr notes; yesterday the 3 yr was considered OK overall but it didn't meet the demand that many were expecting, adding a little to the strong sell off yesterday on the 10 yr.
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Wednesday, December 08, 2010
More heavy selling this morning after rates continued to increase yesterday. Yesterday the 10 yr and mortgage rates jumped 20 basis points and mortgages up 15 basis points. Nothing directly new overnight; interest rates are increasing ion Europe, in Japan and China with the US leading the way higher. Some of the recent increases in rates is likely tied to year end adjustments by investors but the majority of it seems to have eluded analysts and economists. Very unusual that there seems to be no one stepping up to try and put some reasoning behind the spike in rates. It is as if it is happening with shock and awe, no consensus or any particular explanation.
The increase in rates recently, in our opinion, is a final capitulation that interest rates had declined to unsustainable levels. Driven now by attention turning to central banks and countries in Europe that are teetering on defaults. In the US markets see the Fed's $600B QE 2 as a waste of money; the Fed's rationale is and was totally wrong. The Fed's balance sheet has ballooned to over $2T and approaching $3T as Bernanke tries to help the economy grow; it hasn't worked and won't work. Bernanke appears to have made a huge mis-calculation that buying $600B of treasuries would lower interest rates, since Nov 4th when the QE was put in place the 10 yr note has increased 72 basis points and mortgage rates up about the same. Last week alone 30 yr mtg rates increased 10 basis points and are 100 basis points higher than the lows six weeks ago. The markets are saying enough.
The most recent blow to the bond markets; Obama and Republicans adding another $700B to the US budget deficit by planning to cut payroll taxes by 2.0% next year. On the surface it sounds good, more money in the pockets of consumers to spend and lift the economy out of its very anemic growth. No one wants the economy to stall but adding more to the deficit is telling the world the US is still not close to being serious in dealing with US budget deficits. The end of the line of giving the US a pass on exploding deficit spending appears to have arrived.
The MBA today released its Weekly Mortgage Applications Survey for the week ending December 3, 2010. The Market Composite Index, a measure of mortgage loan application volume, decreased 0.9% on a seasonally adjusted basis from one week earlier. The Refinance Index decreased 1.4% from the previous week. This is the fourth weekly decrease for the Refinance Index which reached its lowest level since June 2010. The seasonally adjusted Purchase Index increased 1.8% from one week earlier. This is the third weekly increase for the Purchase Index which reached its highest level since early May 2010. The four week moving average for the seasonally adjusted Market Index is down 8.0%. The four week moving average is up 2.8% for the seasonally adjusted Purchase Index, while this average is down 10.9% for the Refinance Index. The refinance share of mortgage activity increased to 75.2% of total applications from 74.9% the previous week. The average contract interest rate for 30-year fixed-rate mortgages increased to 4.66% from 4.56%, with points decreasing to 0.95 from 0.96 (including the origination fee) for 80% loans. The average contract interest rate increased for the fourth consecutive week and is at the highest level since July 2010. The average contract interest rate for 15-year fixed-rate mortgages increased to 3.98% from 3.91%, with points increasing to 0.97 from 0.88 (including the origination fee) for 80% loans. The average contract interest rate increased for the second week in a row and is at the highest level since early September 2010.
At 1:00 this afternoon Treasury will auction $21B of 10 yr notes; yesterday the 3 yr was considered OK overall but it didn't meet the demand that many were expecting, adding a little to the strong sell off yesterday on the 10 yr.
Thursday, December 2, 2010
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, December 02, 2010
Treasuries and mortgages opened weaker again today following the huge selling yesterday on belief the ECB would continue to support those economies facing possible debt defaults. After Ireland required a bailout Spain and Portugal moved into the queue for their turn. Yesterday the ECB head Jean Claude Trichet was quoted that he would do what is necessary to keep sovereign debt defaults from occurring. Overnight the ECB meeting didn't come out with a US style QE but the bank said will delay its withdrawal of stimulus measures. Spanish bonds and U.K. gas gained, while U.S. Treasuries fell. Trichet said the ECB will keep offering banks unlimited loans through the first quarter. Seven-day, one-month and three- month operations will be tied to the ECB’s benchmark rate, which it left unchanged at 1.0% today. While a step in the correct direction, the bank fell short of what markets thought yesterday when the US stock market rallied and US interest rates increased the most in one day this year.
At 8:15 this morning the 10 yr note rate traded at 3.01% and mortgage prices were down 15/32 (.47 bp). By 9:00 however some improvement; the 10 yr yield fell back to 2.98%, unchanged from yesterday's close and mortgage prices at 9:00 still lower, down 6/32 (.18 bp). Technically the bond, stock and mortgage markets may have over-reacted and prices are approaching near term oversold momentum on most of the oscillators we track. After a move like we had yesterday we should expect increased volatility; early today the stock index futures were looking better but by 9:00 the DJIA futures were hugging unchanged levels.
At 8:30 weekly jobless claims were reported up 26K to 436K, continuing claims at 4.27 mil frm 4.217 mil last week. Claims data slightly worse than expected (forecasts were for an increase of 16K) but still the total weekly filings remain under 450K that many had seen as a plus in the employment sector. We don't find any particular substance to the 450K level, traders seem to like it though. Employment in the US is still hardly able to meet the increase in the number of new entrants to the job sector.
That the ECB and EU appear ready to deal with debt problems in Europe took the safety trades into US bond markets away yesterday that had provided support the previous three days is one element sending the US rates higher, however we don't hold that it was the center piece for increased rates. Economic data recently has been beating forecasts implying the economy is in fact slowly recovering, yesterday the ADP people said non-farm private jobs increased by 93K, almost double what was thought. The litany of slightly better data points in the US and China recently has put the nail in the coffin for continued low rates at the moment. Also recall that the Fed has made it clear it wants US inflation higher; the combo of better economic outlook and increased inflation levels increased rates; the likelihood that interest rates will decline now is wishful thinking, rates have seen their best levels. We hear a lot of consternation over the jump in mortgage rates, what we should focus on is that mortgage rates are still at historic low levels. Expecting mortgage rates to fall to 4.00% or lower was never in our thinking, now it is not in anyone's' thoughts.
Oct pending home sales out at 10:00, expected down 0.5%, were up a solid 10.5%; pending sales are contracts signed but not yet closed. Yr/yr however pending sales are down 20.5% compared to Oct 2009. The initial reaction added a little gain in stock indexes but no changes in the bond and mortgage markets already weaker.
Tomorrow is employment day; estimates of 145K non-farm private jobs and the unemployment rate unchanged at 9.6%. Trade today should be a lot less hectic than yesterday's strong moves. We are not expecting much change in the rate markets or in the equity markets today ahead of employment tomorrow.
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, December 02, 2010
Treasuries and mortgages opened weaker again today following the huge selling yesterday on belief the ECB would continue to support those economies facing possible debt defaults. After Ireland required a bailout Spain and Portugal moved into the queue for their turn. Yesterday the ECB head Jean Claude Trichet was quoted that he would do what is necessary to keep sovereign debt defaults from occurring. Overnight the ECB meeting didn't come out with a US style QE but the bank said will delay its withdrawal of stimulus measures. Spanish bonds and U.K. gas gained, while U.S. Treasuries fell. Trichet said the ECB will keep offering banks unlimited loans through the first quarter. Seven-day, one-month and three- month operations will be tied to the ECB’s benchmark rate, which it left unchanged at 1.0% today. While a step in the correct direction, the bank fell short of what markets thought yesterday when the US stock market rallied and US interest rates increased the most in one day this year.
At 8:15 this morning the 10 yr note rate traded at 3.01% and mortgage prices were down 15/32 (.47 bp). By 9:00 however some improvement; the 10 yr yield fell back to 2.98%, unchanged from yesterday's close and mortgage prices at 9:00 still lower, down 6/32 (.18 bp). Technically the bond, stock and mortgage markets may have over-reacted and prices are approaching near term oversold momentum on most of the oscillators we track. After a move like we had yesterday we should expect increased volatility; early today the stock index futures were looking better but by 9:00 the DJIA futures were hugging unchanged levels.
At 8:30 weekly jobless claims were reported up 26K to 436K, continuing claims at 4.27 mil frm 4.217 mil last week. Claims data slightly worse than expected (forecasts were for an increase of 16K) but still the total weekly filings remain under 450K that many had seen as a plus in the employment sector. We don't find any particular substance to the 450K level, traders seem to like it though. Employment in the US is still hardly able to meet the increase in the number of new entrants to the job sector.
That the ECB and EU appear ready to deal with debt problems in Europe took the safety trades into US bond markets away yesterday that had provided support the previous three days is one element sending the US rates higher, however we don't hold that it was the center piece for increased rates. Economic data recently has been beating forecasts implying the economy is in fact slowly recovering, yesterday the ADP people said non-farm private jobs increased by 93K, almost double what was thought. The litany of slightly better data points in the US and China recently has put the nail in the coffin for continued low rates at the moment. Also recall that the Fed has made it clear it wants US inflation higher; the combo of better economic outlook and increased inflation levels increased rates; the likelihood that interest rates will decline now is wishful thinking, rates have seen their best levels. We hear a lot of consternation over the jump in mortgage rates, what we should focus on is that mortgage rates are still at historic low levels. Expecting mortgage rates to fall to 4.00% or lower was never in our thinking, now it is not in anyone's' thoughts.
Oct pending home sales out at 10:00, expected down 0.5%, were up a solid 10.5%; pending sales are contracts signed but not yet closed. Yr/yr however pending sales are down 20.5% compared to Oct 2009. The initial reaction added a little gain in stock indexes but no changes in the bond and mortgage markets already weaker.
Tomorrow is employment day; estimates of 145K non-farm private jobs and the unemployment rate unchanged at 9.6%. Trade today should be a lot less hectic than yesterday's strong moves. We are not expecting much change in the rate markets or in the equity markets today ahead of employment tomorrow.
Wednesday, December 1, 2010
Rate Lock Advisory - Wednesday Dec. 1st
Wednesday’s bond market has opened down sharply following an early surge in stock prices. Stocks are reacting well to a couple of factors including good news about China’s economy and favorable data here. The Dow is currently up 189 points while the Nasdaq has gained 50 points. The bond market is currently down 31/32, which will likely push this morning’s mortgage rates higher by approximately .375 - .500 of a discount point.
The Labor Department reported early this morning that 3rd quarter worker productivity rose at an annual rate of 2.3%, up from the preliminary estimate of 1.9%. This was slightly lower than forecasts of 2.4% and has not had much of an impact on today’s trading or mortgage pricing.
November’s manufacturing index from the Institute for Supply Management (ISM) was the important data of the morning. It showed a reading of 56.6 that was a little higher than forecasts. This was a decline from October’s reading, but was the 16th consecutive month above 50.0 that indicates manufacturing sector growth. The difference between forecasts and the actual reading is not enough to cause stocks and bonds to move this much. I believe that the stock rally has pulled funds away from bonds more than today’s data has caused concerns about economic growth. The good news is that if this is the case, today’s sell-off on bonds could be an overreaction and only temporary.
The Federal Reserve will release their Beige Book at 2:00 PM ET today. This report, which is named simply after the color of its cover, details economic conditions by region. That information is relied on heavily during the FOMC meetings when determining monetary policy, so its results can influence bond trading and mortgage rates if it shows any significant surprises. More times than not though, this report does not cause afternoon revisions to mortgage rates. There is no particular reason to believe this release will be any different, however, there is the possibility of it doing so.
Tomorrow’s only semi-relevant data is the weekly unemployment numbers from the Labor Department. They are expected to announce that new claims for unemployment benefits rose to 422,000 last week. This data usually does not have a much of an impact on the markets or mortgage rates unless it shows a significant variance from forecasts. Last week’s release of the previous week’s numbers did just that. The unexpected drop of 34,000 new claims pointed towards employment sector strength and helped bond prices to drop sharply ahead of the Thanksgiving holiday. If we see another surprise decline or a large increase in new claims, this data may influence mortgage rates tomorrow, especially since it is the day’s only data. The higher the number of new claims, the better the news for bonds and mortgage pricing.
Friday brings us the almighty monthly Employment report. It is arguably the single most important report we see each month, to it has the potential to cause plenty of volatility in the markets. With no monthly or quarterly data scheduled for release tomorrow, we may see bond traders take a defensive approach during trading tomorrow. This could lead to a little pressure in bonds, probably during afternoon hours. However, if Friday’s report gives is much weaker than expected results, we should see the bond market rebound after it is released. That could easily erase this morning’s increase to mortgage rates.
If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Float if my closing was taking place between 8 and 20 days... Float 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.
The Labor Department reported early this morning that 3rd quarter worker productivity rose at an annual rate of 2.3%, up from the preliminary estimate of 1.9%. This was slightly lower than forecasts of 2.4% and has not had much of an impact on today’s trading or mortgage pricing.
November’s manufacturing index from the Institute for Supply Management (ISM) was the important data of the morning. It showed a reading of 56.6 that was a little higher than forecasts. This was a decline from October’s reading, but was the 16th consecutive month above 50.0 that indicates manufacturing sector growth. The difference between forecasts and the actual reading is not enough to cause stocks and bonds to move this much. I believe that the stock rally has pulled funds away from bonds more than today’s data has caused concerns about economic growth. The good news is that if this is the case, today’s sell-off on bonds could be an overreaction and only temporary.
The Federal Reserve will release their Beige Book at 2:00 PM ET today. This report, which is named simply after the color of its cover, details economic conditions by region. That information is relied on heavily during the FOMC meetings when determining monetary policy, so its results can influence bond trading and mortgage rates if it shows any significant surprises. More times than not though, this report does not cause afternoon revisions to mortgage rates. There is no particular reason to believe this release will be any different, however, there is the possibility of it doing so.
Tomorrow’s only semi-relevant data is the weekly unemployment numbers from the Labor Department. They are expected to announce that new claims for unemployment benefits rose to 422,000 last week. This data usually does not have a much of an impact on the markets or mortgage rates unless it shows a significant variance from forecasts. Last week’s release of the previous week’s numbers did just that. The unexpected drop of 34,000 new claims pointed towards employment sector strength and helped bond prices to drop sharply ahead of the Thanksgiving holiday. If we see another surprise decline or a large increase in new claims, this data may influence mortgage rates tomorrow, especially since it is the day’s only data. The higher the number of new claims, the better the news for bonds and mortgage pricing.
Friday brings us the almighty monthly Employment report. It is arguably the single most important report we see each month, to it has the potential to cause plenty of volatility in the markets. With no monthly or quarterly data scheduled for release tomorrow, we may see bond traders take a defensive approach during trading tomorrow. This could lead to a little pressure in bonds, probably during afternoon hours. However, if Friday’s report gives is much weaker than expected results, we should see the bond market rebound after it is released. That could easily erase this morning’s increase to mortgage rates.
If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Float if my closing was taking place between 8 and 20 days... Float 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.
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