Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Finally the bond and mortgage markets may get a little relief from the unrelenting selling that has driven interest rates higher over the last nine sessions. At 8:30 weekly claims were expected to have increased 7K, as reported claims shot up 32K to 360K. The increase takes weekly claims to the highest in six weeks and adds another layer to the debate that is dominating these days; what really is the condition in the employment sector. The increase caught many by surprise and heightens the concerns about what state the economy is really in. The four-week moving average, a less volatile measure than the weekly figures, rose to 339,250 last week from 338,000. The data in March and February was weaker than estimates, some of the April data also weaker. Then the April employment report was so strong compared to estimates the bond and mortgage markets, as well as a sea change that the Fed would likely begin taking the punch bowl away sooner than thought. The 10 yr yield spiked frm 1.63% to 1.97% yesterday and mortgage rates increased 18 bp in nine days. Today’s claim’s rocked the boat once more, and claims were not the only surprise today. April housing starts were widely thought to have declined 6.4%, starts as reported declined 16.5%; permits were expected to have increased 5.0%, permits jumped 14.3% the highest permit level since June 2008. The decline in starts was the most since Feb 2011 and Mach starts were revised lower frm the original release. Construction of single-family houses fell 2.1% to a 610,000 rate from 623,000; multi-family starts declined 38.9%. The somewhat positive take-away is that the increase in permits suggests starts will increase in the months ahead. April CPI declined 0.4%, the core (ex food and energy) +0.1%. These days inflation reports are confirming inflation is not on anyone’s’ radar. The CPI decline is the biggest since Dec 2008, CPI was -0.2% in March. Yr/yr CPI increased 1.1%, the weakest since Nov 2010. The core yr/yr +1.7%, the least since June 2011. At 9:30 the DJIA opened -5, NASDAQ +3, S&P -2; the 10 yr note at 1.91% -3 bp and 30 yr MBS price +26 bps. The final data point today; at 10:00 the May Philly Fed business index. Forecasts were for the index to have increased to 2.2 frm 1.3. The overall index declined to -5.2, any number under 50 is considered contraction. The weaker report matches the Empire State manufacturing index released yesterday that also fell under zero to -1.4. Manufacturing data recently is clearly showing a slow down; April industrial production yesterday -0.5% and April factory use declined to 77.8% frm 78.5% in March. The Philly report added a little more selling in the stock market on the release. A little improvement in the bond market this morning and MBS prices are better. The recent trading in the MBS market has started stronger each day but has succumbed to selling as the days rolled on. So far today the pattern remains the same. The stock market so far has held well in the face of the weaker data and increase in weekly claims. As noted yesterday, the equity markets are currently in a win-win situation; weaker economic data keeps the Fed in play, stronger data fuels more positive economic outlooks. Meanwhile the swift spike in rates is providing an increasing view that the lows in the US and global bond markets have been achieved and the direction now is higher rates ahead. We have long said that the US bond market would find it extremely difficult to match the lows in rates seen last year and the low this year at 1.56% for the 10 yr note.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com April PPI was down 0.7%; the core (ex food and energy) +0.1%; both as expected and increasingly showing deflation is becoming an issue. The Fed’s target rate of 2.0% to 2.5% for inflation is lagging, annual inflation +1.8%. The NY Empire State manufacturing index for Mat was expected at +3.75, it declined to -1.4; any reading under zero is considered contraction. April industrial production was expected -0.2%, it declined 0.5%; April factory use was expected at 78.3%, use fell to 77.8% and March use was revised frm 78.5% to 78.3%. In Europe Q1 GDP was weaker than expected, at -0.2% after a 0.6% decline in Q4 2012; estimates were for a decline of 0.1%. The German economy expanded 0.1 percent in the first quarter, while France contracted 0.2 percent and Italian output dropped 0.5 percent. Euro-area unemployment has reached a record 12.1 percent. The ECB forecasts that the euro economy will shrink 0.5 percent this year. That compares with the European Commission’s projection of a 0.4 percent contraction. The reports this morning, here and in Europe, were weaker than expected; that has been the general case for the past two months with a few exceptions that were better, like the April employment report. Most of the economic measurements since March have been somewhat disappointing, at least from the perspective of estimates vs. actuality. Does the fact that the US and global economies are struggling have any impact on US and global stock markets? A resounding NO! This morning the 10 yr note eked out a little improvement, down 2 bp from yesterday’s close; the stock indexes opened down just 6 points, 30 yr MBS price at 9:30 +34 bp after the 37 bp loss yesterday. At 10:00 the final data today; the May NAHB housing market index was expected at 44 frm 41 in April it was right on at 44. The Federal annual budget deficit is shrinking. According to the CBO the 2013 fiscal year that ends on Sept 30th is now projected at -$642B , down from its estimate of -$845B three months ago. After 4 yrs of annual deficits over $1 trillion the decline takes away much of the budget cut debates that has locked Congress up tight. Higher tax revenues and large dividend payments frm Fannie and Freddie are combining to bring the deficit down. Earlier this morning the MBA reported last week’s applications. A big jump in rates pulled down mortgage activity sharply in the May 10 week. The purchase index moved down from multi-year highs, falling 4.0%, with the refinance index showing an even steeper decline, down 8.0%. The average rate for 30-year fixed mortgages with conforming balances ($417,500 or less) rose a very steep 12 basis points in the week to 3.67%. Application activity, including purchase activity which is still near multi-year highs, is volatile week to week, but this week's dip is severe and raises the risk that further increases in mortgage rates could hold down seasonal activity in the housing sector. Technically speaking the stock market is very overbought now and the 10 yr and MBSs very oversold; that though isn’t making a lot of difference so far. In markets such as these when emotions are the drivers, technicals take a back seat. Not many care that the spike in rates has been so severe that normally there should be some correction, or that the climb in stocks isn’t based on much economic improvement but Fed policy. It is all about getting out of fixed income investments that won’t produce any real return and into the only investment that is sky-rocketing---stocks. In situations like these the technicals are less important until something rocks the sentiments.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Treasuries and mortgages started a little better this morning; the stock indexes were weaker but got a slight boost on comments frm a big investor, he said the stock market still has a lot of room to increase and essentially commented that any lessening of the Fed’s QE should not negatively affect equity markets. There’s $400B looking for a place to invest and markets shouldn’t worry about the Federal Reserve tapering its stimulus program, David Tepper, co-founder and owner of Appaloosa Management, said in an interview on CNBC. There is no key economic data on the schedule; April import prices declined 0.5% as expected but export prices, thought to be -0.1% fell 0.7%. Export prices fell 0.5% in March; prices falling add more to the view inflation is no longer a concern. Tomorrow April PPI and Thursday April CPI will add more to the disinflation belief that has filtered through all markets recently. The lack of inflation concerns is to some extent a relief for fixed income investors, although there really hasn’t been much concern about it within markets; it has been mostly media hype. With inflation under control, monetary officials from the Federal Reserve to the European Central Bank have room to do more to stoke expansion without creating jumps in prices. On the opposite side of the argument over inflationary outlooks; PIMCO’s Mohammad El-Erian said he leans toward the possibility that it will be higher and less stable over the next three to five years. Markets don’t care much about outlooks three to five years away however. PIMCO, according to Mohammad El-Erian, is shying away frm risky assets (stocks) as it sees a growing disconnect between financial markets and the global economy. In a report posted today on PIMCO's website, El-Erian said the world economy is undergoing a “stable disequilibrium” that could end in financial turmoil, greater social tensions and beggar-thy-neighbor national policies. Egged on by “hyperactive” central banks, investors are playing down the dangers and pushing financial markets higher. El-Erian, who popularized the phrase “new normal” to describe an era of lackluster growth, said economies are nearing a fork “where the current road eventually ends, giving way to one of two contrasting outcomes” -- a fast, sustainable expansion or a slowing world economy with countries “competing for a smaller pie.” At 9:30 the DJIA opened +5, NASDAQ +5, S&P +2; the 10 yr note at 9:30 +5/32 ( 15 bp) at 1.90% with 30 yr MBSs +18 bp. So far this morning the 10 and MBSs are holding minor price gains after the huge and swift increase in rates since the April employment report was released on 5/3. The bond and mortgage markets becoming oversold may attract investors with inflation data showing no inflation to worry about. That said, the nature and speed in which the bond and mortgage markets have been subjected to recently is disturbing about the outlook for rates. One employment report started the run; the Fed is still easing and other than a lot of discussion the Fed appears committed to keeping the QEs intact.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Right out of the box this morning, April retail sales were better than forecasts. Sale up 0.1% on estimates of a decline of 0.3%; ex autos -0.1% as expected. Sales in the U.S. rose in April, reflecting broad-based gains that may ease concern consumers are holding back. The 0.1% gain followed a 0.5% drop in March, Prior to 8:30 the 10 yr was up 2/32 at 1.89%, by 9:00 at 1.93%. US stock indexes were slightly weaker at 9:00 but no support in the rate markets. Early trade in the mortgage market saw another strong selling binge; at 9:00 30 yr FNMAs -28 bp frm the close on Friday. The interest rate markets continue to reflect the possible end to the 30 yr old bond market rally that started in 1983 with 30 yr mortgage rates at 17% and the 10 yr note at 18% (bank prime rate at 20%). The action in the rate markets that was triggered by the strong April employment report has not been able to achieve even a modest bounce after rocketing the 10 yr frm an intraday low of 1.63% to 1.93% last Friday before ending the week at 1.90%. Mortgage rates up about 15 basis points in rates last week. Japan’s plan to weaken its currency is working against the US bond market; as the yen falls there is less demand for US bonds. Every technical indicator on the bond and mortgage markets is now solidly bearish; last Friday in a Tweet PIMCO co-CEO and bond king Bill Gross declared the end to the declining interest rate rally, even after a month ago Gross said he was increasing PIMCO’s investment in US notes and bonds. Most likely Gross was looking at the magnitude and speed in which rates rose last week. The current move to exit long positions in the bond market that had built over the last few months on bets prices would increase and yields decline is driving rates to levels we were not expecting a couple of weeks ago. The race to the exit has done severe technical damage to the bullish outlook that had prevailed for months based mainly on the Fed continuing its easing and thoughts the economy is slowing has rattled fixed income markets and increased the view the end has arrived. The Fed hasn’t implied anything that it is about to end its monthly buying of treasuries and mortgages, so far there isn’t any evidence that the Fed will stop soon. Nevertheless, the rate markets are seriously wounded now. Speculative long positions or bets prices will rise, outnumbered short positions by 37,956 contracts on the Chicago Board of Trade. Net-long positions fell by 94,088 contracts, or 71%, from a week earlier, resulting in the biggest reduction in net longs since March. Hedge funds decreased their long positions in 10 yr note futures at the end of last week according to the CFTC. At 9:30 the DJIA opened -40, NASDAQ -5, S&P -4. 10 yr note 1.92% +2 bp and 30 yr MBSs -18 bps. So far this morning the rate markets have continued the high intraday volatility; at 9:00 30 yr MBSs -28, at 9:30 -18, the 10 yr climbed as high as 1.94% early, slightly better at 9:30. March business inventories, expected up 0.3% were unchanged, Feb inventories originally reported +0.1% was revised to unchanged. No reaction to the report. No matter how we look at it, the speed and depth of the selling in the bond and mortgage market clearly states investors and traders are unloading a lot of the long positions held on ideas that rates would decline to re-test the lows at 1.40% on the 10 yr note seen last year. No matter how we try to paint a more optimistic outlook, we just kind find anything now that provides any near term evidence of a rebound. The momentum oscillators we monitor measuring the speed and magnitude in determining overbought or oversold are approaching over-extended levels but still not yet there yet. There will be a rebound, but from what levels? As we continue to remind; do not fight the tape here. This market at present is very bearish.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com It is the first Friday of the month and its employment day. Always a volatile report, today no different. April unemployment declined to 7.5% frm 7.6% last month, markets expected unchanged at 7.6%. Non-farm jobs, expected +153K, increased to 165K; after Wednesday’s ADP miss on job growth many traders were expecting the BLS report to be less not more. Private jobs increased 176K, about right on the early estimates before the ADP data. The unemployment rate is the lowest since Sec 2008. Not only a better than expected April report but March and Feb data were revised higher; Feb jobs originally at +258K revised to +332K, March jobs originally at +88K revised to +138K. Temporary-help services added 30,800 workers to payrolls in April, the most since February 2012. Other industries adding jobs included leisure and hospitality, retail trade and education and health services. Today’s employment report also showed average hourly earnings rose 1.9% from a year earlier to $23.87. The number of employees not working a full week rose to 27.5 million from 27.4 million. Some 278,000 more employees were working part-time for economic reasons. The workweek shrank to 34.4 hours for all U.S. employees on average from 34.6 hours in March. Part of the reason may be reflected in an increase in part-time employment. The report is hyping the bulls this morning, it is the wild and wooly employment report that is one month of data subject to future revisions. Although better, the number of workers is still very low. That said in the current environment even weak news is ignored and when there is better news than expected look out; investors and traders keep pushing the stock market higher. It is early with a lot of trade left today. Look for some easing and backing off frm the strong early trade in equity markets and early selling in the bond and mortgage markets. The stronger employment report did what you would expect, sent the 10 yr note yield up and mortgage prices down. At 9:30 ahead of two more reports at 10:00 had the DJIA open +81, NASDAQ +31, S&P +11. The 10 yr at 9:30 -21/32 (62 bp) to 1.70% +7 bp frm yesterday’s close. 30 yr MBS price -40 bp frm yesterday’s close. At 10:00 the April ISM services sector index, expected at 54.0 frm 54.4 in March, as reported the index fell to 53.1 the lowest since July 2012. Yet another weaker than thought data point that may temper a little the strong employment data. Also at 10:00 March factory orders were also weaker than expected, -4.0% against -3.0% forecasts. The DJIA hitting 15K this morning, interest rates up. The 10 yr yield jumped to its 20 day average at 1.71%, up 8 bp frm yesterday’s close. We noted earlier this week that market volatility would increase, we are seeing it today. Technically the note should hold at its chart support at 1.75%. Through the week we thought the 10 would eventually test 1.56%, the low set last Dec; we still believe it will be achieved, however after today’s employment report has temporarily lessened the recent sentiment that the economy was cooling will take time and more data to re-establish the bullish trend. The increase in treasury rates this morning erased all the decline over the last two weeks, in less than one hour. For the moment we will continue to recommend floating, however the employment report this morning has put a big damper on the bullish outlook for the time being.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Weekly jobless claims at 8:30 were expected to be up about 7K, as reported claims fell 18K to 324K. Claims are the lowest in over five years. The reaction juiced the stock market higher and put a slight decline in treasuries; MBS prices took the major blunt from the data. Claims last week the lowest since January 2008. The take away; employers are not firing as much, but equally are not hiring either. Too much uncertainty prevails about government regulations, health care costs and still an uneven consumer spending sector. With the exception of a one or two weeks claims in the last couple of months have been registering below 350K. At 9:00 30 yr MBS price -12 bp, the 10 yr note at 1.66% +3 bps. Other data at 8:30; Q1 productivity expected up 1.3%, was +0.7%. Q1 unit labor costs expected up 0.1%, increased 0.5%. The March US trade deficit a little better than thought at -$38.8B. None of these reports had any impact on markets. The ECB cut its base rate to 0.50% frm 0.75% as widely expected. Europe’s economies are struggling, no secret about that. Europe’s stock markets improved on the news. At 0.50% it is the lowest on record; Draghi said last month that he stood ready to act if Europe’s economic outlook worsened, inflation plunged, economic confidence slumped and unemployment rose; all of which occurred in the last month. Today’s cut, the first since July last year, takes the ECB closer to exhausting its conventional policy tools, raising the prospect of a negative deposit rate or new non-standard measures. Now that all the scheduled data is out for the day, the focus through the rest of the day will be tomorrow’s employment report. March non-farm jobs were the weakest in over a year, up just 88K. The current estimates (guesses) are for jobs to have increased 153K in April and private jobs up 175K. Likely though the whisper numbers in the pits are for less gains after the ADP data on Wednesday was lower than forecasts. The unemployment rate that gets the headlines, although a bogus number in our view, is expected at 7.6% unchanged from March. People dropping out from looking for work are not considered in the unemployment percentage; add those in part time jobs, temp jobs and those working at jobs at lesser skill levels and the real unemployment level is close to 15%. That said, everyone knows it so the most important data is the number of jobs created, not the unemployment percentage. At 9:30 the DJIA opened +44, NASDAQ +8, S&P +4; the 10 yr note -2/32 (6 bp) at 1.64% +1 bp. 30 yr MBS price at 9:30 -11 bp frm yesterday’s close. The remainder of the day should rather quiet ahead of tomorrow’s April employment report. The monthly report is notorious for its volatility, most of the time the data surprises in either direction. March job gains were so weak that the 10 yr note rate fell 6 bp and MBS prices increased. It is a safe bet that tomorrow will present another surprise, what we and most don’t know is in what direction. Technical remain bullish for bonds and mortgage markets; even a stronger than expected employment report won’t likely change the longer term outlook.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com April ADP private jobs data out at 8:15; one more data point that adds to our view the economy is slowing and the Fed has no choice but to keep pumping money into the system just to keep the economy frm becoming even less robust. ADP was widely expected to report private jobs increased 155K, that in itself is a rather anemic improvement; ADP said private jobs were up just 119K. In Mach ADP said private jobs increased 158K, today the March growth was revised to 131K, a decline of 27K. There was almost no increase in jobs outside of the service industry that accounted for 113K of the 119K reported. No matter how anyone tries to spin it, the employment sector is not growing, not even able to match new job entrants in the labor force. So far the Fed’s QEs, based on employment, is not showing any progress. Businesses fear health care costs, potential tax increases, a soft retail sector, weak consumer spending and increasing regulations being generated almost daily from Washington. By 9:00 there was little market reaction to the softer job growth; the stock indexes hardly moved, the 10 yr dropped one basis point to 1.66% and 30 yr MBSs up 10 bps. Earlier this morning the MBA mortgage applications for last week. Total mortgage applications increased 1.8% from one week earlier. The Refinance Index increased 3% from the previous week and is at its highest level since the week ending January 18, 2013. The seasonally adjusted Purchase Index decreased 1.4% from one week earlier. The refinance share of mortgage activity was unchanged at 75% of total applications from the previous week. The adjustable-rate mortgage (ARM) share of activity was unchanged at 4% of total applications. The HARP share of refinance applications increased from 32% last week to 34% this week, the highest level since MBA began tracking HARP applications in February 2012. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.60%, the lowest rate since December 2012, from 3.65%, with points decreasing to 0.30 from 0.41 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) increased to 3.80% from 3.75%, with points decreasing to 0.29 from 0.37 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.34% from 3.37%, with points decreasing to 0.37 from 0.64 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages decreased to 2.84%, the lowest rate since December 2012. Treasury announced the amounts for next week’s refunding auctions; there was some thinking that Treasury would not need to borrow as much with tax revenues increasing with the increase in payroll taxes. Not the case; Treasury will auction more than previous auctions, $32B of 3 yr notes, $24B of 10 yr notes and $16B of 30 yr bonds. 10 yr and 30 yr both up an additional $3B frm last month’s auctions. At 9:30 the DJIA opened -40, NASDAQ -1, S&P -3; the 10 yr note 1.64% -3 bp and 30 yr MBS prices at 9:30 +15 bps. Two more data reports at 10:00; March construction spending, expected up 0.6%, another huge miss, down 1.7%. The April ISM manufacturing index was expected at 51.0 it fell to 50.7; still above 50 but yet another disappointment. The data pushed stock indexes down more and the 10 yr note at 1.63% -4 bp today; 30 yr MBSs a little better than at 9:30. At 2:00 this afternoon the FOMC will release its policy statement. Given the continuing slowdown in the economy based on all the data recently, the Fed is likely to confirm its commitment to QE purchasing $85B a month of MBSs and long dated treasuries along with re-investing the pay downs on the large MBS portfolio the Fed holds. There will be no Bernanke press conference after the policy statement. Everything still a go for lower interest rates. If we see more weak data as has been the case for the last month it is very likely the 10 yr note yield could run to its lowest on record at 1.56%. Not that far away at the moment.