Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Market confusion and uncertainty continue to play out in the financial markets. Yesterday stock indexes fell and the treasury and mortgage markets improved, this morning the stock indexes better and treasuries under some pressure. With increasing concerns that the Fed will begin tapering its easing’s and mixed economic outlooks based on data that hasn’t shown much growth, investors are still being “forced” into equity markets as the Fed continues to keep interest rates so low there is nowhere else to go. The bond and mortgage markets feeling the pain as rates increase, however it was inevitable rates would increase, they really could not go lower frm levels seen earlier this year. At 9:30 the DJIA opened +100 after declining 116 yesterday, NASDAQ +20, S&P +8. The 10 yr at 2.22% at 9:30 up 3 bp and 30 yr MBS price down 11 bps frm yesterday’s close. More mixed data this morning, for the first time in a month weekly mortgage applications have increased frm the previous week. Mortgage applications increased 5.0% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 7, 2013. The Refinance Index increased 5.0% from the previous week. Despite the increase in the refinance index last week, the level is still 11% lower than two weeks prior and 36% lower than the recent peak at the beginning of May. The seasonally adjusted Purchase Index increased 5% from one week earlier. The refinance share of mortgage activity increased to 69% of total applications from 68% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 7% of total applications. The HARP share of refinance applications fell from 32% the prior week to 29%. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 4.15%, the highest rate since March 2012, from 4.07%, with points increasing to 0.48 from 0.35 (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 4.25%, the highest rate since May 2012, from 4.20%, with points increasing to 0.32 from 0.28 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 3.81%, the highest rate since April 2012, from 3.76%, with points decreasing to 0.26 from 0.32 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages increased to 3.32%, the highest rate since April 2012, from 3.23%, with points remaining unchanged at 0.38 (including the origination fee) for 80% loans. The average contract interest rate for 5/1 ARMs increased to 2.78%, the highest rate since June 2012, from 2.76%, with points decreasing to 0.30 from 0.41 (including the origination fee) for 80% loans. Earlier this morning the National Federation of Independent Business released its monthly detailed survey frm its members. “The NFIB Index of Small Business Optimism rose 2.3 points to 94.4. This is the second highest reading since the recession started (95.1 is the highest) and the best reading since May of last year, but not one signaling strong economic growth. This is not a surprise given the current state of paralysis in Washington and the still very mixed news on the economy. The Fed has promised to add another trillion dollars to its portfolio, a terrifying prospect to many observers. The federal deficit will be smaller, but still huge and basically financed by the Fed. While the stock market sets records, GDP posts mediocre growth and the unemployment rate remains in the mid-7s. Departures from the labor force, not job creation, contribute to its decline when it does fall. Pessimism about the economy and future sales did moderate, 8 of the 10 Index components gained, but planned job creation fell a point and reported job creation stalled after 5 “up” months. Capital spending was flat as were plans, the inventory picture improved a bit. But, overall, nothing to suggest a surge is underway. No issues on the credit side, most owners have no interest in a loan, regular borrowing activity fell to historic lows and complaints about the difficulties associated with getting a loan fell again. Reports of sales gains were flat. Consumer optimism is up, but it’s not clear why, as incomes and jobs are performing poorly. In early readings, optimism was up for high income consumers and down for low income consumer, perhaps a stock market effect. Not much to hang your hat on. So, we are back to where we were in May, 2012.” There are no key economic data releases today but Treasury will auction $21B of 1 yr notes at 1:00 this afternoon. A key auction for the long end of the curve and for the MBS markets; weak demand will add a little more pressure to the mortgage markets. Yesterday Treasury sold $32B of 3 yr notes that met with weak demand; that however isn’t indicative of how the 10 will go. Technically, the MBS market is skating on thin ice; we have support at 103.00 on a closing basis. This morning the price is trading at 102.99 at 10:00. Suggest keeping alert, so far we have recommended floating for the past two weeks that has not been helpful but not bad either. The 10 yr note, driver for mortgage rates continues to increase. If the 3.5 July FNMA coupon closes under 103.00 we will have to take the medicine and lock any floated loans.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com At 7:00 this morning the 10 yr note yield was at 2.28% +7 bp frm yesterday’s close; at 9:00 the note improved to 2.24%. US, Europe and Asian stock market all being hit hard today; at 9:00 the DJIA was-115 frm yesterday’s close pointing to a very weak open at 9:30. At 9:30 the DJIA opened -139, NASDAQ -44, S&P -18; the 10 at 2.25% +4 bp and 30 yr MBS price -34 bp frm yesterday’s close. The new concern this morning is being triggered by news frm the Bank of Japan overnight that it left its monetary policy unchanged, markets apparently believed the BOJ would increase its stimulus. In Germany its high court is set to review the legality of the ECBs Outright Monetary Transactions. According to plaintiffs and those opposed to the ECBs bond buying it is against the principle of constitutional democracy. Those asking the high court to rule are saying they know it will roil financial markets but it is necessary to preserve Germany’s democratic constitution and that the ECB independence is not constitutional in Germany. The OMT funds have yet to be used and were originally put in place when Italian and Spanish 10 yr bonds exceeded 7.0% The as-yet-unused OMT foresees potentially unlimited purchases of bonds of debt-stricken countries that sign up to adjustment programs. The BOJ left monetary policy unchanged, the yen is strengthening. Speculation, at least this morning, is that central banks will fail to keep the global recovery on track. Here we have speculation that the Fed is about to begin withdrawing its stimulus; so far all the money printed by the Fed has had only a minor positive impact on our economy. In Europe the ECB left its base rate unchanged when it met a ago. Now Japan, expected to pump barrels of yen into the markets has unexpectedly decided to not increase its stimulus. A news story on Bloomberg this morning saying that interest rate increases will prompt investors in mortgages to sell treasuries as a hedge against losses that are growing in the MBS securities. Late to the party if MBS investors are now just beginning to think about hedging. Last week SF Fed President John Williams said in a speech that he thought the Fed would begin to slow purchases of MBSs as early as this summer. As rates increase, the potential for refinancing mortgage bonds and loan-servicing drops, extending the average lives of the securities and leaving holders more vulnerable to losses. Investors then may seek to pare the duration risk or rebalance existing hedges by selling longer-dated treasuries, mortgage bonds or transacting in interest-rate swaps or options on those contracts, sending yields higher and spreads wider. There is an increasing number of analysts, traders and investors that are beginning to see the light; that when the Fed and other central banks have to end their market manipulation by all the purchasing of treasuries and mortgages it will cause a huge re-adjustment in investor thinking about the future of the stock markets and global interest rates. There are no economic data today except April wholesale inventories at 10:00. The estimate was for inventories to have increased 0.2%, as reported inventories increased 0.2% while sales were up 0.5%. This afternoon Treasury will sell $32B of 3 yr notes, the first of three auctions. Tomorrow $21B of 10 yr notes, the demand will be crucial to how the 10 yr trades. Thursday $13B of 30 yr bonds. Yesterday’s high yield at 2.23% matched its previous high last week; very early this morning the 10 yr shot up to 2.28% setting another breakout into new high rates. We are now hearing the 10 yr may climb to 2.40% before another pause. No forecast from us at this time; we have warned for over a month that rates would increase but until this morning our worst case target was 2.25% for the 10 before a potential rebound. Unless there is improvement today from early morning levels the increasing bearishness is likely to increase as markets now are fully understanding that artificial stimulus frm the Fed and other central banks have distorted normal market functioning. There is always a heavy price to pay once the rug is about to be pulled out from under central bank supports. We have been recommending a strategy of floating as long as the 3.5 June FNMA coupon held over 103.00; this morning it is below the support. Unless there is a rebound by the end of the day, we can’t continue with that idea. So far for the past two weeks we haven’t given up anything by floating, nor have we seen any improvement. There is less reason now to float and any retracement is not likely to reap rewards commensurate to the increased risks. Keep close today and be prepared to abandon ship.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com The 10 yr note is continuing to increase; at 9:00 this morning at 2.19% +1 bp while MBS prices at 9:00 unchanged. Today there are no scheduled economic releases but St. Louis Fed President James Bullard will be speaking on global growth as he summers in Canada; today Montreal, last week in Toronto. In early trade prior to the 9:30 open the key indexes were slightly better with the DJIA expected to open +20; at 9:30 +47, NASDAQ +5, S&P +4; 10 yr note yield at 2.21% +3 bp and 30 yr MBSs -15 bp frm Friday’s close. The recent intraday high for the 10 as 2.23%. A measure of Treasuries volatility climbed to the highest in almost a year last week as investors weighed whether the Fed will slow its bond-buying program as the economy improves. Volatility as measured by the Bank of America Merrill Lynch MOVE index rose to 84.8 on June 6, the highest since June 2012. The gauge has averaged 62.4 over the past year. The markets are completely consumed with what and when the Fed will begin to taper. There are reasonable arguments for about any view or opinion; it isn’t whether the Fed will begin to reduce its market support, it is all about when. One point of view that was talked about Friday was about previous comments frm various Fed officials that before any tapering the Fed may want to see 200K increases in jobs for at least four months before any actual action frm the Fed. Others see the Fed’s easing now as unproductive based on the still weak employment data and anemic economic growth as a waste of money and a disruption of normal market forces; the Fed and other central banks interfering with allowing markets to adjust to the reality frm the manipulated market effects caused by the Fed. The discussion over when the Fed will actually do something will continue all through the week. Next week (6/19) the FOMC meeting with its policy statement, it is wishful thinking that the statement will be definitive. One thing the Fed is facing in the QE that exists today, buying $40B a month of MBSs and $45B of treasuries, there may not be enough securities available to continue at the current pace for much longer. Disrupting the normal supply/demand would be another level of uncertainty that could roil markets. More not good data frm Europe today; Italian GDP fell 0.6% and France’s industrial confidence stalled in May. The euro-area economy contracted 0.2 percent in the first three months of the year, extending its recession into a sixth quarter, and is forecast to stagnate in the second quarter before returning to growth. China’s economy also slipping, the yr/yr industrial production below forecasts and export gains caused by weak European and US markets are at the lowest levels in 10 months. US, Europe and China’s economies are slipping but at present it isn’t of much interest for stock markets as the key indexes keep climbing. The only thing so far that the Fed’s easing has accomplished is to force investments into equity markets. We would not want to step in the debate on how much longer and how much higher the key indexes will go before economic reality takes over from the low interest rates the Fed has engineered; like trying to swim up Niagara Falls these days. The recent increase in mortgage interest rates based on the weekly MBA mortgage applications data have shown a sizeable decline in apps, especially re-finances. The housing sector has been touted by almost everyone as one of the pillars of the economic growth (which isn’t much); if sales were to decline another pillar will have crumbled. That said, there is no immediate reason to expect a big decline in sales---so far. So far this morning the 10 yr note after hitting at 2.22% has fallen back to 2.21% at 10:00; the stock market pend higher but has slid back at 10:00. Continued intraday volatility can be expected through the day in both stocks and the bond market. This morning the 10 is at its highest yield this month and 30 yr MBS prices are testing key support levels again; so far holding but very vulnerable now. The 10 is likely to move to 2.25% before any significant rebound. Any rebound in the bond and mortgage markets isn’t likely to be much with most now believing the Fed’s easing is coming to an end. Holding on for lower rates so far has not been a good decision for those taking that risk.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Weekly jobless claims this morning were -11K about in line with estimates. Last week’s claims were revised frm 354K to 357K; the 4 week average +4500 to 352,500. Prior to the 8:30 data the 10 yr note had lost another basis point in yield to 2.08% but the claims data kind of ended that and the 10 back to 2.09% at 9:00. At 9:00 the DJIA was flat after being better earlier this morning. In the MBS world at 9:00 prices continued under pressure, down 14 bp in price. Yesterday the last hour of trading between 4:00 and 5:00 MBS prices declined 10 bp frm what we reported at 4:00 taking away all the gains seen earlier in the day. A few lenders re-priced better about mid-day yesterday but it was gone by 5:00. The MBS market continues to decline, even more than in the treasury markets. Possibly pressured by comments on Tuesday by comments frm Dallas Fed Pres. Fisher when said the Fed should reduce monthly purchases of mortgage backed securities. Through the month of May it was apparent that lenders were unprepared for the massive selling of MBSs; not hedged, and that led to excessive panic and wild price declines. Yesterday the Fed’s Beige Book data wasn’t good based on comparing the last Beige Book last April, the Book couched the assessment on the economy not being as strong as it was in April’s Book. The result was a big decline in US stock indexes. In Europe this morning ECB Pres. Draghi kept their base lending rate unchanged while revising lower its growth rate for 2013. The ECB now expects the economy to shrink 0.6% and the inflation to be at 1.4% on average. German factory orders fell more than economists predicted in April, data showed today. Orders, adjusted for seasonal swings and inflation, decreased 2.3% from March, when they increased a revised 2.3%, the Economy Ministry in Berlin said; estimates were for a decline of 1.0%. At 9:30 the DJIA opened -22, NASDAQ unchanged, S&P -3; 10 yr note at 2.10% +1 bp. 30 yr MBS price for the 3.5 coupon -3 bp, the 3.0 coupon -18 bps. Nothing the rest of the day except speculation over what the May employment data will show tomorrow morning. Earlier this week the general forecast was for an increase of 178K private jobs and 167K non-farm jobs with unemployment unchanged at 7.5%. Wednesday ADP was expected to reveal private jobs increased 171K, as reported ADP said just 135K and in turn analysts are now expecting 165K private jobs. It is always a guessing game with the employment data; it is rare that what is reported actually comes close to estimates. The lead into the May report is about the same as the lead into the April report; ADP shocked markets with just 119K new jobs when estimates were an increase of 165K. The lower ADP data sent estimates for the BLS data lower but when the report hit it was stronger than expectations, the result started the rapid increase in rates that still hasn’t abated. What will we see tomorrow? Technically, the bond and mortgage markets remain bearish; we had support for the June 3.5 Fannie coupon at 103.00, it held until this morning (now trading at 102.89). Fundamentally, the main concern is what will the Fed do about its QE? Most market participants are of the mind that the Fed is about to begin tapering the easing’s. The timing is debatable but it doesn’t matter, markets are already moving to reflect some curtailment of the Fed’s QEs. Until this week the stock market didn’t seem to care about the reduction; if the Fed backs off it is an indication that the economy is improving, on the other hand if the Fed stays in the game it will keep rates from increasing and that is considered a good thing. If tomorrow’s May employment report is at or better than estimates the 10 yr will likely climb to 2.25% and take mortgage rates up another 10 basis points in rates.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Prior to 8:15 the 10 yr was +8/32 at 2.12% -3 bps; US stock indexes were slightly weaker. At 8:15 ADP reported private job growth in May increased by 135K, the consensus estimate was +170K; April private jobs were revised lower, to 113K frm 119K. It was all in the service sector increasing 135K, construction gained 5K jobs, financial services +7K, manufacturing lost 6K. Small businesses added 57K jobs. The initial reaction improved the bond market, the 10 yr at 8:30 +13/32 at 2.11% -4 bps, 30 yr 3.5 FNMA MBSs struggling at 8:30 up 14 bp---not much as the MBS market remains more bearish than treasuries. At 8:30 Q1 productivity was in line with forecasts, +0.5% however unit labor costs declined 4.3%on forecasts of +0.5%. In Europe this morning the German bund yield declined 3 bps to 1.51% after hitting 1.57% on Monday, the highest rate since late February. Gross domestic product in the euro area fell 0.2% in the first quarter, while separate reports showed retail sales in the region fell in April and services shrank last month. All of Europe’s stock markets were weaker today on continued concerns the region is still struggling to grow. Dallas Fed President Richard Fisher talking about the end of QE yesterday. He focused a comment on the MBS purchases the Fed is doing; “It would be prudent to dial back the rate of purchases we are making in mortgage-backed securities” now that “the housing market is in a good state, construction has started again, housing prices are appreciating significantly.” It isn’t news that the Markets are actively talking about the Fed ending its QEs; most believe when the time comes it will be a slow unwinding. When will the Fed actually begin stepping aside? The question of the year so far. When is totally data dependent over the next couple of months, recent measurements of the state of the economy are inconclusive; housing markets better but manufacturing still struggling as evidenced by the ISM data on Monday, unemployment still high. As months pass it is becoming more clear that the Fed’s QEs are not doing the job the Fed was expecting. At 9:30 the DJIA opened -44, NASDAQ -13, S&P -5. 10 yr note at 2.11% -4 bp while 30 yr MBS price up just 7 bp on 3.5 coupons and +19 bp on 3.0 coupons. More data at 10:00; April factory orders expected up 1.5% increased just 1.0% and March orders revised to -4.7% frm 4.0%. The May ISM services sector index was fractionally better than expected at 53.7 53.2. The interior components, new orders at 56.0 frm 54.5 in March but employment index fell to 50.1 from 52.0; the employment component in January was 57 and has been slipping since. More weaker than expected data on employment may cause traders to lower their expectations for job growth in Friday’s employment report. The market reaction to the weaker data improved the level of decline in the stock indexes and didn’t cause any immediate improvement in the bond and mortgage markets. As previously noted, the stock market is taking any data---good or bad---as a positive. Weak economic data keeps the Fed in play, strong data implies the economy is improving. We should be seeing better bond and mortgage prices frm prior to 10:00 but that hasn’t occurred, fortifying the view that bearishness in the bond market remains very high. Over the last week we have recommended floating unless the 3.5 FNMA coupon for June closes under 103.00; yesterday the price closed right on 103.00. This morning so far it is holding but I am not impressed with it at the moment; what to do? Likely if the MBS markets do hold and improve frm here it will not begin until the May employment report is released on Friday, and the report has to be softer than what is presently expected (178K private jobs). The ADP weaker this morning than what was expected, unfortunately we can’t make much of it as the differences between ADP and the BLS data usually are a lot different. The BLS data trumps the ADP every time. Last month ADP said 119K private jobs, the BLS reported 176K private jobs. The bond and mortgage markets are overdue for some kind of correction but that has been the case for almost two weeks and the selling has continued. Unless the markets find support on the May employment report on Friday we then would expect the 10 yr to move to 2.25% and mortgage rates will increase more.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Generally flat early this morning but it didn’t stay that way for long; no economic data today that could move markets. At 8:00 the 10 yr was unchanged as were mortgage prices, by 8:30 more selling, the 10 yr at 2.15% +2 bp and 30 yr MBSs -15 bps frm yesterday’s close. European and Asian stock markets better; US futures trade at 8:30 were essentially unchanged. There was one data point this morning although no market reactions; April US trade deficit declined by $40.5B slightly less than what had been thought. Yesterday the May ISM manufacturing index was disappointing in a sense; at 49.0 it is slightly contracting, the employment component also fell below 50 at 48.8. Also weaker, April construction spending, +0.4% with estimates for an increase of 1.0%. The weaker data kept the 10 yr note in check but MBS prices couldn’t manage to improve. The stock market rallied yesterday; these days data isn’t a concern for the equity markets, how long that can last is one big question. Weak data supports the idea the Fed won’t taper soon, strong data supports the idea that the economy is gaining momentum. That condition may change when the May employment report is released on Friday. A strong employment report will add more selling in the bond market, strong stock buying; a weaker employment report will rally the bond market and will very likely send stock indexes down. At 9:30 the DJIA opened +4, NASDAQ +4, S&P unch. 10 yr at 2.15% +2 bp and 30 yr MBS -16 bps. Not much on the news wires today that have much impact. Tomorrow markets will begin to increase importance of the May employment report on Friday. ADP will report their numbers for May private jobs, the forecast is ADP will say jobs increased by 171K. ADP data most times doesn’t reflect what the BLS will report but it does drive markets. Last month ADP reported April private jobs +119K and revised Feb and March numbers to take away 27K originally reported in those months. The reaction to the weak report sent economists and analysts revising their forecasts lower for the BLS data two days later. When the April BLS data hit it set off a firestorm of selling in the interest rate markets that has not abated. BLS reported private jobs in April increased 176K and revised Feb and March increasing another 114K. So, many times ADP data can be well off the mark that the BLS reports; but it does set up potential volatility. The present consensus estimate for May jobs frm the BLS, 167K for non-farm jobs and +178K private jobs; the estimates are almost the same as what BLS reported for April. A couple of Fed speakers today; at 12:30 Fed Governor Sarah Raskin on job creation trends. At 1:30 Esther George KC Fed President speaks on the economy in Sane Fe. Raskin’s speech won’t carry any market interest but George’s may pending how she addresses the QE question. 3.5 June FNMA coupon is close to its key support at 103.00; a close under that level is likely to add more selling. The 10 yr note remains solidly bearish, so far after the huge increase in rates over the last month has not slowed. Technically oversold but the bearishness surpasses a lot of normal market responses to technicals these days.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Very early this morning the 10 yr traded at 2.17%, by 9:00 the note was unchanged from last Friday. The US stock market took a hit last Friday, the DJIA -208 points, this morning in pre-pen trading the DJIA +75. This week has been anticipated for two weeks, it is employment week. The drive higher in interest rates was set in motion in early May when the April employment report was much stronger than all the forecasts. Was the April report an aberration, or the beginning of stronger employment conditions, Friday should clear the air a little. Interest rates continue to increase as the momentum builds that the Fed will begin tapering its QEs sooner than what had been thought as little as three weeks ago. The US 10 in May increased frm 1.63% to 2.16% last Friday and 30 yr MBSs increased 30 basis points in rate during the month. Much of the April and May data that has been released so far has been a little stronger than forecasts. German bunds fell, with 10-year yields rising to the most in three months (presently 1.55%), after Federal Reserve Bank of San Francisco President John Williams said the U.S. asset-purchase stimulus program might end this year. Williams is not a voting member at the FOMC told reports the Fed may start tapering this summer and end its easing’s by the end of the year. Yet another Fed official with his thoughts; if he is correct the speed of the Fed’s withdrawal would be swifter than markets presently believe. The Fed has two mandates; keep unemployment low and guard against inflation; inflation is lower than the Fed’s 2.0% target (1.5%) and the employment sector is still soft, although improving----at least based on the April data released last month. Forecasting with any degree of accuracy the employment report is more a dart throw, generally the report deviates in wide ranges compared to the consensus estimates that this morning call for non-farm jobs in May increasing 167K and private jobs +178K; it is a high probability the actual data will be substantially different. A gauge of manufacturing in the 17-nation euro area increased to 48.3 last month from 46.7 in April, London-based Markit Economics said today. That’s above an initial estimate of 47.8 on May 23. The gauge has been below 50, indicating contraction, since July 2011. In the U.K., a separate report by Markit and the Chartered Institute of Purchasing and Supply showed a factory index climbed to a 14-month high of 51.3 from a revised 50.2 in April. The European data today followed euro-zone industrial confidence and trade data released last month that showed the region is on a path to recovery. The US manufacturing was reported at 10:00 this morning (see below). At 9:30 the DJIA opened +52, NASDAQ +3, S&P +2; 10 yr unchanged at 2.16% but MBS prices continue to fall, down 31 bp frm Friday’s close. While Friday’s employment report is the most important this week, there are a number of other key data points to work through until then. At 10:00 this morning the May ISM manufacturing index was expected at 51.0 frm 50.7, the index was weaker at 49.0 the lowest since last Nov; last week the regional Chicago index was much stronger than thought but this national number confirms manufacturing is still struggling. The new orders component in the report at 48.8 frm 52.3 in April, under 50 is contraction. The employment component also dropped to 50.1 frm 50.7. The report no matter how it is viewed was very weak. Also at 10:00 April construction spending was thought to be up 1.0% increased just 0.4%. The two reports turned mortgage prices frm -29 bp to +14 bps. The 10 yr note yield fell frm 2.16% to 2.11% on the reaction to the weak reports.