Mortgage Rate 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.
Monday, January 10, 2011
Treasuries and mortgages opened a little better this morning with stock index futures trading weaker. There is no data to think about today, most of the key economic reports hit on Thursday and Friday; in the meantime the rate markets will contend with $66B of Treasury auctions beginning Tuesday. Today and tomorrow not much scheduled, in the meantime it is a waiting game and focus on the action in the equity markets that continue to discount the increasing view that the US economy will rebound nicely in 2011.
This Week's Economic Calendar:
Tuesday;
10:00 am Nov wholesale inventories (+0.9%)
1:00 pm $32B 3 yr note auction
Wednesday;
7:00 am Weekly MBA mortgage applications
8:30 Dec import and export prices
1:00 pm $21B 10 yr note auction
2:00 pm Dec Treasury budget balance (-$80.0B)
Fed's Beige Book
Thursday;
8:30 am weekly jobless claims (+6K to 415K; con't claims 4.09 mil from 4.103 mil)
Dec producer price index (+0.8%, ex food and energy +0.2%)
Nov trade balance (-$41.2B)
1:00 pm $13B 30 yr bond auction
Friday;
8:30 am Dec consumer price index (+0.4%; ex food and energy +0.1%)
Dec retail sales (+0.7%, ex auto sales +0.6%)
9:15 am Dec industrial production (+0.4%)
Dec capacity utilization (75.5% frm 75.2%)
9:55 am Jan U. of Michigan consumer sentiment index (75.4 frm 74.5)
10:00 am Nov business inventories (+0.8%)
Concerns about potential inflation have not diminished, just pausing for the moment. That traders have turned attention to other issues like the decline in stock markets today, doesn't alter the global concerns that inflation is about to increase. Likely will get a a toe old in emerging markets first, the Europe and the US. The global economic recovery has been stronger and quicker than had been thought, particularly in emerging markets. In Europe the ECB is sounding the warning bell with commodity prices increasing and food prices escalating rapidly. IN the US we look at inflation without consideration of food and energy prices because historically those areas are considered too volatile; that was then, this is now. We believe food and energy costs are going to continue to increase and spill over to all commodities; that has already started and will continue.
The increase in food and energy prices is a two way street for the rate markets; higher food and energy will slow consumer discretionary spending lessening any chance retailers and goods producers will be able to increase prices as consumers slow spending. That however won't hold prices down much longer for other consumer goods, so far producers and retailers have not passed along increases, they simply are cutting back quantities and sizes to offset their price increases. Sooner rather than later those increases will work down the chain to consumers and will send interest rates higher. The caveat, and there always is one, if consumers don't meet current market expectations the economic outlook will weaken and if it does inflation worries will go back in the box and rates will stay historically low.
Technically the 10 yr and mortgages still have slightly bearish tones but slowly that may be changing. If the 10 yr note can clear 3.25% it will likely have a run to 3.00%. The MBS markets are in slightly better technical position but won't launch anything significant until the 10 yr makes its move. The 2011 economic outlook is improving, however skepticism still hangs over markets.
Most every global stock market traded weaker today, Europe still weak. Asian emerging markets took the biggest hits on increasing fears of inflation on exceptionally strong growth. The US equity markets opened weak and getting weaker as the day moves along. Interest rates benefiting on weaker global equities. Crude higher on the closure of the Alaska pipeline due to a leak at a pumping station.
Monday, January 10, 2011
Sunday, January 9, 2011
Friday, January 7, 2011
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.
Friday, January 07, 2011
Dec unemployment rate fell from 9.8% to 9.4%, a huge decline, but an anomaly and should be ignored. Non-farm jobs were less than thought, up 103K overall on unsettled forecasts of +150K. Non-farm private jobs increased 113K against forecasts of +175K. Oct non-farm job growth revised from +170K to +210K, Nov revised from +39K to +71K. For all of 2010, the jobless rate averaged 9.6%, the highest since 1983 and up from 9.3% a year earlier. With today’s report, the Labor Department revised figures from its household survey used in calculating the unemployment rate going back five years.
Manufacturing payrolls rose by 10,000 in December. Economists had projected an increase of 5,000. Employment at service-providers increased 105,000. The number of temporary workers rose 16,000. Construction companies reduced payrolls by 16,000 and retailers added 12,000 workers. Government payrolls decreased by 10,000. State and local governments reduced employment by 20,000, while the federal government added 10,000 jobs.
The Dec report on employment was disappointing, particularly when compared to that blowout ADP report on Wed that said 297K jobs had been added. We noted on Wed that the ADP report included 5 weeks of data compared to the normal four weeks and likely had a lot of temp workers included. Today's BLS report was in line with forecasts prior to the ADP that caused analysts to revise their estimates higher.
The bond and stock markets' initial reaction was subdued and somewhat confusing to traders. The decline in the unemployment rate is a definite anomaly that will not likely last when we get Jan data; if a respondent to the household survey that is used to calculate unemployment says he (she) is not looking for a job that person is not considered unemployed even if they say they are. No one took the decline in the rate of unemployment seriously. Most focus on actual job growth; the revisions are always of more interest and today an additional 70K were added with revisions to Oct and Nov. When the revisions are taken into account with the Dec expectations the three months are generally in line with what totals over the months had been.
The reaction in the bond market isn't much so far; the mortgage markets holding slight gains in prices while the 10 yr rallied initially by 9:15 the note was back to unchanged. The stock indexes initially fell then rebounded to trade about unchanged leading into the 9:30 open (see below for 10:00 levels).
Unemployment continues to drag on the economy, at the rate of recent hiring over the last three months it isn't nearly enough to move the economic recovery up to meet the present lofty 4.0% GDP growth forecasts for 2011. Markets however continued to be supported by the strong holiday shopping even though retails also didn't actually meet expectations, sales were strong but missed the targets. As we have noted, the economy is improving but we are still willing to wait until we see Jan data before we completely get aboard the growth train. Housing still a huge drag, consumer spending was better in Dec but most all of the strong sales came at high end stores like Nordstrom's and Saks; the more main stream stores like GAP, Kohl's, Macy's and Target did not meet analysts' forecasts. The wealthier spent, middle America held back some.
The takeaway form the Dec employment report didn't change anyone's' mind on the economic outlook; the bullish outlook holds while some of us skeptics were not satiated with less job growth. We are not bearish about the economic recovery in 2011, we are however willing to wait for more evidence to get on board. IN the meantime the interest rate markets are equally skeptical, not climbing in yields but not declining either.
Bernanke is testifying at the Capitol, nothing new so far.
At 3:00 this afternoon Nov consumer credit data; markets don't usually react to it but to us it is a very important data point measuring consumers penchant for debt. Estimates are for a slight decline. Credit has collapsed over $376B over the last four months although the data doesn't reflect it because in one of those slight of hand things the Fed changed the game by moving student loans into revolving credit calculations that now distort actual consumer credit based on the headline numbers.
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Friday, January 07, 2011
Dec unemployment rate fell from 9.8% to 9.4%, a huge decline, but an anomaly and should be ignored. Non-farm jobs were less than thought, up 103K overall on unsettled forecasts of +150K. Non-farm private jobs increased 113K against forecasts of +175K. Oct non-farm job growth revised from +170K to +210K, Nov revised from +39K to +71K. For all of 2010, the jobless rate averaged 9.6%, the highest since 1983 and up from 9.3% a year earlier. With today’s report, the Labor Department revised figures from its household survey used in calculating the unemployment rate going back five years.
Manufacturing payrolls rose by 10,000 in December. Economists had projected an increase of 5,000. Employment at service-providers increased 105,000. The number of temporary workers rose 16,000. Construction companies reduced payrolls by 16,000 and retailers added 12,000 workers. Government payrolls decreased by 10,000. State and local governments reduced employment by 20,000, while the federal government added 10,000 jobs.
The Dec report on employment was disappointing, particularly when compared to that blowout ADP report on Wed that said 297K jobs had been added. We noted on Wed that the ADP report included 5 weeks of data compared to the normal four weeks and likely had a lot of temp workers included. Today's BLS report was in line with forecasts prior to the ADP that caused analysts to revise their estimates higher.
The bond and stock markets' initial reaction was subdued and somewhat confusing to traders. The decline in the unemployment rate is a definite anomaly that will not likely last when we get Jan data; if a respondent to the household survey that is used to calculate unemployment says he (she) is not looking for a job that person is not considered unemployed even if they say they are. No one took the decline in the rate of unemployment seriously. Most focus on actual job growth; the revisions are always of more interest and today an additional 70K were added with revisions to Oct and Nov. When the revisions are taken into account with the Dec expectations the three months are generally in line with what totals over the months had been.
The reaction in the bond market isn't much so far; the mortgage markets holding slight gains in prices while the 10 yr rallied initially by 9:15 the note was back to unchanged. The stock indexes initially fell then rebounded to trade about unchanged leading into the 9:30 open (see below for 10:00 levels).
Unemployment continues to drag on the economy, at the rate of recent hiring over the last three months it isn't nearly enough to move the economic recovery up to meet the present lofty 4.0% GDP growth forecasts for 2011. Markets however continued to be supported by the strong holiday shopping even though retails also didn't actually meet expectations, sales were strong but missed the targets. As we have noted, the economy is improving but we are still willing to wait until we see Jan data before we completely get aboard the growth train. Housing still a huge drag, consumer spending was better in Dec but most all of the strong sales came at high end stores like Nordstrom's and Saks; the more main stream stores like GAP, Kohl's, Macy's and Target did not meet analysts' forecasts. The wealthier spent, middle America held back some.
The takeaway form the Dec employment report didn't change anyone's' mind on the economic outlook; the bullish outlook holds while some of us skeptics were not satiated with less job growth. We are not bearish about the economic recovery in 2011, we are however willing to wait for more evidence to get on board. IN the meantime the interest rate markets are equally skeptical, not climbing in yields but not declining either.
Bernanke is testifying at the Capitol, nothing new so far.
At 3:00 this afternoon Nov consumer credit data; markets don't usually react to it but to us it is a very important data point measuring consumers penchant for debt. Estimates are for a slight decline. Credit has collapsed over $376B over the last four months although the data doesn't reflect it because in one of those slight of hand things the Fed changed the game by moving student loans into revolving credit calculations that now distort actual consumer credit based on the headline numbers.
Thursday, January 6, 2011
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, January 06, 2011
Yesterday's huge ADP job growth estimate for Dec (+297K jobs) sent a shock through the markets; the consensus was for ADP to report an increase of 100K. Interest rates increased 13 basis points on the 10 yr note and 10 basis points for 30 yr mtgs in reaction to yet another better than expected data point. Add in the better ISM services sector index, the better than expected ISM manufacturing data on Monday, the better than expected Nov factory orders, and the better than expected Nov construction spending, all adding to the increasing view that the US economy is expanding, sent interest rates higher.
This morning the 10 yr note and mortgages opened a little better than yesterday's weak close. At 9:00 the 10 yr traded +8/32 at 3.43% -3 bp and mortgages +5/32 (.15 bp). Still trading in their respective tight ranges with no real overall changes in rates, and continuing the volatile swings that have dominated since the beginning of Dec.
This morning weekly jobless claims were expected to increase 17K to 405K after falling 34K the previous week. Claims as reported increased 18K to 409K, somewhat more but generally in line with forecasts. Continuing claims declined 47K to 4.103 mil; the 4 wk average at 410.75K declined from 414.25K the previous week, the lowest average since July 26th 2008. Although the weekly claims were slightly higher than forecasts, markets were not phased.
The rest of the session should be quiet today ahead of the key Dec employment report tomorrow morning. Prior to the surprising ADP estimate the consensus was for non-farm jobs to increase by 132K and private jobs +142K. After the ADP data analysts have been revising the forecasts closer to 190K to 200K job growth. The unemployment rate in De is still thought to be unchanged at 9.8% to possibly 9.7%. The unemployment rate is calculated by BLS phone surveys asking respondents whether or not they are employed, unemployed, or not looking for a job; if one is unemployed but has given up looking they are not considered unemployed thus not adding to the unemployment rate. The change in non farm jobs is calculated by surveys of employers. Two reports that can at times be seen from different perspectives. The monthly employment report is always the mother of all monthly data points, the report tomorrow takes on even more importance after the ADP yesterday.
Later today Treasury will announce the amounts of next week's 3 yr, 10 yr and 30 yr auctions; the amounts likely the same as last month.
Until about 9:00 this morning the 10 yr was holding an 8/32 price gain and mortgages up 5/32 (.15 bp); by 9:45 however mortgage prices were trading lower on the day, down 2/32 (.06 bp) and likely down as much as 6/32 (.18 bp) frm when most lenders priced. Already the potential of re-pricing if prices fall just a little bit more. It is highly unlikely that we will see any improvement in the rate markets today ahead of the employment data tomorrow morning.
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, January 06, 2011
Yesterday's huge ADP job growth estimate for Dec (+297K jobs) sent a shock through the markets; the consensus was for ADP to report an increase of 100K. Interest rates increased 13 basis points on the 10 yr note and 10 basis points for 30 yr mtgs in reaction to yet another better than expected data point. Add in the better ISM services sector index, the better than expected ISM manufacturing data on Monday, the better than expected Nov factory orders, and the better than expected Nov construction spending, all adding to the increasing view that the US economy is expanding, sent interest rates higher.
This morning the 10 yr note and mortgages opened a little better than yesterday's weak close. At 9:00 the 10 yr traded +8/32 at 3.43% -3 bp and mortgages +5/32 (.15 bp). Still trading in their respective tight ranges with no real overall changes in rates, and continuing the volatile swings that have dominated since the beginning of Dec.
This morning weekly jobless claims were expected to increase 17K to 405K after falling 34K the previous week. Claims as reported increased 18K to 409K, somewhat more but generally in line with forecasts. Continuing claims declined 47K to 4.103 mil; the 4 wk average at 410.75K declined from 414.25K the previous week, the lowest average since July 26th 2008. Although the weekly claims were slightly higher than forecasts, markets were not phased.
The rest of the session should be quiet today ahead of the key Dec employment report tomorrow morning. Prior to the surprising ADP estimate the consensus was for non-farm jobs to increase by 132K and private jobs +142K. After the ADP data analysts have been revising the forecasts closer to 190K to 200K job growth. The unemployment rate in De is still thought to be unchanged at 9.8% to possibly 9.7%. The unemployment rate is calculated by BLS phone surveys asking respondents whether or not they are employed, unemployed, or not looking for a job; if one is unemployed but has given up looking they are not considered unemployed thus not adding to the unemployment rate. The change in non farm jobs is calculated by surveys of employers. Two reports that can at times be seen from different perspectives. The monthly employment report is always the mother of all monthly data points, the report tomorrow takes on even more importance after the ADP yesterday.
Later today Treasury will announce the amounts of next week's 3 yr, 10 yr and 30 yr auctions; the amounts likely the same as last month.
Until about 9:00 this morning the 10 yr was holding an 8/32 price gain and mortgages up 5/32 (.15 bp); by 9:45 however mortgage prices were trading lower on the day, down 2/32 (.06 bp) and likely down as much as 6/32 (.18 bp) frm when most lenders priced. Already the potential of re-pricing if prices fall just a little bit more. It is highly unlikely that we will see any improvement in the rate markets today ahead of the employment data tomorrow morning.
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