Category: Market Update - Effective Mortgage Company

Market Update

8/15/2016

Yet another day that is the same as the last, that is same as the last, and the same as the last. A month now with no change in interest rates. Nothing has moved the bond and mortgage markets and it appears nothing will. This morning the NY Fed Empire State manufacturing index down to -4.21; much lower than expected, but no reaction; the NAHB housing market index in line with forecasts even with July revised lower, no reaction; sales up to 65 +2, traffic 44 frm 45.

Tomorrow July CPI expected 0.0% with the core expected +0.2%. Last Friday July PPI was actually down 0.4%. July housing starts and permits; starts expected -0.75% at 1180K, permits +0.6% at 1160K units. July industrial production expected +0.3% after increasing 0.6% in June; July capacity utilization 75.5% frm June’s 75.4%. Factory use has slowed since Dec 2014 when it reached 79%. Not that it matte4r5s one bit,, but Dennis Lockhart, Atlanta Fed is scheduled to talk at 12:30 tomorrow with Q&A; other reporting Fed speeches I don’t pay much attention to them anymore. That said, markets suck up every syllable as if gospel, the media salivates over them.

The stock market continues to increase as the global economic outlook is expected to slow. Not sure when that will end but when it does the run to safety will match the rush out the door. It may end when companies run out of funds to buy back stocks and increase dividends. Oil looked vulnerable a week ago, since then the price has increased, the equity market just loves that but I suspect it is lemmings following the leaders. The VIX index of volatility is so low that should bother investors, but it hasn’t. Low volatility is evidence of complacency that usually happens before a market turn. Not willing to use the term bubble but it is getting close; defining the term though is as hard as defining ‘moderate’, ‘near term’, or ‘medium term’ that the Fed uses to cover specifics.

The 10 in the middle of its range at 1.55% +4 bps, MBS prices lower on the day and lower than when prices were set this morning. Our technical models remain neutral and until the trading rage breaks loose on the 10 yr (1.50%/1.60%) there will be no change to that and holding rate locks doesn’t benefit LOs and only slightly lenders if they can capture the swings correctly.

Market Report

2/18/2016

Quiet this morning in both stocks and bonds. Weekly jobless claims were better than thought, down 7K to 262K, forecasts were for an increase of 5K. The 4 week average, a better way to look at claims, fell to 273.25K frm 281.25K. Jobs are improving. Also at 8:30 Feb Philadelphia Fed business index; expected at -2.5 was -2.8; better than January’s -3.5 but still in contraction. The index has been negative for six months. Better claims, softer Philly Fed countered each other with no noticeable markets reactions to the two reports.

Crude oil is continuing to increase, up $0.77 at 9:00 to $31.43. Talks between OPEC, Iran, Russia and Iraq continue although no freeze in output has been achieved yet. Iraq saying it would curb production of oil to prop up sagging prices, saying negotiations are still ongoing between members of the Organization of the Petroleum Exporting Countries. Even if there is no agreement crude oil has likely seen its lowest prices and won’t return to the $20.00 levels. One oil trader this morning pointed out that traders are increasingly reluctant to sell oil and are preparing not to lose out on the move to $40.00 that is becoming the talk frm the trading pits.

China’s consumer-price index rose 1.8% in January from a year earlier, the government’s statistics bureau reported. Food costs increasing is the reason for the increase. China is still troubled with over capacity, there is no belief that China’s inflation will continue to increase.

Negative interest rates in Japan may be backfiring on the government. Recent indications are Japanese consumers are becoming more sanguine seeing negative rates as increasing fears of a worsening economy. Consumers are cutting back on spending, just the opposite of what Japan’s government expected.

Are global consumers losing faith with central banks? Since 2008 central banks have been sources of salvation in the aftermath of the financial collapse. Recently though central banks have not had much success with stimuli, negative rates or most other attempts to turn the tide of global decline and plans to increase the level of inflation globally. In Europe’s economies deflation is a real possibility no matter what Mario Draghi says. Central banks have not been able to stem the tide of global economic re-balancing occurring the last five years. Their plans are to force consumer spending by removing incentives to save; keeping interest rates close to zero, so far have been unable to gain traction.

At 9:30 the US stock market opened relatively unchanged frm the previous three days of big gains (the DJIA up 793 points). The DJIA opened +28 after trading up 100 in earlier pre-open trade; NASDAQ +1, S&P -1. The 10 yr note unchanged at 1.81%, 3.0 30 yr FNMA coupon -3 bps frm yesterday’s close and unchanged frm 9:30 yesterday.

Jan leading economic indicators at 10:00 -0.2% as expected. Dec originally reported -0.2% was revised to -0.3%. It has been five years since LEI has declined on two consecutive months.

We don’t believe the retracement in stocks and bonds is over yet, we do continue to expect lower stock prices and lower interest rates but as we have been saying, the path will be bumpy and volatile. Technically all of our momentum measurements are losing ground presently. Mortgage rates still very attractive, buyers should take these levels. Betting on the future in this very unsettled environment is very risky. Attempting to get the lows usually doesn’t work well.

MARKET REPORT !!!!!!

1/21/2016

US and Europe stock indexes better this morning, US interest rates opened lower. Nothing significant about the stock markets being better, just starting the day taking a breath. Stocks will continue lower in this very bearish run; still expecting the DJIA to drop 20% at least frm the recent highs last year.

Two reports at 8:30 this morning. Weekly jobless claims expected to have declined 9K were up 10K to 293K, the highest claims in the last six months. The 4 week average increased to 285K frm 278.50K. January Philadelphia Fed business index, expected -4.0 frm -5.9 originally reported for Dec at -5.9; as reported the index was at -3.5 but Dec was revised to -10.2. The new orders index is improving, at minus 1.4 for the best reading since September. And shipments, for the first time also since September, are positive, at a strong 9.6. The six-month outlook, down 5 points to 19.1 for the softest level since 2012, the decline in inventory build is defensive and intentional.

ECB’s Mario Draghi this morning commenting that inflation is way down the line; he said there is no end to what the ECB will do to improve the outlook. Blowing in the wind; as we have noted recently central banks regardless of what they will or could do are becoming more impotent every day in the context of driving economic growth. Draghi said the bank needs to review its policy stance at its next meeting. The ECB left its key interest rates unchanged, but Draghi hinted the bank will review its stimulus at the March ECB meeting. The inflation rate in Europe was expected to pick up from the 0.2% recorded in December and average 1% this year, rising further in 2017. But Mr. Draghi said it is now possible that prices will start to fall again over coming months.

At 9:30 the DJIA opened +18, NASDAQ -2, S&P +1 after trading higher in the pre-market futures this morning. The 10 yr note yield at 9:30 -1 bp at 1.97%. FNMA 30 yr 3.5 coupon +11bps frm yesterday’s close and +9 bps frm 9:30 yesterday.

Corporate earnings and forward guidance generally have been missing their targets; US economic outlook weakening from what we look at and expect. The advance Q4 GDP will be reported a week frm tomorrow, estimates are being revised lower but economists are likely to overestimate growth again.

Crude oil Feb contract expired yesterday, now March is month markets will track; the oil price below looks like oil increased, the price over $28.00 but actually prices have slipped a little.

As the clock ticks so far this morning the equity market is losing the early morning highs; the stocks have only lost about half of their valuations frm what we anticipate. Traders will sell into every attempt to rally, although the technicals are now in oversold levels. In this kind of sentiment swing though technicals take somewhat of a back seat.

Market Commentary

1/11/2016

Mortgage rates fell last week as China’s equity market spiraled downward. The Chinese shut down their stock exchanges on two separate days last week as circuit breakers kicked in which shut trading down after a 7% drop. After last week China will certainly be a central focus for the upcoming week.

The early portion of this week will likely be highlighted by events in China as the markets try to determine if a global slowdown in growth is the headline of 2016. There are plenty of releases out of China this week, including new yuan loans figures and trade data for December. Later in the week domestic economic data will get more attention. The highlight in the coming week will be Friday’s release of December retail sales and industrial production figures. There are several FOMC members in action at the back end of the week, with notably voting members, Bullard and Dudley, speaking on Thursday and Friday, respectively.

Economic Calendar for the week of 01/11/2016 to 01/15/2016:

Monday: Labor Market Conditions Index Change
Tuesday: NFIB Small Business Optimism and JOLTS Job Openings
Wednesday: MBA Mortgage Applications, Monthly Budget Statement and U.S. Federal Reserve Releases Beige Book
Thursday: Initial Jobless Claims, Continuing Claims and Import Price Index
Friday: Retail Sales, PPI, Industrial Production, Capacity Utilization, University of Michigan Sentiment and Small Business Inventories

Market Update

12/10/2015

The day started quietly with little change in the rate markets and early trade in stocks had the indexes generally quiet. At 8:30 weekly claims unexpectedly increased 13K to 282K, the highest level in the last five months, the 4 wk average 270.75 up frm 269.25, still holding at the 270K level. Claims were expected to be abut unchanged; there was no noticeable market reaction to the increase. There has been a continuing decline in claims over the last three years.

Also at 8:30 Nov import and export prices; import prices were thought to be -0.8% were down just 0.4%, yr/yr import prices -9.4% up frm -10.5% in October. It was the fifth straight month, highlighting the drag on inflation from cheap oil, a strong dollar and slow overseas growth. Export prices expected -0.3% were down 0.6%, yr/yr -6.3% up frm -6.7% in October. No reaction to the report.

The stock market opened -13, NASDAQ and S&P -1. The 10 at 2.21% unchanged, MBS prices -3 bps frm yesterday’s close and +1 bp frm 9:30 yesterday.

This afternoon at 1:00 pm Treasury will complete this week’s borrowing with $13B of 30 yr bonds re-opening the Nov issue. Yesterday’s 10 yr auction was decent but not over-whelming. With the FF rate increase coming next week the demand for longer dated treasury debt has been good. The strong dollar contributing to good foreign demand. The dollar however has lost a lot of ground recently although still strong comparatively, the dollar has lost about $0.05 against the euro in the last couple of weeks with the ECB cutting rates while the Fed is expected to increase rates next week. Most European sovereign debt is rallying this morning, with yields at the 10-year maturity falling by 3-4 basis points in most countries. European government bonds have recovered the majority of their losses from the European Central Bank rate decision last Thursday.

The Bank of England held its main policy rate at 0.50% in an 8-1 vote, citing subdued wage growth and low oil prices. Officials said that "there would need to be a sustained firming in domestic cost pressures, compared with current rates" to move inflation up towards the BoE's 2% target. No matter where one turns there is no inflation and no inflation on the horizon except for guessing by some central banks, the Fed particularly continuing to believe it is coming. Crude oil down, commodities lower, some wage pressures but not much, global growth slow to flat or declining…China the poster boy for economic slowing. The long end of the yield curve is confirming that inflation is not in the picture for maybe a year or two, 10s and 30s holding well with low rates.

This week markets have had little to look at in terms of key economic measurements. Tomorrow though the report of the week, Nov retail sales expected +0.3% both with and without auto sales. Also tomorrow Nov PPI, expected 0.0% overall and +0.1% for the core (ex food and energy). U. of Michigan and Oct business inventories also released tomorrow.

Still a neutral outlook near term. The 10 yr note isn’t likely to break below its brick wall at 2.20% today so any movement will likely be small price declines rather than any significant improvement in MBS prices today.

Market Update

12/4/2015

The Nov employment report added all that is needed for the Fed to make the move that the Fed has been talking about for the last eight months. The report was slightly better in terms of job growth from what had been thought. The unemployment rate unchanged at 5.0%; non-farm jobs +211k and revisions frm the previous two months added another 35K jobs in Sept and Oct. Private jobs increased 197K. Average hourly earnings +0.2% as expected, up 2.3% yr/yr. The labor participation rate 62.5% up 0.1% frm October. The U-6 unemployment 9.9%, down frm 11% last Nov. If there was any thought the Fed would pass on increasing the FF rate it should have gone up in smoke this morning. The Fed’s credibility is on the line, it has been but today’s report is strong enough that if the Fed holds off credibility would be extreme. The FF rate increase will be 0.25% with comments that the Fed is not on a pre-conceived plan to increase rates on a regular basis, but gradually; a point most Fed officials have said a number of times. But there are a couple of comments today that the Fed will do anther increase at the March meeting…..that demonstrates the uncertainty within markets now.
The economy has added an average 210,000 jobs a month this year, down from last year’s strong pace of 260,000 but still healthy enough to satisfy Janet Yellen. Private-sector workers, on average, earned $25.25 an hour in November, up 2.3% from a year prior indicating workers are gaining leverage as unemployment falls and the labor market tightens. The construction industry led last month’s job creation, adding 46,000 jobs. Retailers added 31,000.

Yesterday the ECB’s credibility was brought into question; the stimulus announced was less than what Mario Draghi had led markets to believe since his remarks last month. No additional monthly bond purchases just a six month extension of the present €60B a month. Given the disappointment in markets yesterday it is clear markets were expecting something in the neighborhood of €80B per month. Stock markets were hit, interest rates increased in Europe and the US , the dollar crumbled against the euro currency. The Fed is on deck, if there is no FF increase on the 16th of this month markets will be left in confusion, suspicion and chaos.
Market reaction to the employment data initially sent rates higher and prices lower but quickly saw some minor recoveries. The 10 yr yield hit 2.36% +3 bps frm yesterday’s close and right on the high yield back on Nov 9th on the October employment report before the three week decline. MBS prices started 15 bps lower but also flipped with treasuries. Yesterday’s selling in stocks and rate markets was a near term over-reaction; although the direction was understandable the amount of selling suggested some kind of technical panic.

At 9:30 the DJIA, after initially trading lower in the futures markets, opened +65, NASDAQ +13, S&P +8. The10 yr note yield 2.30% -3 bps frm yesterday’s sell-off. FNMA 3.5 30 yr coupon +19 bps frm yesterday’s close and -12 bps frm 9:30 yesterday.

The Oct US trade deficit expected at -$40.6B was -$43.9B.

Some improvement this morning but markets are still subject to increased volatility now. Expect market volatility in stock and bond markets next week. Technicals were heavily damaged yesterday, and with the uncertainty and volatility hanging over markets presently we suggest taking advantage of any price improvements to lock in deals now.

Market Update

11/4/2015

ADP reported private jobs in October up 182K slightly less than 185K expected. Sept private jobs were revised lower, frm 200K to 190K. The report in line with forecasts. Prior to the 8:15 release the 10 yr note down 4/32 (12 bp) to 2.22%, the report put a slight support in bonds but so minor it doesn’t make a difference. At 8:30 the 10 yr at 2.20% unchanged frm yesterday and the FNMA 3.5 coupon down 5 bps frm yesterday’s close. Yesterday MBS prices declined 20 bps, the 10 yr increased 2 bps to 2.2% but intraday the 10 traded at 2.22%, cutting through another support level at 2.20% as traders and investors continue their heavy long positions.
Yesterday China’s leaders fessed up that the growth rate next year at 6.5% frm 7.0% they say this year. China faces an aging economy that like the US in a few years will have to deal with a population of older people with less workers driving the engine. Last week it was announced that Chinese couples could now have 2 children, up frm 1 that was put in place decades ago. Japan’s economy has faced aging for years, one reason its economy is not growing as it did in the 80s. The International Monetary Fund, which tends to be more bullish than private economists, projects China’s economy will grow 6.3% next year.

No real movement on the lower outlook as markets already expected China’s growth would continue to slow. The weakening used to bother US investors but since the almighty Fed, the voice of all, noted last week that global slowing would not deter US growth much and not dissuade the Fed from normalizing rates as soon as Dec. Dec still a wild card and depends on Friday’s Oct jobs report and the Nov jobs data on Dec 4th. The FOMC meets again on De 14th and 15th, besides employment data for October and most of November will be in the hands of Fed officials and markets.

The Sept trade deficit reported at -$40.81 in line with forecasts.

At 9:30 the DJIA opened +32, NASDAQ +15, S&P +4. 10 yr note at 9:30 unchanged at 2.21%; FNMA 3.5 coupon unchanged frm yesterday’s close but down 14 bps frm 9:30 yesterday when most lenders set morning prices.

At 10:00 the October ISM services sector index expected at 56.7 frm 56.9; the index was the 2nd best this year at 59.1; new orders increased to 62.0 frm 56.7, employment increased to 59.2 frm 58.6. Prior to the report the mortgage prices were holding small gains, the report pushed prices back t unchanged.

Janet Yellen will testify at the House Financial Services Committee today but unlikely she will have anything to say about the potential of a rate increase in Dec; testimony on regulatory issues. Later this afternoon NY Fed President Wm. Dudley holding a press conference on economic issues, that should get attention.

Slightly better this morning after four days of strong selling of treasuries, but the ISM stopped price improvements. MBS price a little better than when morning prices were set but with employment on Friday and the bearish technical tone now, we want to sit out.

Market Update

10/23/2015

Early trade this morning stock markets globally rallying on news that China is lowering rates again, the sixth time in less than a year to prop up its economy. The benchmark lending rate cut by 0.25%, the one year rate now 4.35% frm 4.60%; the one year deposit rate to 1.50% frm 1.75%. The central bank also lowered the reserve requirements for banks by 0.5% to 17.5%. Yesterday in the EU the ECB’s Mario Draghi hinted more QE may be coming in December to fend off deflation kin the Zone.

The reaction yesterday to the ECB comment sent US stocks on a buying binge; the DJIA up 321, this morning on the China news early morning trading had the DJIA up another 150 points prior to the 9:30 open. The bellwether 10 yr note yield in early trading up to 2.09%, MBS prices down -17 bps at 9:00.

Tech stocks yesterday blew the doors off with stronger than expected earnings adding to the momentary run-up in equity markets. So far earnings reports have been generally better than thought overall, though companies that are multi-national earners like Caterpillar have experienced declines. It can’t be much better than it is now in the stock world, here and in Europe as well as Asia. Markets in Asia soared to their highest levels in two months on bets of easy-money policies from global central banks. The ECB yesterday, China today and next week the FOMC will likely make another attempt to paint the US economy in bright colors. A momentary perfect storm.

The global equity market improvement has pushed US interest rates slightly higher; the 10 yr note this morning at 2.09% +7 bps and above its 20 day and testing its 40 day average. Not too bad given the way markets are trading the last two sessions. Still the lack of inflation and concerns that the current mania will ebb soon are keeping rates well-contained. We have been concerned for two weeks that the 10 yr note was running into strong resistance at 2.00%, the inability to break the technical and psychological has lessened traders’ appetite for treasuries for the time being, but the backup in rates has been minor.

At 9:30 the DJIA opened +125, NASDAQ +92, S&P +19. The 10 yr note 2.08% +6 bps and MBS price on FNMA 3.5 coupon -16 bps frm yesterday’s close but unchanged frm 9:30 yesterday. It is encouraging that rates are holding well in the current mania driven by global central banks. Still have the FOMC meeting next week, the strong opening today in stocks may be the highs of the session going into the weekend but the fever is running high presently.

No data today. We appreciate how the bond and mortgage markets are acting this morning in the face of the global central banks on slot of easing the last 48 hours. As long as the 10 yr note yield holds below 2.15% the broader outlook remains bullish. No matter how central banks are acting now, no matter the stronger earnings in tech stocks, neither of them have any direct influence on consumers and consumer spending. Wages stagnant and low will keep growth mediocre at best; retail recently weak, most surveys on consumers report declining optimism; the idea that low gasoline prices will stoke consumer spending has yet to materialize. Standing in the wings, the coming debt ceiling concerns.

Market Update

10/22/2015

Weekly jobless claims was the first report this morning. Claims were expected to have increased 10K to265K, as reported claims increased 3K to 259K. The smoother 4 week average continues to decline; 263.25K frm 265K last week. Claims are hanging near 42 year lows.
News frm the ECB meeting trickling out early today; Draghi saying the bank will continue to assess its policies to counter the effects of slowing emerging markets that are dragging the EU down. He suggested the EU likely will need increased monetary stimulus; markets taking that as a move in Dec. “Concerns over growth prospects in emerging markets and possible repercussions for the economy from developments in commodity markets signal downside risks to the outlook for growth and inflation,” Draghi said. The bank let interest rates unchanged at the meeting, at 0.05% and the deposit rate at -0.2%. The ECB is currently buying €60B a month ($67B). Rates declined on Draghi’s comments; the German 2 yr note yield down three basis points to 0.03% to a minus 0.29%.

At 9:00 the August FHFA home price index, expected to have increased 0.5%, increased just 0.3%. Yr/yr the index is up 5.5%, down frm July’s yr/yr at 5.8%. More confusion; other recent indications and reports on the housing sector have implied increasing prices, the exception has been Case/Shiller; this data lines up with recent data frm Case/Shiller’s reports. Not a market mover.

Even before the stock market opened this morning the MBS market was volatile, very early prices opened down as much as 20 bps, then in a very thinly traded market the prices jumped back to unchanged by 9:00 am. The 10 yr note, on comments frm Mario Draghi, edged closer to 2.00%, at 2.02% at 9:00. The DJIA opened +129, NASDAQ +35, S&P +14. The 10 slipped back to unchanged at 2.03%; 30 yr FNMA 3.5 coupon -2 bps frm yesterday’s close and unchanged frm 9:30 yesterday.

Two key reports at 10:00 am; Sept existing home sales up 4.7%, better than +1.0% expected. Annual sales up 8.8% yr/yr. Inventories -3.0% yr/yr, the median sales price $221,900 +6.1% yr/yr. August sales were revised slightly lower by 100K. Sept leading economic indicators were expected 0.0% as reported declined 0.2%, August indicators revised from +0.1% to 0.0%, the decline was the second this year, the other hit in Feb. LEI is a composite index of ten economic indicators that should lead overall economic activity, but recently traders have put less emphasis on it.

Stocks rallying the bond and mortgage markets flat-lining recently. Same story, we do not want to float, taking long position in the bond or mortgage markets until the 10 can break below 2.00%. We continue to believe rates will decline more but until the market actually meets our expectations we think the best approach now is to keep locked. There is little reward here but increased risk that prices could decline at these levels; we will float to begin though.

Market Update

10/21/2015

Early activity prior to the actual open at 9:30 had stock indexes better along with markets in Europe; the 10 yr note yield also better as were mortgage prices. It is earnings season, overall investors and traders are liking what they see, however that is because the estimates had been ratcheted lower after strong Q2 earnings. Corporate earnings and profits expected to decline in Q3 and Q4; in the world of investments at times it appears investors and traders don’t care the economic outlook is slowing as long as data beats the weaker estimates.

At 9:30 the DJIA opened +56, NASDAQ +21, S&P +7. The 10 yr note yield at 2.05% -2 bps; 30 yr FNMA 3.5 coupon +11 bps frm yesterday’s close and +8 bps frm 9:30 yesterday.

Should be another quiet day today; so far this week not much movement in the bond and mortgage markets. Not much data, the ECB tomorrow and the FOMC next week keeping markets stable.

This morning the only news today; weekly mortgage applications from the MBA; apps increased 11.8% overall, purchase apps +16%, re-finance apps +9%. Mortgage applications swinging wildly the last three weeks on new disclosure rules. The week before this apps declined 27.6%, purchases -34%, re-finances -23%. The week prior to that; apps +25.5%, purchases +27%, re-finance apps +24%. Hard to draw any conclusions frm mortgage applications over the past three weeks.

MBA reported yesterday that the association expects $905B in purchase applications next year; up 10% frm this year. Re-finances according to MBA down by 30% frm this year to $415B. On net, mortgage originations will decrease to $1.32 trillion in 2016 from $1.45 trillion in 2015. For 2017, MBA is forecasting purchase originations of $978 billion and refinance originations of $331 billion for a total of $1.31 trillion.

The Atlanta Fed GDPNow out yesterday; GDP growth (seasonally adjusted annual rate) in the third quarter of 2015 is 0.9% on October 20, unchanged from October 14.

Yesterday the 10 yr note yield rose to test its 20 day average and it held; this morning a little better at 2.04% -3 bps. 2.00% remains a rock solid resistance while the upside should not move above 2.15%. Still holding minor bullish bias but unlikely to move much until next week’s FOMC meeting; even then to drive rates lower for mortgages and treasuries it will take additional weakness in Europe, in Asia and emerging markets. Zero interest rates frm the Fed continue to drive investors to equities even as Q3 growth is expected to decline to less than 1.0% growth.