Market commentary

Bond prices rose sharply, meaning interest rates fell, on Monday and stocks were lower as uncertainty over U.S. economic growth regained its footing. Stocks lost most of what they had gained on Friday, and bonds recouped about half of Friday’s losses.

This morning the Conference Board reported its Consumer Confidence index rose to 53.5 in August, up from 51.0 in July. In addition to this positive consumer confidence news, home prices in 20 U.S. cities, as measured by the S & P/Case-Shiller index, rose 4.29% from June 2009.

At 2:00 PM, ET today, the Fed releases its minutes from its August 10th meeting. Much has been made about the varying opinions at the Fed and these minutes will provide the only true insight we get into how adamant each member is and how persuasive their arguments are during FOMC meetings.

Both stock and bonds are improving this morning, with mortgage pricing better by .125% to .250%.

Market commentary

Fed Chairman Bernanke pulled the rug out from under the bond market on Friday during a speech at the Jackson Hole monetary symposium. Bernanke was more upbeat than many expected him to be, and his explanation of the Fed’s decision to re-invest cash flows from the Fed’s MBS portfolio told us the market had probably over-reacted. A second round a quantitative easing is further away than anticipated so rush into the U.S. Treasury market was a bit over done. Expect to see more volatility this week as a result, all leading up to Friday’s important release of nonfarm payrolls.

This morning’s release of Personal Income and Spending were largely in line with expectations. Spending was, however, up slightly which was seen in Friday’s GDP release. Inflation, as measured by Core PCE, was in line with expectations as well and reflected only a minor up tick in prices from the previous month – not nearly enough to signal a shift in inflation expectations.

U.S. Treasury prices are recovering from Friday’s sell off and mortgage prices are improved by approximately .25% .

Market commentary

In a speech from the Fed’s annual monetary symposium held in Jackson Hole, WY, Federal Reserve Chairman Ben S. Bernanke said the U.S. central bank “will do all that it can” to ensure a continuation of the economic recovery. The Fed chairman gave a detailed analysis of the economy and said growth during the past year has been “too slow” and unemployment “too high.” Bernanke also stated the Fed has several tools if prices decelerate, or job growth stagnates, including shifting the composition of its bond reinvestment strategy.

Earlier this morning the Commerce Department reported GDP for Q2 was revised lower from an initial estimate of 2.4% to 1.6%. This was better than the anticipated revision estimates that ranged from 1.00% to 1.40%. As a result, Treasuries sold off immediately following the release with the 10-year down half-a-point, while stocks moved higher. The sell off in Treasuries continues with the 10 year now lower in price by .875% at a yield of 2.575% and the 30 year bond is lower in price by 1.625% with the yield rising to 3.605%. Recall that as recently as Wednesday morning the yield on the 10 year note traded as low as 2.42%.

Market commentary

New claims for unemployment benefits fell to 473,000 from a revised 504,000 last week. While an improvement, a number at these elevated levels signals the labor market continues to be weak and will be an impediment to economic growth.

Many economists are now changing their view of economic growth in the U.S. with some giving the chance of a double-dip recession as high as 40%. Goldman Sachs economists also put out an investment note to customers yesterday saying they believe the recent host of negative headlines will force the Fed into further action before year-end.

The Fed is having its annual symposium in Jackson Hole beginning today. Fed Governor Hoenig put out the first sound-bite this morning saying that he still believes the economy is having a “modest recovery” but that “uncertainty is driving things”. I think you and I probably has this figured out, “uncertainty is driving things”, but it is nice to know a Fed governor concurs.
Treasury auctions $29B 7-year notes this afternoon and the Fed will be buying Treasuries. Yesterday’s auction of 5-year notes was decent with above average bid/cover and better indirect demand than we saw on the 2-year auction. Bond markets will continue to trade with their eyes glued to Jackson Hole and tomorrow’s release of GDP figures.
After a brief rally Wednesday morning, in which the 10 year note traded as low as 2.42%, bonds sold off sharply. As of this writing bond prices are flat to Wednesday’s close, with the yield on the 10 year note sitting at 2.55%.

Market commentary

Durable Goods Orders were released this morning and showed weaker activity than the expected 3.0% increase over June levels. Instead, Durable Goods Orders were only up 0.3% and Ex-Transportation they were down 3.8%. There is no silver lining inside the report.
The Commerce Department reported new home sales fell 12.4% in June, another disappointment in the housing sector. Hope that August would bring a respite from the negative economic data has not materialized, driving investors to the perceived safety of fixed income, particularly U.S. Treasuries. It will be difficult for the short maturities to rally, however, yields on the 30 year bond and 10 year note are falling, flattening the yield curve. The yield on the 10 year note has fallen below 2.50%, trading at 2.46%. Prices for mortgages have improved between .125% and .25%.

Market commentary

The National Association of Realtors reported existing home sales fell 27.2% in July to the lowest level in 15 years, with the supply of homes rising to 12.5 months at the current pace of sales. The weak state of the housing market is of great concern as it reflects deterioration in demand, which in turn affects prices.

As one should expect, stocks are being sold and U.S. Treasuries are rallying as investors flock to a safe harbor with most of the buying on the long end; the 30 year bond. The price of the 30 year is higher by 1.75% while shorter maturities such as the 5 year note are higher by only .30%. Mortgage prices have improved between .125% and .25% from the close on Monday.

One major item remains for today, and that is the Treasury auction of $37 billion of 2 year notes.

Market commentary

There are no economic releases scheduled for today, however, the remainder of the week we will see data on existing and new home sales, durable goods orders, with 2nd quarter GDP being the finale on Friday. The U.S. Treasury will also auction $102 billion of new debt beginning with $37 billion of 2 year notes on Tuesday, $36 billion of 5 year notes on Wednesday, and $29 billion of 7 year notes on Thursday.

Bond prices continue the decline from Friday with the yield on the 10 year note rising to 2.63%.

Market commentary

There are no economic releases scheduled for today but, luckily, yesterday’s were depressing enough to last two days. Initial Jobless Claims again put a sour tone on the employment picture and the Philly Fed indicator of manufacturing activity capped off the day with a much lower-than-expected reading sending investors flying for cover.

The Conference Board’s index of Leading Indicators was released yesterday as well showing a drop in the year-over-year figure from 8.3% to 7.1%. Investors flocked to Treasuries on the negative news driving the 2-year to another record-low close at .48% and dropping the yield on the 10-year by 6 more bps to close the day at 2.57%.

The U.S. Treasury announced the sale of $37B 2-year notes, $36B 5-year notes, and $29B 7-year notes next week. $102B of supply should adequately test investor’s resolve to stay in Treasuries at these low rates.

Market commentary

Initial Jobless Claims rose again last week continuing their disturbing trend. Claims rose from 488k last week (revised up 4k from 484k) to 500k. Survey expectations were for claims to come in 22k lower at 478k. This continues to bode poorly for the labor market. Ironically, this release comes out on the same day Intel announces that they are purchasing McAfee for $7.68B in cash.

The Fed finished their initial week of re-investing cash-flows from the MBS portfolio, so we can look for the markets to set-up for next week’s Treasury auctions of $36 billion or 2 year and 5 year notes and $28 billion of 7 year notes. Wednesday afternoon we saw the beginning of this as investors sold treasuries taking mortgage bonds down with them, and causing most lenders to re-price their rate sheets for the worse.

This morning U.S. stocks are trading lower in spite of the Intel acquisition news while the bond market is flat from the close on Wednesday.

Market commentary

There was no economic data released this morning, so the markets have little on which to focus. Bond prices are surging after a decline on Tuesday, with the yield on the 10 year note falling back to 2.60%. The stock markets are flat from the close, and mortgage prices are unchanged as well.

Market commentary

While not considered a major reading on inflation, the Producer Price Index released this morning reflected inflation is not a concern. July PPI rose 0.2%, and the core rate rose 0.3%, with a year over year reading of +1.15%. Additional good news for the stock markets came from the Federal Reserve with a report Industrial Production rose 1.0% last month, offering a glimmer of hope after the past two weeks of weak economic reports.

Bonds are giving back a small portion of Monday’s gains, however, not enough to consider the bull market over. Regarding bonds, specifically U.S. Treasuries, a report today stated China has reduced its holdings of U.S. debt for a second consecutive month. Potentially offsetting the lack of Chinese buying is the Federal Reserve as today the Fed will conduct its first Treasury purchase under its newly announced plan to reinvest its cash-flows from its mortgage bond holdings.

Market commentary

The past two weeks have witnessed a significant shift in the expectations for the U.S. economy. Prior to August, many observers and prognosticators were calling into question the pace of recovery. But the past thirteen days has seen an almost universal shift in expectations from not great to downright gloomy. Fixed income investors who had inflation as risk number one have now become focused on the threat of deflation.

This week the markets will see data on manufacturing and the housing market, which data was led off today with the Empire Manufacturing index. The index reflected expansion in the region, although not as much as expected. In addition to the U.S. data, weak economic reports from Japan are also supporting the case of slowing global growth.

Two important items on this week’s calendar are: 1) the Conference on the Future of Housing Finance, in which the future of the GSE’s (FNMA and FHLMC) will be discussed, and 2) the Fed will begin their first round of re-investing cash-flows from their portfolio of mortgage backed securities. The Fed will be buying U.S. treasuries with maturities in 4 – 6 years.

The market reaction to this morning’s data is a significant rally in the long end of the bond market. The price of the 30 year bond is improved by almost 2.00% and the price of the 10 year note is higher by .625%, dropping the yield to 2.60%. Mortgage bonds have improved by .125% to .25%.

Market commentary

This morning’s economic releases show core inflation coming in as expected with headline CPI (which includes food and energy prices) rising more than expected. Retail sales were slightly improved from June (+.2%) but ex autos and gas were actually down (-.1%). All of the numbers today confirm expectations that there is no inflation brewing and consumer spending is not accelerating. Yesterday’s $16B 30-year auction went extremely well with great demand from both direct and indirect bidders, stopping at 3.954%

Wednesday the yield on the 10 year note fell below 2.70% and has rallied back to that level this morning after Thursday bond sell off. Mortgage pricing is improved by .125% to .25%.

Market commentary

Initial jobless claims surprised to the high side again this morning. They were expected to be 465k for the previous week following last week’s surprisingly high 479k. In fact, last week’s numbers were revised higher to 482k and this week saw 484k new initial jobless claims.

The markets digested the Fed’s new assessment of the economy by selling stocks and moving into less risky assets, a.k.a., U.S. Treasuries. This morning stock and bond markets are taking a breather with both relatively flat from Wednesday afternoon’s close. Mortgage bonds are approximately .25% worse in price.

The remaining event for the day is the Treasury auction of $16 billion of 30 year bonds.

Market commentary

The FOMC statement released Tuesday afternoon ahs given investors plenty to think about. The Fed noted it sees a slowdown in output and employment, and announced it will reinvest cash flows from its mortgage bond holdings into longer term treasuries. You should know under normal conditions the Fed invests reserves in Treasury bills, maturities less than 1 year. So longer term treasuries for the Fed means 2 to 10 years, generally less than 10 years.

After sleeping on this information, the markets have reacted strongly today, with U.S. stocks sharply lower. Yields on Treasury notes and bonds are moving lower as we see the yield on the 10 year note fall to 2.71%. Keep in mind, the U.S. Treasury will auction $24 billion of 10 year notes today.

The Fed sent a clear message Tuesday, that interest rates will remain low for an extended period of time, until there is clear evidence the employment picture is improving and deflation is no longer a concern.

Market commentary

Bleak economic reports present a rather gloomy backdrop to today’s Fed meeting. In the 2nd quarter of 2010 U.S. business productivity fell 0.9% and labor costs remained flat. The decline in productivity was the first in 1 ½ years and suggests businesses may need to hire additional workers soon as the existing labor force is at maximum capacity. In addition to the decline in productivity business inventories rose as sales slumped.

Economists, analysts and investors are all focused on the language in today’s Fed announcement for any verbiage change that significantly alters the current position low rates and sitting on the bench waiting and hoping for a recovery.

As if there was not enough for the markets to digest this morning, the U.S. Treasury continues its task of issuing more debt for bureaucrats to spend. Today the Treasury will auction $34 billion of 3 year notes, followed by $24 billion of 10 year notes on Wednesday and $16 billion of 30 year bonds on Thursday.

Both bond and stock markets are sliding today, with mortgage prices worse by .125% to .250%.

Market commentary

Friday’s non-farm payroll report reflected the Federal Reserve’s view the U.S. economy is slowing, and it goes without saying, the lack of job growth will make the path to recovery long and hard. All the more reason Tuesday’s Fed meeting is gaining more and more attention. There have been a few discussions suggesting the Fed should re-enter the markets as a buyer, however, that is most likely not happening soon.

The Fed is concerned the U.S. could be entering a deflationary period similar to Japan---let’s hope that is not the case.

After Tuesday’s Fed decision the most important data remaining this week is the Consumer Price Index, Retail Sales, and Consumer Confidence, all schedule for Friday.

This morning, both stock and bond markets are relatively flat to their respective closes on Friday.

Market commentary

Non-Farm Payrolls dropped -131k for the month of July, exceeding the expectation of a decline in payrolls of -65k. Private Payrolls added +71k, slightly below expectations of +90k, while government payrolls dropped -202k which reflects a loss of census workers and, more importantly, an apparently larger-than-expected loss in state and local positions. Confirming earlier economic reports that showed the depth of the recession was deeper than originally believed, prior payroll reports were revised sharply lower. Overall payrolls in June were revised lower -96k, -52k lower in private and -44k for government payrolls.

This sets the stage for next week’s FOMC one day meeting and subsequent policy announcement. The Fed is deeply concerned the specter of deflation is rising. No job growth creates less demand for goods and services, and less demand usually equates to falling prices.

In reaction to this morning’s data, bonds are rallying with mortgage prices improved from Thursday by approximately .25%, and the U.S. equity markets are in sell mode.

Market commentary

U.S. Initial Jobless Claims were released this morning and reflected a larger-than-expected increase to 479k last week. Treasuries are rallying on the news, but any move today can quickly be undone tomorrow morning after the release of the jobs data.

The market will focus on private payrolls for which the consensus is that they will increase by 83k while the headline number, which includes government payrolls, is expected to drop by 125k (driven by declines in census workers). Employment reports released earlier in the week including ADP’s, Challenger’s, and Monster’s all reflected slightly better employment numbers allowing the markets to breathe a little bit easier going into tomorrow’s report.

The 10 year Treasury note is trading at 2.91% this morning, seemingly stuck in the range of 2.90% to 3.10%. This could all change tomorrow with any surprise in the jobs data.

Market commentary

The bond market has been a see-saw affair so far this week, and today we see that continue. After a nice price improvement Tuesday bonds are lower this morning as a result of two employment reports reflecting employers have slowed layoffs and there may be light at the end of the tunnel in terms of hiring. This is a precursor to Friday’s jobs report which is expected to show the U.S. lost 60,000 jobs in July.

Mortgage prices are approximately .125% worse than Tuesday; however, interest rates on mortgages remain near historic lows.

Maket commentary

This morning, markets are reacting to a report consumer spending and personal incomes were flat in June as well as the Fed’s recognition that the pace of recovery is weakening. The 10-year note has rallied overnight to its lowest open in over a year at 2.90%.

Fed Chairman Bernanke spoke yesterday in South Carolina in what has been characterized as a depressing event, and made two noteworthy comments. First, he reiterated his optimism that consumer spending would pick up in the 3rd quarter implying that he is leaning toward taking no new easing action in next week’s FOMC meeting. Second, he continued his advocacy of extending the Bush tax cuts (at least in part) saying that lawmakers need to be careful not to tighten, further slowing down the weak recovery.

The first Friday of each month the Labor Department releases the jobs data for the previous month. This Friday the expectation is another 60,000 jobs were lost in July after a decline of 125,000 in June.

Market commentary

Stock markets are rebounding sharply this morning as this morning’s data eased concern the economic expansion was slowing sharply. In the U.S., the Institute for Supply Management reported its manufacturing index fell slightly to 55.5 in July from 56.2 in June. Keep in mind a reading above 50 reflects expansion. In addition to this an index gauging economic activity across 24 developed nations rose 2.3% to its highest level since May.

As one would expect, the rally in stocks is causing a reversal in the bond market, although the yield on the 10 year Treasury note remains below 3.0%, currently trading at 2.94%. The significant decline in interest rates coupled with low home prices makes this a great time to buy a home. Please contact your Home Savings of America sales professional to review HSOA’s purchase incentives.