Market commetnary

Tuesday’s data began with the Case/Shiller housing price index falling .08% in September from August, reflecting the housing market continues to struggle. Separately, the Conference Board told us their measure of consumer confidence rose from 49.9 in October to 54.1 in November, and the ISM Manufacturing index rose slightly from 60.6 in October to 62.5 in November.

These data have all been over powered by the contagion in the Euro zone after the agreement to bailout Ireland, on the heels of the Greece bailout. Markets are pushing Portuguese, Spanish and Italian debt to higher yields---meaning a greater perception of risk.

U.S. Treasuries are again benefiting from this turmoil and we see a slight follow-on in mortgages. Mortgage pricing is improved by approximately .25%.

Market commentary

With no economic data on the calendar today the markets continue to focus on the European bailout of Ireland and possibly Portugal and Spain. With an agreement reached with Ireland over the weekend the markets continue to be skeptical that the EU and Euro are out of the woods.

The reminder of this week is data heavy with housing data, the ISM manufacturing data, the Fed’s Beige Book and of course on the Friday the all important non-farm payroll data. Current estimates are for the unemployment rate to remain at 9.60% and payrolls to show zero growth.

Today we see the equity markets in sell mode and U.S. Treasuries with a small flight to quality bid; both based on the financial struggles in Europe. Mortgage pricing is improved from Friday by .375% to .50%!

Market commentary

Treasury yields rose sharply on Wednesday in a sell-off driven by strong economic data and a weak seven-year auction. As expected, trading was light ahead of the Thanksgiving holiday but still decent. The strong economic data was mostly on the consumer front as income and spending posted expectedly nice gains in October and the University of Michigan’s consumer confidence index rose above 70 (still a soft level) for the first time in since June. Most importantly, initial jobless claims plunged nearly 30,000 to 407,000, possibly breaking out of this year’s range.

This morning, there are no economic data releases to drive trading, however early reports of Black Friday retail sales are coming in strong. While the holiday shopping season is not just a one-day affair, the season appears to be off to a strong start as a combination of pent-up demand, higher stock prices, and improving confidence.
Meanwhile, Europe continues to be a source of concern as the contagion that has been feared for many months now appears to be taking hold. Even as the ink has yet to dry on Ireland’s bailout / support package, attention is turning to Portugal and Spain. This morning, there are denials from the EU and Portugal that the nation is being pressured to request financial aid.
Finally, that saber rattling from N. Korea continues, and that is what actually has bond prices slightly improved and stock prices lower.
The bond market will close early today and as is the HSOA rate lock desk. HSOA will be accepting rate locks until 12 noon, PT.

Market commentary

Weak demand at Tuesday’s 5 year note auction pushed bond prices lower as the market closed. This morning, Initial jobless claims plunged to 407,000 in the most recent week, the lowest level of job losses since the summary of 2008 and decidedly below the 2010 range. The four-week average also fell to its lowest level since 2008. This data was the most significant of the day and has pushed bond prices further down, meaning interest rates are higher.

In other data, October personal income slightly topped estimates while spending was a touch shy of forecasts and the always-volatile Durable Goods Orders were very weak in October across a range of sectors.
The FOMC released its November 2-3 meeting minutes yesterday afternoon and they reflected 1) a collectively weaker economic forecast than at the June meeting, 2) division among members on QE2, 3) and an inquiry into the effectiveness of the Fed’s public communications.
Finally, the Treasury will auction 7 year notes today, which given the weak demand for the 5 yr notes, could move interest rates even higher.

Market commentary

This morning’s economic data has been overshadowed by the North Korean attack on South Korea, and the subsequent response. U.S. Treasuries are seeing flight to safety bid and stock markets are down sharply.

In today’s economic releases, 3rd quarter GDP was revised higher than expected from 2.0% to 2.5%, however, existing home sales fell 2.2%. The decline in sales is being attributed to overly strict lending standards and unemployment, which makes sense, as interest rates are at half-century lows and home prices have fallen significantly the past two years. New regulations resulting from the Fed and Dodd-Frank Act will only worsen this scenario.

For today, mortgage prices are better by .10% to .20%.

Market commentary

No economic data on the calendar today, however, Tuesday and Wednesday will deluge the markets with information, i.e., GDP, existing home sales, new home sales, and consumer confidence to name a few of the reports that could have the most effect on the markets.

In addition to the economic data, the U.S. Treasury is auctioning $99 billion of 2y, 5yr and 7yr notes, beginning with today’s auction of $35 billion in 2 yr notes.

If all of the above were not enough, there is the ECB bailout of Ireland and possibly Portugal to add to the mix. Finally, the Fed will purchase $7 to $9 billion in Treasuries today with maturities from 2018 to 2020, as part of the QE2 program.

For the mortgage pricing, mortgage bonds are improving along with Treasuries this morning, pushing interest lower across the board. Pricing is .20% to .30% better than Friday.

Market commentary

There are no economic releases today. The Fed will purchase $1.5 to $2.5 billion in longer term bonds; however, recent bond purchases by the Fed, despite their size, have made little impact on intraday prices, and have not lowered yields.

Next week will be holiday light with many folks on vacation and the markets closed Thursday for the Thanksgiving Day Holiday. Early in the week the Treasury will auction 2 yr, 5 yr and 7 yr notes, and economic releases will include the minutes from the last Fed meeting, data on new and existing home sales and consumer sentiment.

Prices for mortgage bonds improved late Thursday afternoon and have remained steady this morning. Pricing is better .125% to .25%.

Market commentary

The market news today is all about the General Motors IPO, which has buoyed U.S. stock markets. Treasuries are faltering, so once again interest rates are climbing. The yield on the 10 year note hit 2.96% early this morning, but has since recovered to 2.93%. The bear attitude in the bond market does not appear to be going away anytime soon, but looking at the glass half full; one can still obtain a 30 year fixed rate mortgage at 4.50% or better.

Market commentary

Consumer prices, as measured by the Consumer Price index, were forecast to increase 0.3% in October but fell short, only increasing 0.2%. Excluding food and energy costs prices were unchanged from September, but were expected to have increased 0.2%. Year-over-year core inflation grew at the lowest rate on record in October at 0.6%. Commodity prices have traded lower the past few days, but one of the things I watch is the price of gasoline, which is over $3/gallon in south Orange County, CA. As we all know, higher gas prices are a direct reduction to consumers’ disposable income.

Stocks took it on the chin Tuesday and bonds rallied. This morning we see stocks flat and bond prices improving again, with mortgage prices better by 20 bps to 30 bps.

Market commentary

The Labor Department told this morning the Producer Price Index rose 0.4% in October versus the expectation of +.08%, while the core rate, less food and energy, fell 0.6%. The drop in the core rate was attributed to a decline in prices for new cars, trucks and computers. This data does tend to confirm the Fed’s point of view that inflation is not a problem.

The criticism the Fed has received regarding its 2nd round of quantitative easing has caused the markets to lose confidence that the Fed has enough commitment to keep interest rates low. The past two days have seen the biggest two-day decline in bond prices in almost two years. This morning bonds appear to have temporary support, but after declining early the yield on the 10 year note is stubbornly holding at 2.96%.

Mortgage prices worsened in lock step with treasury bonds, and you will note pricing for mortgages is worse than Monday. Keep in mind; however, one can still obtain a 30 year fixed rate loan at 4.50% with premium pricing, still a VERY good deal!!

Market commentary

There was blood in the streets for Treasuries last even though the Fed made its first QE2 purchases, $7.229 billion of 4- to 5.5-year maturities. Despite the Fed buying, Treasuries are got shellacked including the maturities the Fed bought. This is a strong signal that the effects of QE2 were already priced into the market. This will be the part of QE2 that is disconcerting for the Fed. If rates spike higher on the inflation concerns, the flow of credit becomes more expensive and not as simulative to the economy.

This week’s economic calendar is full of significant releases beginning with this morning’s October retail sales report. Sales rose much sharper-than-expected, led by auto sales. Excluding autos, October retail sales rose an as-expected 0.4%. In manufacturing, however, the news was not so good. The NY Feed’s Empire Manufacturing survey fell to -11.14 in November, its lowest level since April 2009. The remainder of the week will give us inflation data from the Producer and Consumer Price Indices, Housing Starts and Leading Economic Indicators.
Mortgage prices are another 20 bps to 30 bps worse in price from the market close on Friday, and the yield on the 10 year note has spike to 2.86%.

Market commentary

The increase in consumer sentiment, which is normally positive for stocks, was a non-event this morning. The markets instead are focusing news that China may continue to rein in economic growth and inflation by raising interest rates, and thus, slowing the global recovery.

Stocks, bonds, and commodities are all taking it on the chin, and we have seen the yield on the 10 year note climb to 2.75%. Mortgage prices are approximately .25% worse from the close on Wednesday---remember, the bond market was closed Thursday, Veteran’s Day.

Market commentary

The bond market is closed today in honor of the Veteran’s Day Holiday. The HSOA lock desk will be accepting locks until 12 noon, Pacific Time.

We at HSOA wish to honor and thank our veterans and active duty military!

Market commentary

Tuesday’s 10 year note auction was well bid, however, bond traders are trying to understand the effect QE2 will have on the market. That uncertainty led to more selling yesterday as traders believe the market was bid to high. These concerns remain in front of today’s auction $16 billion of 30 year bonds as yields are once again moving higher…prices worse. Mortgage prices are worse by approximately .250%.

Market commentary

Monday’s auction of $32 billion of 3 year notes went well and is followed today by $24 billion of 10 year notes. In addition to government borrowing, U.S. companies are also taking advantage of low interest rates as $20 billion of high grade debt was brought to market last week.

Back in the news are the countries of Ireland, Portugal and Greece and markets are again concerned about the debt of these countries. What is unclear this time around is if there is a confidence crisis will U.S. treasuries be the recipient of the flight to quality bid.

Bonds closed worse on Monday and are faltering again this morning as the yield on the 10 year note has pushed back up to 2.58%. Mortgage prices are worse by approximately .250%.

Market commentary

The economic calendar this week is very light; however, the US Treasury will fill in much of the void with its auction schedule. Today, Treasury is auctioning $32 billion of 3 year notes, followed by $24 billion of 10 year notes on Tuesday and $ $16 billion of 30 year bonds on Wednesday. Remember, Thursday the bond market will be closed in honor of the Veteran’s day holiday.

One item worthy of watching is the upcoming G20 summit. World opinion is lining up in criticism of U.S. monetary policy, with officials from many countries denouncing the Fed’s new quantitative easing program. Even Fed Governor Kevin Warsh in a WSJ op-ed piece stated the “Federal Reserve is not a repair shop for broken fiscal, trade, or regulatory policies”, a clear shot at the current administration and Congress.

The bond market is flat from the close on Friday with little change in mortgage pricing.

Market commentary

The final event in one of the week was the employment report, and it was a surprise. Nonfarm payrolls increased 151,000 in October and September’s figure was revised 54,000 better. In the private sector, 159k jobs were created and the September release was revised 43,000 higher. Average weekly hours increased from 34.2 to 34.3 and hourly earnings were up 0.2% month-over-month. The other piece of the report, household survey, tells a different story. The unemployment rate remained at 9.6% and the underemployment rate dropped slightly from 17.1% to 17.0%. The bond market immediately gave back most of Thursday’s gains on this stronger than expected data, however stocks are flat.

In reference to Wednesday’s Fed action, there is a growing chorus of frustration coming from other countries regarding the Fed’s monetary policies. According to the Financial Times, China, Brazil, and Germany all criticized the Fed action with Brazil’s finance minister commenting, “Everybody wants the U.S. economy to recover, but it does no good at all to just throw dollars from a helicopter.” The Brazilian Finance Minister continued saying, “You have to combine [monetary policy] with fiscal policy. Hmmm, what does this guy from Brazil know that our US politicians don’t know? Is it that increased government regulations and borrowing to support state and local governments does not actually create jobs?

Mortgage pricing is .20% to .30% worse from Thursday afternoon.

Market commentary

Stocks and bonds are in rally mode this morning on the news that the Fed is embarking on a second round of quantitative easing. The Fed will purchase approximately $75 billion of Treasuries per month until June 2011 for a total of $600 billion. They also quantified their expected reinvestment amounts from their MBS principal cash flows saying those reinvestments would total approximately $35 billion per month. In total, the Fed is expected to purchase approximately $110 billion per month for the next 8 months, almost as much as there will be Treasury supply. The average duration of purchases will be 5 to 6 years and 86% of all purchases will be between 2.5 years and 10 years in maturity.

As for Friday’s non-farm payroll data, expectations are for total payrolls to increase from -95k in September to +60k in October. The unemployment rate is expected to remain at 9.6%. With the news this morning that last week’s Initial jobless claims spiked back above 450, 000, coming in at 475,000, and given other recent employment indicators the +60,000 seems a reasonable expectation.

With the rally in mortgage bonds today, pricing is .375% to .50% better than Wednesday afternoon.

Market commentary

The mid-term elections overwhelmed this morning’s economic data, which was actually positive. ADP forecast the US added 43,000 private sector jobs in October compared to a loss of 2,000 in September, and the Institute for Supply Management reported its index of non-manufacturing business rose to 54.3 from 53.2.

The above data had no effect on the markets as the focus is now on the results of the Fed meeting, which will conclude this afternoon with the publication of Fed policy announcement. Expectations are for approximately $500 billion of new quantitative easing. Anything more or less will create significant volatility.

Bond prices are improved this morning on expectations the Fed will be more accommodating. Pricing for mortgages has improved by approximately .25%.

Market commentary

No economic data on the calendar, however, the polls are open for mid-term elections which will give the markets plenty on which to focus. The Federal Open Market Committee (FOMC) of the Federal Reserve begins a 2 day meeting at which the committee members will discuss the state of the US and global economies, and the amount of quantitative easing (QE2) that may or may not be appropriate.

Bond prices slipped on Monday, but have rebounded slightly this morning. I expect the markets will be fairly tame until the results of the elections are know late this evening, at which time the focus will shift to the Fed announcement Wednesday afternoon.

Market commentary

Today begins one of the most important weeks in recent memory for the financial markets as we have are scheduled to have historical mid-term elections, a Fed shifting its fight to the front of deflation, and a payroll report.
But first, today’s data from the Commerce Department showed consumer spending rose 0.2% in September, less than forecast, and incomes dropped for the first time in more than a year.
On a more positive note, manufacturing in the U.S. expanded more than forecast in October as the Institute for Supply Management’s factory index increased to 56.9, the highest since May.
Regarding the elections, the markets are expecting a Republican House, a Democratic Senate with less than a super-majority, and a tidal wave of Republican governorships. The markets, it seems, are eager for change in the political landscape and anything less than the above would disappoint equities and conceivably send bond prices higher (if it were not for the FOMC statement on Wednesday).
The market is expecting the FOMC to announce a second round of quantitative easing. Round two is expected to be $500 billion in size and include the purchase of Treasuries across the curve. If they surprise with something larger, this could send equities even higher and push bond yields lower.