Market commentary

This morning we were told personal income rose 0.4% in December, however, personal spending rose 0.7%, more than expected. Of course, with spending growing at a faster pace than incomes rose, the savings rate fell to 5.3% in December.

The markets have calmed despite the continued unrest in Egypt, with U.S. Treasury and mortgage prices flat from the close on Friday, and stocks trading slightly positive. The remainder of the week will provide substantial economic data as the calendar is full, culminating with Friday’s jobs report.

Market commentary

The U.S. economy, as measured by GDP, grew at a 3.2% in the fourth quarter, a faster pace than the third quarter’s 2.6% growth rate, but below the forecast of a 3.5% rate of growth. The positive signs in the report were personal consumption rose from 2.4% to 4.4% in the quarter driven by purchases of durable goods which rose a strong 21.6%. The Core PCE price index (an inflation measure favored by the Fed) continued its slowing trend falling to a 0.4% rate of increase in prices, the lowest rate of growth in the PCE price index on record.

In the final economic data release for the week, the Thomson Reuters/University of Michigan index consumer sentiment decreased slightly to 74.2 from 74.5.

As the GDP data was “old” news in the sense that it is backward looking, the markets are reacting today to weaker than expected earnings from Ford, GM and Microsoft. U.S. stocks are lower and we see a modest improvement in bonds.

Market commentary

Standard and Poor’s cut Japan’s sovereign debt rating today to AA-, the fourth highest rating S & P grants, putting Japan on par with China. In a warning that should get the attention of wealthy governments around the globe, fiscal responsibility is becoming a focus.

This morning the volatility in weekly jobless claims continues to complicate interpretations. Weekly claims rose to 454,000 in the most recent week, their highest level since October, and the four-week average rose to a seven week high.

The National Assn. of Realtors told us this morning that pending home resales rose 2% in December, which is a bit of good news for the residential real estate market.

Given the downgrade of Japan’s debt and the large increase in jobless claims one could have expected U.S. Treasuries to improve in price, however, the bond market is flat from the close on Wednesday as are mortgage prices.

Market commentary

Bonds are weaker this morning with the 10-year trading at 3.395% after dropping to as low as 3.31% Tuesday afternoon. New home sales for the month of December rose 17.5% month over month as many homebuyers jumped off the fence as they saw interest rates increasing. Almost all of the increase in home sales came in the West region. For all of 2010, new home sales fell 14% to 321,000 versus 2009 levels, and remain at depressed levels.
The Fed will end its two-day FOMC meeting today and makes its official rate announcement at 2:15 pm ET. All eyes will be on the details of the text today to see any nuances in the wording from the December statement given the four new voting members this year.

The markets have been unfazed by the President’s State of the Union address last night given that it was largely as-expected and lacking in details. Stocks are flat, Treasuries have given back much of Tuesday’s improvement, and mortgage pricing is about where it was Tuesday morning.

Market commentary

The U.S. housing market continues its struggle with value. This morning the S&P CaseShiller Home Price Index for November reflected more weakness in home prices. The 20 MSA index fell 0.97% month over month in November with the majority of metropolitan areas dropping more than 1.00%. Prices are 1.59% lower in November versus year ago levels.
An economic data bright spot came from the Conference Board, as they reported their index of consumer sentiment increased to 60.6 from 53.3 the prior month.
Recall that today begins the FOMC’s (Federal Reserve) first meeting of 2011, and their rate decision with the accompanying announcement is expected to be announced tomorrow at 2:15 pm ET.
Finally, the U.S. Treasury auctions 2 year notes today, with the results of the auction available at approximately 1:00 PM, ET.

Bond prices are slightly improved from the close on Monday, with mortgage pricing better by slightly less than .125%.

Market commentary

The U.S. bond market never recovered from Thursday’s positive economic data. Treasuries sold off throughout the day causing mortgage lenders to worsen pricing mid-day, and treasuries are slightly lower again this morning.

There was no economic data this morning, however, the markets did see better than expected earnings from GE and an unexpected loss from Bank of America.

Mortgage prices are a few basis points worse from the mid-day price change on Thursday.

Next week begins a two day Fed meeting with their announcement on Wednesday, a full economic data calendar, and the U.S. Treasury will auction 2 year, 5 year and 7 year notes.

Market commentary

Today’s economic data support the idea of a slowly recovering economy. Initial jobless claims fell back from the previous week’s elevated 441,000 to 404,000, Leading Indicators rose 1.00% after a 1.1% gain in November and Philadelphia Fed’s manufacturing index held steady.


The jobless claims report created some selling pressure on Treasuries and the 10-year note traded from 3.35% before the announcement to 3.40% shortly afterwards. The 10 year note is currently trading at 3.41%. Mortgages have given back all of Wednesday’s gains with pricing .255 to .375% worse from the mid-day improvement.

Market commentary

Bond prices improved this morning after Tuesday’s decline. In the news, mortgage applications for the week ending January 14th rose 5.0% on a 7.7% increase in applications for refinances, and a decline of 1.9% for purchase applications.

New housing starts fell more than expected from 553,000 in November to 529,000 in December, a 4.3% decline. However, in a bit of positive news in the housing sector, building permits rose 16.7% from 544,000 to 635,000 in December. This was the largest percentage increase since June of 2008 and comes despite the recent increase in mortgage rates.

Mortgage prices are .125% to .25% better from Tuesday’s close.

Market commentary

The bond market is continuing its decline from Friday, after flirting briefly with lower yields. The 10 year note began trading this morning at 3.28%, however, the positive move lasted briefly, and the yield has now risen to 3.39%.

There is very little economic data on the calendar this week, although we will get news on new housing starts and existing home sales. I expect the remainder of the week the U.S. bond market will focus on earnings and the continued European sovereign debt issues.

Market commentary

The Consumer Price Index rose 0.5% in December while the core CPI (ex food and energy) rose 0.1%. Year over year the headline CPI rose 1.5% which is the largest rate of increase since December 2009. However, core CPI increased only 0.8% year over year. Again, as with the Producer Price Index the biggest increases came from energy-related expenses and gasoline, up 4.6% and 8.5% respectively. Food costs also rose, as I discussed in Thursday’s commentary, although the U.S. is not experiencing the same phenomenon as other countries. Bloomberg news reported large crowds gathered today in the capital of Jordan to protest the rapid increase in food prices.

U.S. consumers are taking note of higher energy and food prices. As these prices increase consumers slow spending as noted in December’s retail sales data. Retail sales rose at a less than expected rate of 0.6% in December. and excluding auto and gas, retail sales rose only 0.4%.

The current strength in the U.S. economy is coming from the manufacturing sector as noted by the Industrial Production data, reporting an increase of 0.8% in December, the most in five months.

Ignoring the above expectations increase in the CPI, bond prices are improving this morning for a third day. Both Wednesday and Thursday mortgage lenders improved pricing mid-day. Not that I expect this will happen again today, but it is nice to go into the long weekend on a positive note.

Remember, HSOA is closed Monday, January 17, 2011 for the Martin Luther King, Jr. Holiday.

Market commentary

Producer prices increased 1.1% in December raising the year-over-year increase to 4.0%. Most of the increased prices were the result of oil and energy price increases; however, there is growing concern over the rapidly rising prices of food. Ex-food and energy PPI rose only 0.2% and 1.3% year-over-year.

Initial jobless claims rose 35k to 445k for the week ending January 8th. This is a significant increase given the positive momentum built around the recent drop in claims. This does not make for a new trend; but, next week’s release just became more important to see if this higher level of claims is repeated or if it is an anomaly.

Back to global food prices. Grain futures, particularly corn and soybeans, rallied Wednesday after a U.S. report warned of dwindling global supplies. Reuters and Bloomberg news services have both reported countries such as China, S. Korea, India, Philippines, and several African nations are banning grain exports from their countries, reducing tariffs on imports, and/or offering subsidies, all in efforts to control runaway food prices and defuse public protests. Food and energy prices will be a growing story in 2011.

Regarding the mortgage market, bond prices are flat from Wednesday’s close, so there will not be much change on today’s rate sheets.

Market commentary

Treasuries have sold off over the past 24 hours with the 10-year at 3.41%, 13 bps higher this morning than yesterday’s low. European worries were allayed by Spanish and Portuguese bond sales; the 10 year bonds sold by Portugal had strong demand at a yield of 6.716%, and Japan’s comments that they will be a big buyer of the soon-to-be-issued rescue funds helped support the auctions.

The U.S. Treasury will be auctioning $21 billion 10-year notes today, after yesterday’s 3-year note auction which had reasonable results that were improved over last month’s auction.

Mortgage pricing is approximately .50% worse from where HSOA priced Tuesday morning.

Market commentary

U.S. stocks are higher this morning after a strong earnings report from Alcoa gave a good start to the Q4 earnings season. Global markets continue to focus on the European sovereign debt problems which do not seem to be going away anytime soon. China and Japan were out in support of buying European financial aid debt, but one has to wonder how long this can go on. In reality it is the taxpayers of Germany and France that end up paying for these bailouts. If this were in the U.S. it would be similar to California asking Texas to help pay for California’s spendthrift ways.

Bond prices are faltering today with mortgages approximately .25% worse in price from the close on Monday. Later today the U.S. Treasury will auction $32 billion of 3 year notes so stay tuned, we could see additional volatility if demand is weak.
And finally, the U.S. Federal Reserve made a record profit last year of $80.9 billion, sending $78.4 billion to Treasury. The Fed’s 2010 interest expense was just $2.7 billion while operating expenses were $4.3 billion. This seems like a no-brainer business; create money out of thin air, buy bonds and collect the interest.

Market commentary

Today is a fairly quiet Monday morning in the bond market with no economic data on this morning’s calendar, but plenty of data will be forthcoming this week. Economic reports including Retail Sales and the Producer Price Index, in addition to auctions of 3 year, 10 year and 30 debt by the U.S. Treasury should make for continued volatility this week.

Last week, the first trading week of 2011, saw the resumption of volatility with the yield on the 10 year note trading as high as 3.49% and a low yield of 3.26%, closing the week at 3.30%. This morning we see a slight improvement in bonds with the yield on the 10 year note falling to 3.285%.

Europe is back in the news this morning as the European Central Bank is temporarily buying Portuguese debt in efforts to support that country as they enter the market this week for additional sales of their sovereign debt.

Market commentary

In a downside surprise to elevated expectations, the U.S. economy added 103k total jobs in December according to the nonfarm payroll report. Revisions added 70k to October and November’s figures. Private payrolls rose 113k, well below the expected increase of 178k

The unemployment rate fell from 9.8% to 9.4%, which on the surface does not make sense given the slack job creation. Keep in mind this is a separate compilation from jobs creation, in that this is a survey of households.

Fed Chairman Bernanke testified before the Senate Budget Committee this morning and defended the Fed’s QE2 program while chiding Congress on its inability to maintain fiscal discipline.

The U.S. Treasury market reacted favorably to the weaker than expected jobs data with the yield on the 10 year note falling from 3.41% at the open to 3.34%.

Market commentary

Initial jobless claims bounced back above 400k for the week ending January 1 after having fallen below the important mark for one week. The markets have rebounded slightly from Wednesday’s drubbing; however, trading today will be with the specter of tomorrow’s payroll report looming large. There are plenty of reasons to believe that the report will surprise to the upside following a recent retreat in the number of initial jobless claims applications and the shockingly strong ADP employment report yesterday. However, there are also reasons to believe the report will not be as strong as ADP predicts given the downtick in the employment subcomponents of the ISM reports. A revised Bloomberg poll of economists now puts private job growth at +175,000, up from previous estimates of +150,000. These expectations are currently priced into the stock and bond markets. Any surprise to the upside will definitely move interest rates higher.

Market commentary

The ADP Employment Report for December is a gasper coming in at +297,000. This is the largest monthly increase in the ADP employment release in the history of the report. Small firms added 117k jobs, medium-sized firms added 144k jobs, and large firms added 36k jobs. The 10-year Treasury was trading at 3.30% prior to the ADP release but has since sold off to 3.40%, down almost a full point.

In addition to the strong employment report from ADP, the Institute for Supply Management’s non-manufacturing index also came in above expectations at 57.1 for December, the best reading since May 2006. As can be expected now, the prices paid component of the report rose from 63.2 to 70.0. New orders jumped from 57.7 to 63.0. However, the backlog of orders fell below the 50.0 hurdle rate to 48.5, a 3 point drop versus November. Employment dropped from 52.7 to 50.5, but remained marginally above the 50.0 hurdle rate. Given the strength in this report the 10 year note is continuing to worsen, now trading at 3.455%!

Finally, the FOMC released their December meeting minutes yesterday. Despite the better economic data, the FOMC is not ready to change their QE2 program saying that “nearly all committee members agreed to continue” with the program. They are disappointed that policy has not helped to bring down the unemployment rate yet. It appears from the minutes that the Fed will continue with QE2 so long as unemployment remains elevated, inflation does not become a concern, or growth does not pick-up well above trend.

Mortgage prices are worse today between .375% and .50%.

Makret commentary

New orders at U.S. factories rose 0.7% in November handily beating the estimated growth of 0.1%. Stocks continue into positive territory on this news adding to gains from the first trading session of 2011. Bond prices are moving higher as well, meaning interest rates are slightly lower. The benchmark 10 year note is trading at 3.31% this morning and mortgage prices are better by approximately .125%.
Later today the Fed will release the minutes from the December Federal Open Market Committee meeting. Most attention will be paid to what the committee said about the market response to QE2 (the second round of quantitative easing).

Market commentary

We start the first week of January 2011 with a busy economic calendar which includes the monthly jobs report. Analysts and traders will try to handicap the jobs data from the employment components of the manufacturing and ADP reports that are scheduled for release this week, but as of today the forecast is for a 9.7% unemployment rate vs. 9.8% in November, and job growth of 135,000 vs 39,000 the previous month.

This morning’s report on manufacturing reflected continued growth as the ISM index rose to 57 from 56.6. The strength in the U.S. and European manufacturing reports has pushed stock markets higher and we see Treasuries trading weaker as the holiday weekend hedges are unwound.