Market commentary

This week will be full of economic news with several critical data releases and Fed Chairman Bernanke’s semi-annual Humphrey Hawkins testimony before both chambers of Congress. In today’s data, personal spending in January rose only 0.2% versus expectations of 0.4%, while personal incomes rose a stronger than expected 1.0%.

The Institute for Supply Management-Chicago Inc. said today its business barometer for the manufacturing sector rose to 71.2 from 68.8 in January. This is the highest level since July 1988. Recall that a number greater than 50 signals expansion. On Thursday this week, we will see the gauge for the non-manufacturing sector which covers nearly 90% of the U.S. economy, and will tell us if the economic recovery is broad based.
The week will be capped off by the February labor reports including the official unemployment rate and the monthly change in non-farm payrolls. The unemployment rate is estimated to increase from 9.00% to 9.10% and payrolls are expected to increase by 179,000.

Of course the events in the Middle East and North Africa continue to be a focus for the stock and bond markets as does the brewing clash between Republicans and Democrats over a continuing resolution for the budget. A resolution must be passed by Friday, March 4th, lest the government shut down.

Bond prices are flat from the close on Friday as are mortgage prices.

Market commentary

The Thomson Reuters/University of Michigan reported its consumer confidence index climbed to 77.5 from 74.2 in January. And the Commerce Department revised 4th quarter GDP slightly lower to +2.8%, however, this is backward looking data and did not effect the markets.
In fact, the bond market is ignoring the economic data and instead focusing on stocks, oil, and Libya, bond prices closed higher on Thursday. The oil worries were eased somewhat as Saudi Arabia said it would make up any Libyan shortfall. After trading well above $100 per barrel Thursday morning, NYMEX crude closed the day lower at around $97 per barrel.
This morning, bonds are reversing the week’s trends trading a bit lower with stocks up nicely for the first time this week.

Market commentary

Treasuries prices are improving/interest rates falling, again this morning with the 10-year trading at 3.43%. The strong bid appears to be based partly on a flight to quality from the world unrest and partly on concerns that the rising oil prices could quell what is already a weak economic recovery. Gasoline prices are rising with the average price across the U.S. higher by over 50 cents per gallon since last February.
Durable goods orders rose 2.7% in January but fell 3.6% ex-transportation, making the overall weaker than expected.
Initial jobless claims fell back below the 400k mark to 391k for the week ending February 19th. The four-week moving average fell from 418k to 402k. The moving average is finally within striking range of the elusive 400k mark, which could be a positive for the next payroll report due a week from tomorrow.

Market commentary

The National Association of Realtors told us sales of previously owned homes increased 2.7% in January, an unexpected increase. Of those sales, 37% were distressed sales and 32% were all cash.

While this is relatively good news, the markets remain focused on the event in North Africa and the Middle East. With the Wall Street Journal reporting Libya is the 10th largest exporter of oil in the OPEC, oil prices continue to rise dramatically as conditions in Libya deteriorate.

Again this morning there is a slight flight to safety in the U.S. Treasury market with mortgage prices higher by approximately .125%.

Market commentary

Consumer confidence as measured by the Conference Board rose to a 3 year high in February, even as home price continue to falter. The S&P/Case Shiller index declined 0.4% in December 2010, and declined 2.4% year over year.
Stock and bond markets are generally ignoring the economic data as the focus is on events in the Middle East. Attention continues to focus on protests which turned especially violent in Libya with the Kadafi regime seemingly falling apart. The unrest in Libya is disrupting some oil shipments and, combined with continued protests in Bahrain and other Middle East countries, is shaking world energy markets. US crude oil futures are up sharply to a two and one-half year high this morning.
The U.S. Treasury market is seeing a flight to safety bid again this morning as we see the yield on the 10 year note fall below 3.50% to 3.49%. Mortgage prices are improved by approximately .375%.

Market commentary

Today, the economic calendar is dormant but there are still plenty of news items to watch. The Middle East situation continues to evolve and concerns are spreading to the oil markets. If you live in southern California, as I do, you are now paying almost $3.50/gal for regular gasoline. Bond prices have given back much of Thursday’s gains, so if you took advantage of the market yesterday and locked your loan(s), congratulations. This is no market to play with, just take what it gives you.

Monday is the President’s Day Holiday and Home Savings of America offices will be closed, as will the HSOA lock desk. Enjoy your long weekend!

Market commentary

An abundance of economic data and escalating unrest in the Middle East have the U.S. bond and stock markets in a quandary this morning. In the first of today’s economic releases, the initial jobless claims for the week ending February 12th rose from 385k to 410k, slightly above economists’ projections, and signaling continued weakness in the job market. Consumer prices, as measured by the Consumer Price Index rose slightly more-than-expected in January with the headline CPI rising 0.4% in January or 1.6% year over year. The monthly increase is largely attributed to rises in energy (up 2.1%) and food costs (up 0.5%). This increase in food prices is the largest since September 2008.
From the manufacturing sector, the Federal Reserve Bank of Philadelphia’s general economic index rose to 35.9, the highest level since January 2004, and the Conference Board told us its index of Leading Economic Indicators rose 0.1% in January. This is the seventh consecutive month LEI has been positive, which indicates the U.S. economy should continue its expansion for the next 3 to 6 months.

Back to the topic of inflation, the price of cotton topped $2 a pound today in New York trading, for the first time ever. Grain and soft commodity prices are on a steady march higher, as are energy prices.

Speaking of energy prices, the continued unrest in the Middle East and now the threat that Iran will send two warships through the Suez Canal has oil and gold prices higher.

So what do you do with all of this information? The positive economic data coupled with the prospect of higher inflation should have moved interest rates higher. Instead, we see a flight to safety bid in the U.S. Treasury market as global investors take note of the tensions in the Middle East. I believe this gives us a great opportunity to lock in decent rates and prices on your mortgage loans. At the open this morning we saw the yield on the 10 year note drop as low as 3.55%, and it is currently trading between 3.57% and 3.58%. Prices on mortgages have improved by .375% to .50%.

Market commentary

This morning’s Producer Price Index reflected an increase of 0.8% in January, in line with economists’ expectations, and representing the seventh consecutive monthly increase in producer prices. Core prices, which strip out volatile food and energy costs, rose 0.5%, the largest monthly gain since 2008. Food prices rose 0.3% while energy prices rose 1.8%. Some of the price increases of raw materials, along with the increase in energy costs, are being pushed through the production process. However, a lot of the price increases are being absorbed by manufacturers before making their way to consumer prices. Thursday we will see the Consumer Price Index.
Housing starts were reported higher, however, this was due entirely to a rise in multifamily starts which rose 78%. Building permits for the month dropped 10%.
This afternoon the Fed will release the minutes from its last meeting, which will be the last piece of economic data for today.

Market commentary

Weaker than expected retail sales helped revive bond prices this morning. Retail sales rose 0.2% in January, below economists’ expectations of a 0.4% rise, and December’s figures were revised downward from 0.4% to 0.1%. The weaker than expected January data along with the December revisions lower are troubling for a recovery counting on renewed consumer spending.
Import prices, an inflation measure, rose 1.1% month over month and 5.3% year over year in January. Both increases were larger than expected as food and energy prices continue to rise.
Mortgage pricing is .10% to .15% better than Monday.

Market commentary

This will be a busy week on the economic data front, although there are no releases today. Important items on this week’s calendar include Retail Sales, the Consumer Price Index, the Producer Price Index, Leading Economic Indicators and the minutes from the last Fed meeting.

As a follow-on to Friday’s bond market rally, Monday morning is treating us to some additional price improvement. Mortgage pricing is better by .10% to .15%.

Market commentary

After falling for seven straight trading sessions, bond prices rose on Wednesday. The rally was fueled by strong demand for the Treasury’s ten-year note auction, the absence of anything surprising in Fed Chairman Bernanke’s testimony to Congress.

This morning, bond prices have given up some ground following the release of the latest weekly jobless claims data. Initial claims fell to 383,000, the lowest level since July 2008. While the Labor Department said that the claims data is still being influenced by weather issues, the claims data continues to tick lower fairly consistently as measured by the less volatile four-week average which fell to 415,000.The U.S. Treasury will auction $16 billion of 30 year bonds today, so we are not yet out of the woods in terms of volatility

Market commentary

Interest rates spiked Tuesday afternoon in the aftermath of a poor 3 year note auction. Even the Fed’s $600 billion buying spree of U.S. Treasury bonds is not enough to keep interest rates from climbing in the face of generally positive economic data and perceived inflation. Regardless of the inflation measures touted by the U.S. and the Fed, the price of food, oil, gasoline and other energy related items have risen sharply. These are items folks spend money on daily, and the more food and energy costs, the less disposable income available for discretionary spending, or a new house.

Fed Chairman Bernanke, in his testimony to the House Budget Committee this morning, remarked that inflation is too low, the jobless rate is too high, and job creation is nil. I think we can agree on the later two items.

Today the U.S. Treasury auctions $24 billion of 10 year notes. Cross you fingers and hope for buyers to show up at this auction, otherwise a repeat of Tuesday will be in the near future. We will see the results at approximately 10:00 AM, PT.

Thankfully, bond prices have bounced slightly this morning, but this is tentative at best.

Market commentary

The U.S. economic calendar is blank today, however, news regarding FNMA and FHLMC, another rate hike in China, and the U.S. Treasury’s auction of $32 billion of 3 notes are all effecting the bond market today.

For the second time in a just over a month China has raised interest rates in an attempt to cool down inflation, projected to be over 5% for January and to reign in the problematic real estate bubble.

We are also seeing MBS under perform the Treasury market, which in my opinion is a result of next week’s Treasury Department announcement on the overhaul of Fannie Mae and Freddie Mac. It is rumored the Treasury’s plan calls for a reduction in the government’s share of the U.S. mortgage market from the current 95% to less than 50%. In addition, Treasury is expected to propose reducing the maximum size for mortgages guaranteed by the government to $625,500 from the current $729,000 in high cost markets.

And finally, the bond market is waiting to see how much demand is out there for the $32 billion of 3 year notes that will be auctioned this afternoon.

Mortgage bonds have given back all of Monday afternoon’s gains---you should have taken advantage of that while we had it.

Market commentary

If you did not lock your loan last week disappointment will greet you this morning as interest rates are again creeping higher. The yield on the 10 year note has risen to 3.675% and prices on mortgages are .20% to .30% worse from the close on Friday.

Economic data this week is sparse; however, the U.S. Treasury will auction $32 billion of 3 year notes Tuesday, $24 billion of 10 year notes Wednesday and $16 billion of 30 year bonds on Thursday. This leads me to an article from Bloomberg which reported “more than 40% of the Treasuries purchased by the Fed in January’s QE2 operations were new issues (issued in the past 90 days). That percentage is up from 20% in December and 15% in November. The Fed has displaced other large buyers such as China and primary dealers as the largest buyer of Treasuries for the time being. With supply weighing on the market this week, it is a good thing the Fed is there to amplify demand”.

Market commentary

No economist or analyst could have anticipated January’s employment reports, with the household survey showing a substantial drop in the unemployment rate but the payroll report showing continued weak job growth. The variance in the figures is being blamed on the weather by economists who previously have made a big ordeal about the fact that weather would not affect the numbers. Nonfarm payrolls increased only 36,000 with private payrolls increasing 50,000. They were expected to increase 146,000 and 145,000, respectively. It seems unlikely that a 9.0% unemployment rate will be sustainable given the weak pace of job growth.

The bond market reaction to the data has traders and investors erring on the side of a strengthening economy and job growth. Treasuries sold off causing the yield on the 10 year note to spike to 3.64% after closing at 3.55% Thursday. Mortgages are worse in price by .375% to .50%.

Bullish economic reports this morning have put pressure on bonds, and frankly, given the strength of today’s data we are lucky to have the 10 year note holding at a yield of 3.51%.
The Institute for Supply Management’s non-manufacturing index rose from 57.1 in December to 59.4 in January, its most bullish reading since 2005. Economists had expected only a marginal increase in the service sector report to 57.2. The ISM non-manufacturing report covers a broad mix of the U.S. economy, which includes almost 90% of activity.

In addition to the ISM report, U.S. worker productivity rose 2.6% in the 4th quarter, rising 3.6% for the entire year, while unit labor costs, a measure of inflation, dropped 0.6%. According to Bloomberg, unit labor costs have fallen 1.5% in 2010 marking the second consecutive annual decline, the first time that has occurred since 1962-1963.

Initial jobless claims dropped back to 415,000 from 457,000 for the week ending January 29. The story told by the weekly jobless claims data tells us job losses have slowed, but job creation has not picked up as much as needed. Remember, we will get the January report on net payrolls in the nonfarm payroll report tomorrow morning.

Given the continued unrest in the Egypt and the Middle East, the U.S. markets still show no signs of concern and no flight-to-quality, as evidenced by the sell-off in bonds. As mentioned at the top of this report, the sell-off in the10 year note has pushed the yield to 3.51%.

Market commentary

The ADP employment report predicts a gain in nonfarm payrolls of 187,000, 47,000 more than economists are projecting for Friday’s payroll report. Historically the ADP report has been a reasonable predictor of the private nonfarm payroll report, but some of that credibility was lost last month. You may recall ADP then projected private job growth of 297,000 but the payroll report only showed an increase of 113,000.

Friday’s Labor Department report is projected to show 140,000 new jobs were added in January the unemployment rate rising to 9.5% form 9.4%.

This morning bond prices have turned lower, yields higher, with the 10 year note currently trading at 3.47%.

Market commentary

The Institute for Supply Management’s factory index rose to 60.8 in January, reflecting accelerating growth in the U.S. manufacturing sector. In positive news for the labor market the employment gauge of this report showed manufacturers are more willing to hire as sales pick up. This is supporting data for the 140,000 new jobs created in December that Friday’s payroll report is estimated to show.

U.S. stock markets moved sharply higher on this data, ignoring the continued unrest in the Egypt and the Middle East, and U.S. Treasury prices fell, sending the yield on the 10 year note back to 3.44%. Recall that last Friday we briefly touched a yield of 3.31% on the 10 year note. Mortgage prices are approximately .375% to .50% worse than Monday.